Arkansas Natural Heritage leases mineral rights

NWAOnline.com

Natural areas’ mineral rights leased

By ALISON SIDER

Saturday, January 16, 2010

LITTLE ROCK — The Arkansas Natural Heritage Commission leased its mineral rights in two designated natural areas in the Fayetteville Shale formation to XTO Energy on Friday, for a bonus payment of more than $1.4 million in addition to any royalties from gas produced from the land.

XTO paid more than $3,000 an acre for both areas, with a 25 percent royalty payment, well above the minimum bid of $950 an acre set by the Natural Resources Committee.

The commission was approached in October by gas companies about leasing their mineral rights on 197.5 acres of the Big Creek Natural Area in Cleburne County, and 228 acres of Cove Creek Natural Area in Faulkner County, Deputy Director Chris Colclasure said.

“We’re the lessors of last resort; we’re not in the business to make money from gas leases for the Natural Heritage Commission. But we need to be good neighbors,” said Karen Smith, the commission’s director.

Large portions of the natural areas are in 640-acre sections shared with other landowners, most of whom had already leased their mineral rights to gas companies. Drilling and exploration activity could not begin in these areas unless the commission signed on as well.

“They were basically just waiting on us,” Colclasure said. The commission has not leased the mineral rights on a 640-acre section within Big Creek Natural Area that it does not share with any other landowners, Colclasure said.

The state purchased the natural areas to preserve habitats for plant and animal species and for public enjoyment. To help maintain their integrity, several restrictions were built into the leases. The commission stipulated that no gas wells or other surface disruptions can take place on the public lands, and no gas wells can be drilled within a 200-foot “buffer” zone. Colclasure said the commission also asked the private landowners who own portions of the mineral rights in Big Creek natural area to include similar provisions in their lease contracts.

This is the commission’s third and largest mineral rights lease. It leased 40 acres in the Big Creek natural area in 2007 for a $20,000 bonus and another 40 acres last summer for a $120,000 bonus. The commission also has received royalties from drilling that began in one of these areas over the summer.

The revenue from these transactions goes to the commission as stipulated by a state statute, Smith said. It intends to use the money for special projects such as land acquisitions, Smith said.

Smith said they have seen nothing negative from allowing drilling activity under their lands.

“We have stewardship staff that go to these natural areas and monitor periodically, and we have not witnessed any environmental impact to our land ownings,” she said.

Since drilling began in the Fayetteville Shale five years ago, several state agencies have found themselves with land holdings that sit on top of the valuable resource. The horizontal drilling practices employed in the Fayetteville Shale have allowed gas companies to drill laterals thousands of feet long and deep beneath the earth’s surface, so gas can be extracted with minimal disruption above.

State agencies, excluding universities, recorded $39,256,000 in accounts described as “mineral leases, mineral leases and royalties, and mineral oil and gas leases,” in the 2009 fiscal year, said Paul Lothian, the head of the Department of Finance and Administration’s accounting department. In addition, the state has received about $750,000 from mineral rights on federal land within the state that has been leased.

The Game and Fish Commission is the most active agency in the market for mineral rights. It has leased more than 11,000 acres and received bonus payments in the neighborhood of $34 million since it started leasing its mineral rights in wildlife management areas, said Deputy Director Loren Hitchcock.

Hitchcock said the commission stipulated that drilling activity can only occur during certain parts of the year and not during hunting season, leaving about a four month window. “I think we have enough safeguards in place to deal with their operations,” he said.

The commission is being sued by James Dockery, a Little Rock man who claims that the money from natural gas leases held by the agency should go to the state’s general fund and not to the agency itself.

The Arkansas State Parks Department leased its mineral rights in Woolly Hollow State Park in Greenbrier to Chesapeake Energy in May 2009 but will not allow drilling on the surface. The department received nearly $197,000 for the rights to drill under the 432-acre park.

Other state agencies that have leased mineral rights for gas exploration include the Highway and Transportation Department, the Department of Human Services, the University of Arkansas, University of Southern Arkansas and Arkansas State University at Searcy and Beebe, said Jerry Bradshaw, mineral leasing officer in the Real Estate Division of the state land commissioner’s office.

Most of these have no drilling clauses included in their lease agreements, he said.

“Everybody’s a pretty good steward of the land,” Bradshaw said.

Business, Pages 31 on 01/16/2010