Gas leasing in Western Maryland spurs calls for reform

OAKLAND — — The first natural gas well has yet to be drilled into the Marcellus shale deposits underlying Western Maryland, but ripples already are being felt here from an industry that has brought wealth — and controversy — in neighboring states where drilling has proceeded apace.

Complaints from landowners about misleading pressure tactics by drilling company agents and concern that widespread leasing for mineral rights could hurt home sales are prompting calls for legislation to change the state's laws on leasing of land for gas and possibly other energy development.


"Basically, these leases should be protecting both the landowners and the community, and they're just not," said Natalie Atherton, acting director of CitizenShale, a group recently formed to see that the residents in this economically depressed mountain region are not short-changed if gas is found, and in any case aren't left with contaminated streams and wells and other harm.

Years ago, amid geologists' predictions that they were sitting atop a vast, untapped wealth of natural gas, hundreds of landowners in Garrett and Allegany counties eagerly signed leases to allow wells to be drilled on their land and to receive royalties on any gas found there. But some who were among the last to sign say they felt pressured to do so and misled about the risks of the hydraulic fracturing technique that would be used to extract gas from rock formations thousands of feet below their homes.


Others who agreed to lease payments of as little as $5 per acre per year feel cheated after finding that neighbors got far more. Those having second thoughts say they feel trapped, unable to get out or renegotiate, because many of the leases renew automatically without their approval if the company exercises its option.

Industry officials predict that as many as 1,600 wells could be drilled on 128,000 acres already leased in Garrett County, and 637 wells could be sunk on 51,000 drillable acres in Allegany County, according to the Maryland Department of the Environment, which regulates drilling.

The O'Malley administration is holding up requests to drill into the state's Marcellus deposits as it conducts a three-year study of the health, safety, environmental and resource issues surrounding shale gas development. In particular, officials are weighing the risks of hydraulic fracturing, or "fracking," in which a mixture of water, sand and chemicals is pumped thousands of feet below ground to break the gas loose from the layers of rock.

The jobs, royalty payments and tax revenue the gas production could bring are welcomed by elected officials and many leaseholders in the mostly rural region, which lags behind the rest of Maryland in employment and income. Some of the area's representatives are eager for drilling to begin and reluctant to add regulations that would slow the process.


Others have grown increasingly wary amid reports of streams and wells contaminated with methane or chemicals involved in the drilling process, of spills, fires, explosions and other problems.

"We really didn't realize the impact five years ago of the hydrofracking process," said Dana Shimrock, 62, who lives in northern Garrett. She said she and her husband, Tom, 61, a retired art teacher and woodworker, signed a lease paying $5 an acre in 2006 on their 50 acres but only after they were repeatedly told by leasing agents that all of their neighbors had signed and they were going to miss out if they didn't get on board. The Shimrocks, like many residents, made agreements without consulting a lawyer.

Dana Shimrock, library director at Garrett College, rues the bottom-dollar lease they signed without dickering, but says she feels especially upset and misled about what was involved in the drilling. While many of the chemicals used are harmless, some are carcinogens or otherwise harmful, such as benzene or lead, according to a congressional report this year.

"I specifically asked them what was in this water that they injected, the high-pressure water," Shimrock said. The agent "told me it was water and sand. They never disclosed there were any chemicals in that solution at all."

The Shimrocks signed a lease with the Keeton Group, a company based in Lexington, Ky. Keeton sold its leases to Chief Oil and Gas LLC of Dallas, and Chief is transferring the leases to Chevron Corp., a major multinational oil and gas company based in California.

Shimrock said she and her husband have "put a lot of blood and guts" into fixing up the 74-year-old house in which they've lived for 35 years. "We do organic farming here; we've planted trees. We really developed our land, and we just really regret we have this lease that could devalue the land and destroy the property."

Under their lease, the couple would get an industry standard 12.5 percent of the proceeds from any gas extracted from their property.

"Maybe we would make money on it," Shimrock said, "but for us it's not worth the risk."

The Shimrocks' lease was scheduled to end in July, but it contains a common provision that enables the company to renew it automatically, regardless of what the landowner wants. Shimrock says they have consulted lawyers, who told them there's nothing they can do.

Kristi Gittins, a spokeswoman for Chief, said she can't address what agents for Keeton might or might not have told the Shimrocks and others but contended that when the leases were signed, "there hadn't been problems" that warranted disclosure.

Despite reports of problems — and a recent study by the Environmental Protection Agency that concluded that hydraulic fracturing contaminated ground water in Wyoming — Gittins said there have been only "a few isolated incidents" that were magnified by news coverage.

As for automatically renewing leases, she said Chief doesn't give up a lease as long as there is a prospect of getting gas from it. "Holding leases, it's at the core of our business," Gittins said. "It's never any company's goal to lose a lease or let them expire."

Karla Riley, who with her husband, Bob, raises cows on a 120-acre farm near Oakland, says they were able to negotiate a $25-per-acre lease rate three years ago when the "land men" came calling. They have used the money to fix up their place and felt tapping shale gas was a good way for the nation to reduce its dependence on imported oil.

But Riley, 62, says she became disillusioned as she heard about problems associated with shale gas drilling in Pennsylvania and elsewhere. Now she's worried that drilling could foul their well or the springs they use to water their cows, and could render unsalable the home she and her husband built with their own hands.

"We were OK with it as long as it's OK," she said. "But nobody told us. Why would you cut your throat for a glass of water?"

The Rileys signed a lease with Magnum Land Development, a leasing firm based in Traverse City, Mich. Phone calls to the company seeking comment were not returned.


Maryland Attorney General Douglas F. Gansler's office has a task force studying leasing issues, and it has issued two memos, including one offering tips for owners on what to look out for in considering leasing their land for gas drilling. His office has also warned that gas leases could jeopardize their mortgages, because they could run afoul of federal agencies or government-backed entities that underwrite or guarantee more than 90 percent of mortgages in the United States.


But there do not appear to be any clear-cut legal avenues in Maryland for revoking leases or going after leasing agents for alleged misrepresentations. Energy leasing is not covered under the state's consumer protection laws, says Erin Fitzsimmons, Gansler's special assistant for the environment, and Maryland lacks a fraud statute that might enable prosecution for deceptive practices.

Garrett County's Board of Realtors is growing concerned about the impact shale gas leasing might have on property sales. Paul Durham, the board's director of government affairs, said real estate agents are increasingly being asked by prospective buyers about gas leasing in the vicinity of properties up for sale.

"That's starting to become a question we can't answer," he said.

That information is not easy to come by without a costly title search, Durham says, because of the way leases are recorded in county land records. Real estate agents also worry that banks and other lenders might begin to deny mortgages or foreclose on properties that are leased for drilling, as has reportedly happened in New York.

Believing that more information will help, the Realtors called for establishment of a public lease registry in a letter to the commission appointed by Gov. Martin O'Malley to advise his administration on shale gas issues.

Western Maryland's elected officials say they're studying whether to pursue registry legislation but aren't sure how to make it workable or whether it is needed. And if shale gas leases must be registered, they ask, why not those for coal, wind turbines or any other activity on land?

"The government can't take care of everything that someone might think needs to be done in leases," said Sen. George C. Edwards, a Republican who represents Garrett and Allegany counties. He suggested that the details of a lease, particularly money issues, are between the landowner and the lessee.

"I feel for some of these people that signed some of these leases for $2 an acre, $5 an acre, when now you can get considerably more than that,'' Edwards said.

He says he routinely advises constituents to consult with a lawyer before signing anything.

But it's not that easy to get informed legal advice about gas leasing, says Dusty Horwitt of the Environmental Working Group. The Washington-based advocacy group recently published a report on leasing practices in five states, including Maryland, in which it contends that drilling companies routinely disclose to shareholders and potential investors a variety of risks involved with shale gas development, including leaks, spills, explosions and blowouts, but make no mention of them to landowners.

Horwitt said attorneys in Colorado, New York and Virginia told him that relatively few lawyers are experienced in advising landowners about energy leasing.

Del. Heather R. Mizeur, a Montgomery County Democrat, said she's prepared to introduce legislation to address the concerns of landowners and real estate agents. "There's no reason why Wall Street investors should have more information about the riskiness of this practice in order to protect their financial investment in the company," Mizeur said. "Why should that outweigh the impacts on landowners who are engaging in these leasing practices?"

Mizeur said the full text of the leases ought to available to the public, rather than the vague summaries often filed.

Paul Roberts, co-owner of a winery near Friendsville and a member of the CitizenShale group, said the issue goes beyond one of whether hydraulic fracturing or shale gas development could cause environmental harm.

Roberts, who did not lease the mineral rights under the vineyard, said that by leaving Garrett residents largely in the dark about what leases have been negotiated around them, the county and state are depriving residents of income and missing out on much-needed tax revenue to keep public services running.

"We're getting ready to close up to four schools over about a $1.5 million budget gap that could easily have been filled if this lease registry had been in place," he said.

"People would have been far better educated, able to get information about lease prices, and our county's residents would be much wealthier," he said in an email. "Instead, a bunch of tycoons in Texas and Oklahoma made all the money, and the state of Maryland taxed very little of it."