Should surface owners sign pore space lease etc. papers? If so, how much money should you get?

We have heard that there are persons or entities that are going door to door or otherwise contacting owners of surface land in order to try to get those surface owners to sign papers so these speculators can buy or lease or otherwise control the pore spaces in the rock formations under the surface owners’ land. See this article in the Pittsburgh Post Gazette.

The idea is that someday these pore spaces may be able to be used to store (“sequester” they call it) the carbon dioxide produced by coal or gas power plants (or by industries such as cement production or other processes) that produce large amounts of carbon dioxide.  It is believed that keeping carbon dioxide out of the atmosphere will slow climate change/global warming.

Sometimes suitable pore space is found in oil and gas formations after the oil or gas has been produced out of the pore spaces.  However, there are other formations that have pore spaces that can be used.  These pore space formations are not found everywhere.

The concept of storing or sequestering carbon dioxide in this way is still in the research and development state.  The plan that researchers envision is that someday the technology will be available to enable carbon dioxide to be captured at the power plants or processes that are producing it.  Then the captured carbon dioxide would be piped to a place where it could be pumped down a special gas well into the underground formations that have the pore spaces.  It would be pumped into these spaces at high pressure (probably 1100 pounds per square inch compared to 34 psi in your car tire) and sequestered away forever, hopefully. 

“Carbon capture and sequestration” is the usual term for this process, but that is a lot of words, so we will shorten that to the abbreviation “CCS”. 

Some environmentalists are against CCS because they favor a transition to renewable energy (plus more energy efficiency) instead of using coal and natural gas for energy which produce lots of carbon dioxide.  They say using CCS will just let us keep using polluting coal and gas and so put off the transition to renewable energy.

Other environmentalists believe it is not possible to transition totally to renewable energy fast enough.  So, CCS is needed to help slow global warming/climate change while some coal and gas are used for energy in the meantime until that transition can be completed.

Some “friends of coal” hope that CCS is a way to just keep mining and using coal.  And there are federally funded projects to research and develop CCS.  But we think we recall that the one attempt to actually use it at a power plant was abandoned due to costs and some unexpected deterioration that occurred with the equipment.  And the Pittsburgh Post-Gazette article linked above talks about a more recent project that failed for financial reasons.

This web page will not venture much further into the feasibility issues.  The issue for this web page is limited to the question:  Should you sign CCS papers, and if so, how much money should you get?

We recommend that you do not sign at this time.  At this point is there is not enough known about the process and what it is worth to the companies that would use it for you to determine whether to sign anything for some amount of money.  The people coming to you now are probably not those entities that will be actually doing CCS.  The people coming to you now are speculators who are gambling that it will be done, so when it is done they can take the rights they have purchased from you and sell them for a profit to the entity or entities that will be doing CCS.  So, if you do not sign now, and if CCS actually starts happening, you can get paid then what the speculators were going to pay you now plus the profit they were going to make – a much better deal for you! 

On the other hand, there are those who point out the fact that CCS is unproven technically and certainly not on the commercially viable large scale that power plants would need.  They would advise that you should take the bird-in-hand money they are offering you now because you will not ever get any money in the future because CCS will never work. 

If you choose to sign for money now, you should at least have a lawyer who has advised people on signing oil and gas leases to review the language of what they want you to sign.  You are used to signing papers when you buy a car or a house that have consumer protections built in by law.  But these papers do not have consumer protections in law.  They were drafted entirely by the speculators’ lawyers.  We especially recommend that you do a little due diligence and research of the company to make sure they have not had problems before, and that you make sure there is an indemnity clause in the papers that makes them totally liable instead of you if there is a problem — and maybe even that they have an insurance policy in place.

Now a little more on the financial side:  Before horizontal drilling for oil and gas started around 2008, oil and gas drillers were paying a signing bonus to mineral owners to lease their drilling rights for a $1 an acre signing bonus (and a monthly 12.5% royalty to be paid later).  Pretty soon, as high-volume frac’ing (or “fracking”) of shale formations emerged, the drillers started offering $25 an acre signing bonus.  Then when leasing for horizontal shale oil and gas drilling using high-volume fracking kicked in, they were paying $5,000 an acre for the signing bonus just to sign a lease and 18% royalties! 

Do we think you would ever be paid that much for rights to CCS in the pore space under you?  Probably not.  And if you are a bird-in-the hand person, you might be right to take the money now.  But our advice on balance is to wait.  However, if you want to take the money now, think like a rich Texan and not a poor West Virginian.  The Pittsburgh Post-Gazette article has one offer to a Pennsylvania government agency and they often get more than private individuals, but not always.  Argue that you need more money than they are offering because having compressed carbon dioxide under your land, if it does happen, is a scarey unknown.  It would make your land worth less and harder to sell and you need compensated for that.  (A little more on leaks later.)

Another reason to wait is that the legislature in West Virginia has passed a law that will let the users of CCS “force pool” from surface owners the right to use pore space to sequester carbon dioxide under their surface.  (Sorry, we do not know about other states.)  That means if they get the owners of 75% or more of the acreage they want to use for a CCS project signed up to use the pore space in their rock formations to be filled up with carbon dioxide, then at that time, even if you are one of the 25% or less that did not sign, the State will allow them to use the pore space in the formation under you to sequester the carbon dioxide.  Now when they do that, you will still be paid something.  The amount you will be paid will be determined after a hearing in front of a government commission. And,

“The [commission] order shall identify the compensation to be paid to unknown, unlocatable, and nonconsenting pore space owners and the basis for valuation of the collective interest. The commission may consider evidence submitted by nonconsenting surface and nonconsenting pore space owners as to the valuation of their interest.” 

West Virginia Code § 22-11B-19(c)Collective Storage(5).

That commission is called the Oil and Gas Conservation Commission.  The commission is weighted with oil and gas (not coal) members and government members, but there are “public” and farmer members appointed to it also.  When that commission force pools unsigned mineral tracts for drilling it is required by law to use the dollar amounts and royalty amounts that the other 75% have gotten.  But that is not true for CCS.  We expect that if it comes to such a hearing, the entity that wants to use CCS will still try to get the commission to rely on the amounts paid to other surface owners who have already signed papers.  We suspect they will try to call that “market value”.  We do not agree that is the amount that you should be paid!  A better amount would be the amount that the CCS user paid to the speculator who bought the rights from other surface owners when they sold the rights to the CCS user would be better – particularly if that sale happened recently.  But you should argue that fair market value means not just “market value”, not just what everybody else is doing, but “fair market value.”  And that fair market value is only established when the seller and the buyer are “informed and knowledgeable!” MICHIE’S JURISPRUDENCE, Vol. 21A, 2000 Replacement, Words and Phrases,“Fair market value”.  And those surface owners who already signed could not possibly have been informed and knowledgeable about the value of CCS to CCS users and probably not informed and knowledgeable about the processes and potential effects on the surface values.  No one, as this is written, has knowledge of what pore space is worth and cannot be well informed about how CCS is eventually done and so how much it would cost or save the CCS users to separate it, pipe it, pump it etc.  

Already we can think of a number of factors that would influence the value.

First, when you want to sell your surface, will the fact that there is, or is the potential for, high pressure (“super-critical”) carbon dioxide under the surface worry the buyer and make your property harder to sell or worth less?  Carbon dioxide, unlike natural gas that can leak out of wells and pipelines and storage fields, is not dangerous in the small amounts that might seep out of the ground.  But natural gas storage fields have leaked larger amounts of gasses.  And if there was a big leak in a carbon dioxide storage field it would flow downhill because CO2 is one and a half times heavier than air.  And CO2 will probably expand as it leaks and so get colder than the ambient air and that will also make it flow downhill.  So it could spread downhill and even pool in a hollow.  And a concentration of 10% carbon dioxide in the air you breath would make you unconscious. 

Particularly if you are in an area where there is a history, particularly a long history, of oil and gas drilling there is a greater potential for leaks than elsewhere.  The industry has been irresponsible in plugging wells and the state legislatures and agencies have been ineffective in getting the industry to plug wells that no longer produce.  Sometimes wells have gone unplugged so long that the driller has disappeared leaving orphaned wells behind.  There is some government money for plugging these wells now, but not enough.  Until the government comes up with enough money to plug them all there is a potential for problems.  You can look on West Virginal Geologic and Economic Survey website for West Virginia to see if some of those wells are in your area, but many more were drilled before government records were kept so there could be more.  

Second, if you are lucky enough to also own the oil and gas minerals under your surface, then someday a driller may come along and want to lease your minerals for a tidy sum.  But if they have to drill their wells down through a formation that has its pore space filled with high pressure carbon dioxide that will take extra drilling precautions and well bore casing practices.  So the driller is at least a little more likely to want to lease and drill somewhere else where it would not have to deal with that problem.  They may be less likely to be worried about drilling through a formation with sequestered carbon dioxide as they get used to doing it.  And they have drilled though natural gas storage fields before.  However, the existence of sequestered carbon dioxide in a formation under your ground could still be a consideration in whether they want to lease your minerals drill for your gas and pay you a signing bonus and royalties, or lease and drill somewhere else. 

Third, the value for the sale of something is what it is worth to the buyer not the seller.  If you were selling your hayfield along a road that was a great place for a gas station/convenience store, to a company that was going to put in a gas station/convenience store, how much should you get?  We say you should NOT get what it was worth to you as a hayfield.  You should get what it is worth to the buyer as a good place for a convenience store.  The same with selling/leasing/agreeing for your pore space to be used for CCS.  How much money will the CCS user make that is going to require CCS?  What have they told their stockholders?

Whatever the commission will eventually decide, whatever that dollar payment amount is, the amount of money the commission decides that you will get will most probably be higher than you are being offered now, though there is no way of knowing for sure.  And think too, if they won’t go to a higher up front payment now, maybe they would agree to having to make yearly payments once CCS started to be injected.

So we advise not signing anything now unless you have studied CCS at least a little and are convinced it will never really happen.  We think you should wait until we and you know more.  This article is written in March, 2024.  If you don’t read it until months or years later, maybe check with us or other organizations for more information.