Thousands in counties score natural gas profit; some drawbacks feared

09:40 PM CDT on Saturday, August 16, 2003

By KEVIN KRAUSE / The Dallas Morning News

When Robert McPherson hears the low rumble of heavy machinery outside his Ponder house, he can't help but smile.

Each clank and rattle of the 115-foot drill spells profit for the retired farmer, who owns partial mineral rights to the vast natural gas reserves 8,000 feet beneath his 140 acres of wheat fields.

"It just tickles me to death," said Mr. McPherson, 77, with a wide smile and spit of tobacco. Together, his three wells earn him about $2,500 a month.

He's one of thousands cashing in on the natural gas boom sweeping into urban and suburban areas of Denton and Tarrant counties, where more than 900 wells have been drilled since 2000.

Jim Mahoney / DMN Retired farmer Robert McPherson of Ponder has three wells on his land that earn him about $2,500 a month.

The drilling has filled the pockets of landowners, taxing entities and gas companies, and could continue to do so for decades. But many are concerned about towering eyesores, constant noise, potential environmental damage and the specter of natural gas explosions – a rare but terrifying prospect.

"It makes an obnoxious humming and buzzing noise," said Jennifer Hutto, with a rig looming several hundred feet behind her Denton back yard. "We're getting tired of looking at it."

Mrs. Hutto, who is not receiving royalties from the well, said she also had to deal with large trucks blocking her driveway. "It's kind of intrusive. We're ready for it to be over."

The boom is in large part the result of a spike in natural gas prices, coupled with a large "sweet spot" in a rock formation in North Texas that makes for easy drilling.

Cities, schools in on it

Two wells will be drilled this year on the campus of the Selwyn School, a Denton private school. Texas Woman's University and the University of North Texas also have hosted wells.

The Northwest school district, located in Denton, Wise and Tarrant counties, will get $12.7 million in mineral taxes this year, compared with $1.7 million in 2000, said chief financial officer Jon Graswich.

In Haslet in Tarrant County, most of the 1,300 residents have pooled their land so gas wells can be drilled near their homes. That decision led to a slight decrease in the city's property tax rate.

Even the Baptist Foundation of Texas is making money from mineral rights it acquired in Denton, Tarrant and Wise counties.

"I don't know anybody who loses money when you drill," said Thomas J. Nunley Jr., president of Western Chief Oil and Gas Co. "It's the best thing to happen around North Texas."

More than 30 companies are drilling in the two counties, thanks to new technology, eager hosts and high demand.

Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University, said shortages have pushed gas prices above $5 per 1,000 cubic feet since the beginning of the year – twice what it was three years ago. Local demand was spiked by a harsh winter and searing summer.

About half the state's electric power is generated by natural gas, he said, compared with other states' reliance on coal.

As a result, the once-rural practice of drilling is marching east into more populated areas. Fort Worth is home to more than 200 wells, and Denton has 63. Denton officials have leased more than 500 acres of city-owned land near the airport for drilling.

"We're struggling to find enough gas to meet demand. We're looking everywhere," said Alex Mills, president of the Texas Alliance of Energy Producers, an oil and gas trade association.

Although drilling also is active in Wise County, and is moving into Johnson and Parker counties, Denton County has seen the largest increase, analysts say.

Rob Durbin, whose company Star of Texas Energy Services plans to drill in Trophy Club, said drilling is moving east because gas pipelines finally crossed Interstate 35W a year ago.

Rigs have drilled in Denton, Krum, Ponder, Justin, Northlake, Roanoke, Clark, Haslet and Fort Worth. Companies, which spend up to $750,000 to set up each well, have made inquiries or applications in Bartonville, Trophy Club, Flower Mound, Keller, Argyle and Corinth.

New state regulations allow wells to be closer together – one per 40 acres compared with 640 acres – which has allowed for more aggressive drilling. And each well can produce gas for up to two decades.

Geologists have long known that the region sits atop a gas-rich rock formation, but energy companies are only beginning to realize its potential. They estimate the Barnett Shale formation, which lies beneath Denton, Tarrant and 13 other counties, can produce gas for up to 30 years.

They're going after the deposits with technological breakthroughs such as directional drilling, which allows companies to bore through the earth at an angle and access minerals from a distance as far away as 3,500 feet.

Local restrictions

Aside from a gas leak at a Haslet well last year, no major accidents have been reported in the region for the last three years or so, according to the Texas Railroad Commission, which regulates the industry.

Trophy Club and Flower Mound, concerned about reports of blowouts in Wise County, passed ordinances that are among the state's strictest.

Local restrictions range from keeping drills 300 feet from buildings in Fort Worth to 1,000 feet in Flower Mound. Most cities also have rules on noise and environmental pollution.

Still, noisy gas rigs, truck traffic and pipeline construction have prompted complaints. And many city officials say there's little they can do as long as their requirements are met.

Jim Mahoney / DMN Denton resident Jennifer Hutto says she is getting tired of the drilling going on several hundred feet behind her back yard.

"What's getting everybody concerned about it now is that they've never encroached on a city the size of ours in the North Texas area," said Rick Jones, Denton's fire marshal, who reports one or two noise complaints a month.

The 24-hour drilling operations normally take up to a month. After the shale is fractured, workers move out, leaving a wellhead in place. But some wells may have to be reopened every few years so workers can refracture the rock with a blast of water and sand mixture to keep the gas flowing.

Ed Soph, spokesman for Citizens for Healthy Growth, a Denton-based environmental group, is concerned about the long-term effects, such as runoff of drilling fluids into the water supply.

"It all has to be looked at with a sense of precaution, what could happen 15 years down the road," he said.

Copper Canyon and Corinth have ordinances banning drilling inside their city limits, setting the stage for possible legal battles. Under state law, someone can own land but not the rights to the minerals underneath, meaning unwitting landowners would have to allow drilling.

But Texas courts have generally upheld cities' rights to regulate drilling, said Michael Jones, a Houston lawyer who teaches at South Texas College of Law.

Mr. Durbin, an attorney for Star of Texas, predicts lawsuits if cities overly restrict drilling. It's already happened in Roanoke, where Devon Energy Corp. filed suit in February, challenging the city's law requiring oil and gas drillers to donate parkland.

Cashing in

Devon Energy, the state's third-largest gas producer, was the top taxpayer in Denton County for the last two years, with a total taxable value this year appraised at $305 million, according to the Denton Central Appraisal District. Verizon Communications was second, at $164.7 million.

Devon has 1,300 operating wells in North Texas, and officials say they plan to drill at least 400 more wells this year in the region.

"It's a thriving, huge business that's really moved into the county real quick," said Timothy Riley, Flower Mound's environmental resources manager.

Texas Woman's University decided to capitalize by making gas companies bid on land next to its golf course. Spokesman Roy Kron said one well – visible from some dormitory rooms – was drilled in June for which they were paid $12,000 and 18 percent royalties, to be followed by a second well within 12 months. Royalty checks generally range from 15 percent to 25 percent of what a well produces.

"The Board of Regents realized there was some revenue potential from this, and they went out and requested the proposals," he said.

UNT has earned as much as $10,000 a month in royalty checks, a spokesman said, although that amount fluctuates based on gas production.

Rural school districts have been among the biggest winners, racking up thousands in mineral taxes and royalty payments.

This year, seven of the top 10 taxpayers in the Krum school district are oil and gas companies. The district has earned $31,000 by leasing its land.

Gas companies make up the top five taxpayers in the Ponder school district.

"As they move east, they're running into more taxing districts," said John England of the central appraisal district. "Everyone's getting on the bandwagon."

Not quite everybody. About 200 residents showed up for a recent meeting to voice opposition to Trophy Club's new ordinance that allows drilling.

"I'm concerned about the whole thing; the danger and the aesthetics of it, with all these towers around and the noise," said Valerie Hocker, who bought a house there in April. "The builder never said anything about drilling, or we wouldn't have moved here."

Mr. McPherson, the retired farmer, says the battle lines are really much simpler.

"The ones who can't be happy about it are people with no mineral rights," he said.

E-mail kkrause@dallasnews.com