Spectra Energy Watch

Man on Fire:

Lease Owner Now Gas Industry Critic,

Based on Experience with Range Resources;

Company Treated Property Like Landfill, He Says

Visits Clearville, PA; Comments on Spectra Energy

Ron Gulla is a man on fire.  He is unrepentant in his criticism of the gas industry, based on personal experience with Range Resources, a company that Spectra Energy calls “the leading Marcellus Shale producer.”

Type Gulla’s name into an internet search engine like Google, and his name produces twenty times more hits than Range Resources’ CEO, John Pinkerton Cramer - more than 200,000 (and rising) for Citizen Gulla versus about 10,000 for CEO Cramer.

Ron Gulla owns a 141-acre farm in Hickory, Pennsylvania, and says Range drilled a Marcellus well on his property in 2005 - the second Marcellus well drilled in Pennsylvania.

His business relationship with Range Resources - begun on a hopeful note in 2002 when he signed the drilling lease - went south fast; and is now embroiled in a lawsuit filed by Gulla.  With experience in the equipment side of the oil and gas industry, Gulla alleges that:

• Range Resources treated his farm “like a landfill,” and “some DEP reps are lying so badly, they should be in prison.”
• Range Resources contaminated his 2.5-acre pond in 2006.
• Range Resources put mill slag on his property for a road, and the slag contains heavy metals.  (Slag is a waste product of metal production, such as from a steel mill.)

Today, Gulla seems to be everywhere “trying to educate folks as to what is going on with gas drilling in Pennsylvania and elsewhere.”

He works with groups like Damascus Citizens for Sustainability and the Pittsburgh chapter of Clean Water Action.  He distributes copies of the film Split Estate for showing to groups, and is in communication with Debra Anderson, the director/producer of the film.  [See "Links & Resources" below.]

He talks to landowners, legislators and Ph.Ds.  Property owners from as far away as New Mexico contact him to share information.

Advice to Property Owners

For property owners wondering whether they should sign gas leases, Gulla’s advice is:  “Never lease.  Why would you want someone to come on your property and dump chemicals?”

Even with his experience selling equipment to the gas industry, he did not realize at the time, for example, that the industry is exempt from disclosing the chemical content of fluids used in the hydraulic fracturing process.  This is the drilling technique used to drill horizontal wells in the Marcellus Shale.  He admits that he did not research it back then; and he wants other landowners to avoid his mistake.

“These are not the ‘mom and pop’ gas wells drilled years ago,” Gulla told this blog.  “Gas wells today are a totally different animal; there is so much more pressure blown into the ground.”

Range Resources

Matt Pitzarella is Public Affairs Director of Range Resources’ Marcellus Shale Division, and is based in Canonsburg, Pennsylvania.

In a conversation with this blog, he disputes claims that Range Resources contaminated Ron Gulla’s pond.  “His claims of water contamination have been investigated and proven unsubstantial.”

He agrees that, “The state was not used to modern natural gas development.  It is a matter of an evolution.  Now it makes more sense to update and enhance current regulations.”

Hiring State Employees

Last year, Range Resources issued a press release commending Pennsylvania Governor Rendell and the Department of Environmental Protection (DEP) for “an improved Marcellus Shale … regulatory program” and for the formation of a joint DEP/Industry partnership.  Link to pdf file:  range-commends-1-09

In October, Governor Rendell’s executive deputy chief of staff, K. Scott Roy, left his government job to join Range Resources as vice president for government relations and regulatory affairs.  The company press release cited Roy for his public service experience, including, “acting as the Governor’s liaison to various regulatory and environmental agencies.”  Link to pdf file:  rr-hires-scott-roy

Range Resources is also hiring DEP field staff because “the industry is going to have to self police itself in order to regulate itself,” Pitzarella said.

Pennsylvania Lobbying $$$

In addition, the company spends money at the state and federal level to lobby legislators.  In Pennsylvania alone, the total spend for Range Resources lobbying for 2009 was $307,136, as reported on the Pennsylvania Department of State website.  [See "Links & Resources" below.]

In similar fashion, its industry colleague and partner in a “binding agreement,” Spectra Energy, spent nearly $200,000 in Pennsylvania alone in 2009, as reported on the Pennsylvania Department of State website. [See "Links & Resources" below.]

Thus, just two energy companies spent one-half million dollars last year lobbying in one state.  That figure does not include money spent in other states and at the federal level.

Relations with Ron Gulla

When asked what went wrong in the relationship between the company and Gulla, Pitzarella said, “I can’t tell you why that relationship soured.  I think, early on, there were probably some mistakes that were made in communications.  We are dealing with emotion - we have not been able to have a civil discussion.”

“Range is the leader in the Marcellus,” Pitzarella said.  “We pioneered it.  The actual discovery happened October 24, 2003 in Washington County, Pennsylvania.  It was the first Marcellus well in the state.”  (The well, known as Renz #1, was “completed” in October of 2004; and gas production from the well began in 2005.)

“Ron was in the middle of the evolution of the industry - we’re doing better now.”

According to Pitzarella, it is in the company’s interest to follow regulations because it has more than one billion dollars invested in the Marcellus in Pennsylvania.  [See "Links & Resources" below.]

“I don’t think the industry has done a very good job in being transparent and educating the public,” he acknowledges.  “Skepticism is a good thing.  We can’t live in a ‘trust us’ environment.  We need to deal with the facts.”

Gulla is a confirmed skeptic who does not trust the gas industry; and transparency is his mission.

Spectra Energy in Bedford County, PA

He has traveled to many places in Pennsylvania and New York, getting out the word and talking with landowners dealing with the gas industry.  This includes Bedford County, PA.  While there, he met with Wayne and Angel Smith, who are dealing with contaminated water on their property in the Clearville area and who have filed a lawsuit against Spectra Energy.

Spectra Energy operates a 12 billion cubic feet underground natural gas storage field in the Clearville area of Bedford County.  The company injects gas into a “depleted” reservoir in the Oriskany formation for a fee.  It then withdraws gas, for example, and moves it through its Texas Eastern pipeline system for sale in the northeast.

A nearly 5,000 horsepower compressor is used to inject and withdraw gas.  Since late August, there have been at least four unplanned shutdowns of the compressor.  The first shutdown resulted in release of gas and an oily contaminant over neighboring properties including gardens and ponds.

To date, Spectra Energy has received two notices of violation from the DEP for “unlawful conduct.”

After visiting Clearville, Gulla told this blog:  “This part of Bedford County is a gorgeous area, but it is in a terrible situation.  It made me sick to see what is happening there since Spectra Energy’s storage field began operation.  Dead live stock; residents complaining about various health symptoms, from numbness and twitching to visible growths or tumors and elevated arsenic levels.”

Miracle of the “Breathing” Waters

After meeting with numerous residents, he was given a tour of the Clearville area as it relates to Spectra Energy’s compressor station.

Property Owners Angel and Wayne Smith told Gulla and this blog that they suspect Spectra Energy’s storage field operations could be connected to the water aquifer, because when Spectra Energy’s compressor station is operating, the Smiths can observe the rising and falling water level in their well, their pond and a creek.

For example, when the company takes gas out of the underground storage field, it pulls water with it - the pressure is released and the water level in the pond and creek drops.  When Spectra Energy’s compressor shuts down or stops pulling out gas and water, the water level in the pond rises.

“The level in the pond has dropped more than 3 feet at times,” Angel said.  “So when the compressor is operating, the water level drops.”

‘Something is Wrong’

According to a source familiar with gas operations, “Something is wrong.  I suspect that one or more of Spectra’s storage wells has a defective surface casing and is not protecting the fresh water aquifers/zones in the storage formation; and may be causing contamination to all linking fresh water aquifers/zones in the area.

“This shouldn’t happen,” he said, “if the fresh water sands or water acquifers/zones were being adequately protected and sealed by Spectra’s surface casing in each of Spectra’s wells.”

As property owners fighting for their rights and their health, the Smiths admire what Ron Gulla is doing.  “He is such a wonderful person, words can’t express how highly Wayne and I think of him and what he is doing for property owners,” said Angel Smith.

Ron Gulla is a man on fire.  And he is bringing that fire to the gas industry.

Links & Resources

Gas Wells Are Not Our Friends website:

http://dearsusquehanna.blogspot.com/2009/06/ron-gulla-and-don-barber-speak-ay.html

Ron Gulla on video speaks at Broome Community College, NY (10 minutes)

Split Estate - a high-quality, 76-minute documentary film about the challenges faced by property owners in several western states as they deal with energy companies that seem to have no boundaries.  The title refers to the fact that in these states, mineral rights are often severed from surface rights in such a way that property owners have little control over their property.  Health and environmental problems follow.  Link:  http://www.splitestate.com/

Damascus Citizens for Sustainabiity (DCS) - a grassroots group in Damascus, PA.  Link: http://www.damascuscitizens.org/index.html

Clean Water Action - a grassroots environmental action group with national reach.  Link: http://www.cleanwateraction.org/

Range Resources 2009 Lobbying Expenses in Pennsylvania - pdf file from the Pennsylvania Department of State:  rr-lobbying-09

Spectra Energy 2009 Lobbying Expenses in Pennsylvania - pdf file from the Pennsylvania Department of State:  se-pa-lobbying-09

Range Resources:  Marcellus Shale Best Practices - Two-page pdf file provided by Range Resources on its commitment “to responsibly developing our nation’s natural gas reserves.”  range-best-practices

Underground Gas Storage Leases

Driven by Threat of Eminent Domain;

Very Different From “Drilling” Leases

Toss Old Playbook;

Negotiate Smart, Identify True Comparable Value!

For landowners who want the best gas or mineral lease deal, your benchmark isn’t the person next door, or the “real estate” appraisal of your property.  It just might be the lease deal your government gets for public lands (which you pay for with tax dollars).

This is true even in cases where property and/or property rights are seized under the threat of eminent domain, such as underground natural gas storage fields or gas pipelines.  Storage leases are not mineral leases, and they come with their own challenges.

Storage leases often involve the threat of eminent domain.  Several states will see an increase in “taking” of private property rights for pipelines and underground gas storage fields.¹ (See Links & Resources at the bottom of this post for government details on underground gas storage fields.)

In the Northeast, much of that activity will be driven by gas and pipeline companies eager to cash in on the gas-rich Marcellus Shale.  This geological formation runs through parts of Pennsylvania, New York, West Virginia and Ohio.

We’ve also talked with property owners in Western states who are fighting underground gas storage fields.

A recent Pittsburgh Tribune-Review report on pipeline expansions in Western Pennsylvania says it all in this headline:  Texas Eastern Transmission’s tactics leave landowners feeling bullied.  Texas Eastern is the pipeline division of Spectra Energy; and it is bringing the threat of eminent domain to Pennsylvania and New Jersey.  Pdf file: texas-eastern-transmissions-tactics-leave-landowners-feeling-bullied-pittsburgh-tribune-review

Our two-year battle against Spectra Energy which seized our property rights for the Steckman Ridge 12-billion cubic feet underground natural gas storage field in Bedford County, PA, led to the development of this website.

Any property owner facing eminent domain quickly learns that they are not standing on a level playing field legally, economically or politically.  The 5th amendment to the U.S. Constitution states, “… nor shall private property be taken for public use, without just compensation.”

But there is a lot of play in the “just” of just compensation.  If you are impacted by underground gas storage fields or gas pipelines across your property, you need to know whether the gas or pipeline company has a sweetheart lease deal with the government.

Here’s why:  The gas or pipeline company’s “perfect world” business model is to seize your property rights - with the help of government - then pay you pennies on the dollar for its legal theft.

Gas companies treat government very differently, however, and the difference is educational.

For example, in lease agreements for underground gas storage fields:

• Private property owners typically receive a modest one-time payment driven in part by the number of acres.
• In contrast, state government leases typically include a long-term cash royalty payment for the amount of gas withdrawn and/or injected into the underground field.

Comparable Value Game

This is a huge discrepancy in what is known as comparable market value.  Politically, this different treatment is not sustainable in today’s world where we speak of transparency and equitable treatment under law.  It is time for landowners to throw out the old playbook.

If you want to know how to do that, keep reading.

After filing a right-to-know request with the Pennsylvania Game Commission, I received a copy of the storage lease for State Game Land 49 in Monroe Township, Bedford County, PA.² (See Links & Resources at the bottom of this post for a pdf file of the Game Commission “storage” lease discussed here.)

The difference in value between the Game Commission lease and a proposed offer we received from Spectra Energy (Steckman Ridge) is sobering.

In a letter dated April 16, 2008 from Ronnie L. Acorn, Rights-of-Way & Land Manager for the project, we were made a proposed offer of a total one-time payment of approximately $1,600 on our ten acres of land.

Your Right to Know

In contrast, the company’s lease agreement with our next-door neighbor (PA game lands) contains the following provisions:

• An annual minimum payment (”base rate”) of $15,067 OR a fee of $0.03 per thousand cubic feet (MCF) for 4.322% of the gas withdrawn from the total storage reservoir during the year — whichever is greater.
• In addition, a one-time bonus payment of $48,460.
• On top of that, there is a rental adjustment, which means that every 5 years, the base rate and the withdrawal rate will adjust upward by 3%.

Thus, along with a bonus payment and a 3% increase in the lease payment every 5 years, there is a 25-year annuity stream back to the state, in the form of a royalty for the amount of gas withdrawn from the underground storage field.

So “just compensation” for the state is very different from “just compensation” for private property owners — even when the acreage is next door.  That is where comparable fair market value must be applied — not on a real estate “appraisal” that does not take into account actual lease benchmarks like the one cited.

Now that you know what the true benchmark of value is (the gas company’s lease with state or federal government), it is time for a very strategic discussion with your attorney.

Remember the phrase, “But this is the way we’ve always done it?”

Change Strategy - Toss the Old Playbook

You and your attorney must collaborate to develop an assertive legal argument that positions a gas company’s lease with the state as a legitimate measure of fair market value.

Fair market value in cases like this must be more than surface use, or what similar acreage sold for.  It is very important to include the value of other storage leases - in particular gas company leases with the state.

Traditionally, few have made a big deal about the different lease agreements (state versus private property owners).

The law says you are entitled to just compensation, so here is what you and your attorney can do:

Wherever possible, the best benchmark of comparable fair market value is from the lease agreements that gas companies like Spectra Energy have with the government.

Beware of what I would call a “real estate” appraisal cobbled together by expensive consultants who may not even describe your property correctly.  If it does not take into account a lease like the Game Commission lease (see pdf file below), you and your attorney will want to shift strategic gears.

If your property is out west, look at all such leases, including any that may be on federal or tribal land.  This is your comparable fair market value benchmark.  It exists in real life.

Your Goal:  Just - Not Less - Compensation

Your goal is a mirror-image lease agreement (with adjustments for acreage and surface use) similar to what the gas company offered the state for use of taxpayers’ public lands.

You and your attorney need the following:

1. Understand what kind of appraisal is needed;
2. Include the right data as a foundation for the appraisal - specifically, locate similar storage lease agreements with the state;
3. Identify a knowledgeable expert witness who is comfortable with technical issues in the gas industry and can include an analysis of the state lease in the appraisal.

Your argument for fair market value might be stated along the following lines:

“Since Big Gas Corporation was willing to pay ($X) for the state acreage, then we should conclude that the value of other owners’ acreage in the same area used for the same purposes should be comparable.”

It is time to change the gas industry’s playbook.  Eminent domain is a large enough affront to property owners without adding separate and different forms of just compensation - one for citizens, and a better one for the state.

Links & Resources

¹Underground Gas Storage Fields - Energy Information Administration of the Department of Energy

According to this government source, there were just over 400 underground natural gas storage sites in the U.S., at the end of 2007.  “During the year, four  new storage sites were added, one in Michigan, Mississippi, Pennsylvania, and West Virginia, while 18 existing storage fields underwent expansions, and two storage fields were abandoned (ceased operations).”  (See subhead, “Underground Storage by U.S. Region.)  Link: http://www.eia.doe.gov/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/undrgrnd_storage.html

²Storage Lease between Pennsylvania Game Commission and Spectra Energy (i.e., Steckman Ridge) - See especially all of Section 4:  “Annual Payment - Storage Fee/Rental.”  Pdf file: PAGameCommGasStorageLease09.pdf (9 MB)