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NC struggles to balance cost, promise of fracking

Fracking is the controversial method of horizontal drilling into clay-like rock called shale. A massive shale basin spans 150 miles across central North Carolina, and Lee County sits at its center. Wells drilled in the county have the potential to be the most lucrative, paying out thousands of dollars a month to landowners who sign leases. Another possible shale basin lies beneath Cumberland County.

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Andrew Barksdale / The Fayetteville Observer
FAYETTEVILLE, N.C. — Four years ago, an agent for a gas exploration company pulled up to Jon Woolard's cow pasture in northwestern Lee County.

The land man, who smiled "store-bought teeth" and wore comfortable clothes on the warm spring morning, wanted permission to drill for natural gas on the family's 65-acre farm, Woolard recalled. He and his parents declined, but the agent called back that evening.

"I hadn't changed my mind," Woolard told him.

Men from other gas companies also dangled signing bonuses and royalty payments, but Woolard turned them down, too. What bothered him was the way drillers would extract the gas – by fracturing the rock deep in the earth and pumping water and chemicals into the well.

"It just doesn't seem that pumping contaminated water into the ground can be rendered 100 percent safe," said Woolard, a 51-year-old who wears a brimmed ranch hat and tear-drop sunglasses. "I think there is a lot that could go wrong."

Many of Woolard's neighbors saw things differently. About 3,300 acres in the county are leased to energy speculators so far. And when North Carolina opens the door to fracking, perhaps by next spring, Lee County will become the gas capital of the state.

Fracking is the controversial method of horizontal drilling into clay-like rock called shale. A massive shale basin spans 150 miles across central North Carolina, and Lee County sits at its center. Wells drilled in the county have the potential to be the most lucrative, paying out thousands of dollars a month to landowners who sign leases. Another possible shale basin lies beneath Cumberland County.

North Carolina lawmakers intend to allow fracking, and they are expected to move swiftly this year to enact proposed rules for how the industry will operate. Republican leaders, who have campaigned on domestic energy drilling, are touting natural gas production as the next new industry to sustain an economy that once relied on tobacco, textiles and furniture.

"And it's all about jobs," said Republican Gov. Pat McCrory, who also wants to explore energy offshore. "We are going to be creating these jobs with natural gas."

But with the potential windfall comes a level of risk that is fiercely debated and largely uncertain. In Arkansas and Ohio, fracking opponents have blamed minor earthquakes on gas drilling-related operations. Gas drilling has contaminated water supplies, polluted the air and, some argue, hurt property values. Wells require hundreds of workers, heavy machinery and tanker trucks that can clog rural roads.

The Fayetteville Observer has spent months examining the issue of fracking and how it could transform the Cape Fear region. To see what could be in store for our region, a reporter and photographer traveled to Bradford County, Pennsylvania, where gas companies have drilled more than 2,000 wells since 2008.

Natural gas has brought life-changing wealth to some in Bradford County, a rural community of 60,000 residents, though others have dire warnings about the environmental and economic side effects. Some warn of the potential for stray gas or chemicals to contaminate groundwater.

North Carolina's General Assembly, which convened last week, likely will adopt some fracking regulations this session before giving the green light on drilling. The state may start issuing well permits next spring.

Although fracking has been around for decades, the practice took off after Congress deregulated its use in 2005 and companies began making technological advances to tap previously unrecoverable gas and oil deposits. About 30 states now allow it, and nine out of 10 wells in the U.S. are fracked.

Yet fracking remains much debated. Wells are drilled about a mile deep then horizontally through shale, where gas is trapped. The process involves injecting millions of gallons of water into wells, along with silica sand and chemical additives that break up the shale and free the gases and minerals. Fracking wastewater returns to the surface to be stored, recycled, injected into deep caverns or shipped out of state.

In 2009, state geologists began studying prehistoric shale formations thousands of feet below ground in Lee County, where coal was mined generations ago. About a year later, geologists realized the potential for natural gas production in an area called the Sanford subbasin, which spans from central Moore County to western Lee and southern Chatham County. The shale also contains natural gas liquids – even more valuable than gas – such as ethane, propane and butane.

"If that turns out to be true, we could be sitting on a treasure trove of minerals," said Jim Womack, a Lee County commissioner who leads a 14-member panel that drafted fracking regulations for North Carolina.

According to the N.C. Geological Survey, the shale in Lee County may have helium, another valuable commodity, and possibly oil.

Property owners who sign leases with gas companies could earn thousands in monthly royalty payments. The state would reap millions from the gas industry in new tax revenue, which could help close the state's budget shortfall, which is $445 million this year.

Gas well construction and drilling operations would create about $80 million in annual economic activity and sustain, on average, 496 new jobs a year, according to economist Mike Walden of N.C. State University.

Industry commission writing the rules

In 2012, the Republican-led General Assembly authorized horizontal drilling and fracking but delayed issuing permits until a modern regulatory system could be developed by this fall.

That job fell on the N.C. Mining and Energy Commission, which began its work in September 2012 and has since proposed 120 rules for how companies will frack in North Carolina. The rules cover disposal of wastewater, taxes and impact fees on drillers, and buffers around homes, waterways and drinking wells.

About a dozen environmental groups have criticized the commission, saying the panel is rushing to complete its work by the October deadline set by the legislature. The groups worry that commercial interests are overly influencing the rules, such as not requiring companies to report to state regulators the chemicals that are pumped into wells.

But state leaders said they intend to adopt modern rules that have worked in other states.

"Because we have learned when it's done correctly, it can be done safely," McCrory said. "And we are going to learn from the best on what's worked and what's not worked."

At least one gas exploration company that obtained mineral leases in 2010 says the state has moved too slowly. WhitMar Exploration Co. of Denver announced this spring it would cancel or not renew more than 170 leases signed in Lee County four years ago.

Members of the Mining and Energy Commission said they have sought to strike a balance between the need for a thriving drilling industry and for protecting the environment and people. Charles Holbrook of Pinehurst, a commission member who is a retired Chevron oil company executive, said the panel was tasked with bringing energy development to the state.

"So the purpose is to create a modern set of rules that will allow that to happen – not to try to make the rules so excessive or oppressive so as to prevent that from happening," Holbrook said.

The industry says fracking is safer and more efficient than ever.

In shale-rich states, public officials focus on the positive aspects of fracking. A drilling rig – with its typical 120-foot derrick – and a single well can cost more than $3 million to build. The work requires teams of out-of-town workers who fill hotels, restaurants and stores.

After the well is producing gas, the drilling companies need local workers, such as welders, mechanics and suppliers of materials and leased machinery.

Gas and oil drilling also is spawning "shaleonaires," landowners who are buying new cars, remodeling their homes or putting new roofs on their barns with their lease checks. In one study in Bradford County, Pennsylvania, gas companies paid out an estimated $148,000 in royalties per well in 2010.

Woolard, the Lee County farmer who turned down lease agents four years ago, is leery of fracking but acknowledges the extra income would be hard to resist.

"Because that's a lot," he said. "You are not going to see that in a lifetime of raising cows."

His family raises 18 cows off Carbonton Road, a two-lane highway that cuts through the heart of the gas-rich hills northwest of Sanford. Woolard's land is spread over two pastures covering 65 acres. It is typically quiet on the farm except for the occasional moo of a heifer or distant sound of a chain saw.

Woolard did not want to sign a lease four years ago for several reasons. The state had not overhauled its drilling rules yet, and there hadn't been any new gas exploration wells.

"And they weren't offering much money," Woolard said. The land agents offered his family $20 an acre and 12.5 percent royalties.

Other landowners are looking forward to the new industry.

Charles Oldham and his wife have a 200-acre timber farm off Carbonton Road.

"We would like to see this resource developed, but we want to see it done right," Oldham said during a walk through the farm that has been in his family since about 1945.

Oldham is a 70-year-old retired economics instructor at Fayetteville Technical Community College. He said he would like to form a coalition of landowners for more bargaining power in signing leases with gas companies.

He turned down some leases in 2010 for the timber farm.

"They weren't offering very much money, for one thing," he said.

Having some of his timber cleared for drilling would not bother him.

"We don't have a whole lot of problems with a tree falling on the ground," he said. "We are used to machinery being in the woods."

NC taking 'well-calculated risks'

State Sen. Wesley Meredith, a Fayetteville Republican, said he wants to give drilling operators the opportunity to do business here. Based on his research, Meredith said, he does not believe fracking is the cause of problems.

"And if there is a risk, it's a small amount, and we are making revisions in our laws and in our rules to protect people through this process," Meredith said. "I think we are doing our due diligence."

But the controversies that have played out in other fracking states, such as Ohio, Pennsylvania, Arkansas, Texas and North Dakota, are starting to move into the spotlight in North Carolina. Environmental groups have aired a commercial calling Meredith part of the "fracking crew," along with two other senators. One of them is Republican Ron Rabin, whose district includes Lee and Harnett counties. The ad – aimed at helping Democrats win these seats this fall – criticizes them for "fast-tracking" fracking.

Rabin has touted the benefits of shale gas drilling and "taking well-calculated risks."

"You can be sure that we will proceed with caution to reduce fracking risks to an absolute minimum," Rabin wrote in a newsletter to constituents in January.

Some groups, such as Clean Water for North Carolina and the Blue Ridge Environmental Defense League, worry that potential contamination by spills, accidents or faulty gas wells could reach private drinking wells or public water supplies. Although stray gas, which is mainly methane, is nontoxic, the chemical can be dangerously combustible in high concentrations in well water.

The Mining and Energy Commission has voted to recommend a 200-foot buffer between fracking operations and rivers, streams and wetlands. The setback requirements in other states vary widely.

Watchdogs wonder if DENR is up to the task

State officials and people in the drilling industry say North Carolina's relatively small and unproven shale basin will draw smaller, less experienced companies that operate on thinner margins. Critics of fracking say regulators need safeguards for wildcatters, who could have shoddy records, go out of business or be unable to pay cleanup costs after accidents. 

And accidents have occurred elsewhere.

In February, a natural gas well operated by Chevron exploded in a small town south of Pittsburgh, killing one worker and injuring another. In Louisiana four years ago, a natural gas well blowout forced the evacuation of hundreds of people.

North Carolina's recent experience with a coal ash spill has armed fracking opponents with new ammunition. On Feb. 2, a pipe collapsed under a 27-acre pond maintained by Duke Energy, coating 70 miles of the Dan River with toxic coal ash north of Greensboro.

Watchdog groups and some Democratic lawmakers have castigated state regulators under McCrory for their delayed response and early mishandling of the disaster.

"It has highlighted the deficiencies of the oversight of these industries that can be highly contaminating," said state Rep. Pricey Harrison, a Greensboro Democrat and member of the legislature's Environmental Review Commission.

In April, the McCrory administration outlined a plan to close or convert 33 coal ash ponds and strengthen environmental and health regulations. In a May 6 interview with the Observer, McCrory said his administration was the first in the state's history to address the coal ash pits. The first-term governor bristled at talk he is putting the state at risk with natural gas development.

"The fact of the matter is we are being hypocritical, too, because we are willing to take natural gas from other areas and use it, and yet we are not willing to do it in our own backyard," McCrory said.

Last year, McCrory picked John Skvarla of Pinehurst to run the N.C. Department of Environment and Natural Resources. Skvarla has come under fire by critics who say his agency has become soft on enforcement as part of the governor's pledge to be more customer-friendly to companies doing business here. A spokesman did not make Skvarla available for an interview.

McCrory said the state would be prepared to regulate and enforce drilling laws. He said every form of energy "has an upside and a downside."

"And natural gas is better for the environment, it's accessible, it's cheaper and it's more reliable and it helps our energy independence."

North Carolina will soon find out if the governor is right. State lawmakers would like to begin issuing permits to build wells in April, and they say as many as five natural gas wells could be completed by 2015.


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