Sampling finds lower offers for leases in mostly minority, lower-income areas
The letters — one in English, the other in Spanish — arrived in the same envelope.
The English version offered to lease mineral rights from homeowners in the Rolling Hills neighborhood for 22.5 percent royalties and a $300 signing bonus.
The Spanish version offered the same bonus, but only 20 percent in royalties.
“I was appalled,” said homeowner Mary Doherty, who was among about 100 homeowners in the racially mixed, middle-income neighborhood in southeast Fort Worth to get the letters.
The company, Dale Resources, quickly sent a letter apologizing, saying that the differing offers were a mistake. The letter in Spanish was meant for another neighborhood, and everyone in Rolling Hills got the same offer, company President Larry Dale said in an interview.
For some minorities, however, the letters were an affirmation of their long-held belief that there’s a double standard for whites and minorities when it comes to the oil and gas industry. They contend that companies generally pay less for gas leases in minority and low-income neighborhoods than in white or more-affluent areas.
“It’s been part of the culture of the oil business since there’s been oil,” said the Rev. Nehemiah Davis, president of the Fort Worth NAACP, who lives in Rolling Hills.
Various offers
The offers have been pouring in to almost every part of central Tarrant County, from River Oaks in the west to the shores of Lake Arlington in the east, since technological advances have made it possible to retrieve gas from the Barnett Shale, a vast reserve of natural gas beneath much of North Texas.
A Star-Telegram sampling of neighborhood associations and residents in about 20 areas found disparities among offers made in largely minority or lower-income areas, generally east of Interstate 35W, and those to more affluent areas of west and southwest Fort Worth.
Property owners east of I-35W are generally receiving offers for royalties of about 20 percent; the others are receiving offers as high as 25 percent. The differences could add up to hundreds or thousands of dollars over the life of a lease.
The gas companies say there are many variables that factor into the offers, including accessibility, competition and lot size. But no public agency collects comprehensive data, and many public officials and residents are skeptical.
It’s a serious enough concern that Fort Worth Mayor Mike Moncrief brought it up in a private meeting with gas drillers in mid-November. The companies agreed to form a committee to help educate residents about drilling.
“The bottom line is, some of our citizens don’t feel they’re getting all the information they need to sign a lease,” said Moncrief, whose family runs a prominent oil and gas business.
Fort Worth Councilman Sal Espino, who represents the predominantly Hispanic north side of Fort Worth, said that many residents don’t understand a gas lease and can’t afford a lawyer.
“If the Barnett Shale is really going to be the resource that we want it to be, then every resident or citizen of the city should get a fair deal on these gas leases,” Espino said.
Acres of debate
Dale and other drillers say that they may pay less in some cases in inner-city neighborhoods if the lots are smaller. With a smaller lot, the company must spend more time and effort to assemble a pool of owners. In inner-city neighborhoods, the company typically has to pay royalties to the drill-site owner, as well as to the owners of the mineral rights.
“It’s all based on cost — what it costs for us to get in there and drill those wells,” Dale said. “It has nothing to do with who lives in a neighborhood or anything like that.”
Minority leaders, however, say some areas that are getting bigger offers have small lots, too.
The average lot in Mistletoe Heights, for instance, is about one-third smaller than lots in Rolling Hills, according to Tarrant Appraisal District records. Yet residents in Mistletoe Heights — a mostly white, well-off neighborhood southwest of downtown — have been offered 25 percent royalties with $500 bonuses by Four Sevens Resources.
The Star-Telegram sampling indicates that the best offers may be going to areas with well-organized neighborhood associations.
Park Palisades in southwest Fort Worth, for instance, has a mandatory homeowners’ association, which was able to negotiate directly with Rall Oil & Gas, a drilling company affiliated with Robert M. Bass of Fort Worth. Homeowners got a $500 bonus and 25 percent royalties, and the neighborhood association will keep payments from three common areas.
“It may help us do some things down the line,” said association President Walter Allen, who signed a lease with the same terms.
And in Mistletoe Heights, a community with a history of political activism, the neighborhood association formed a committee of two lawyers, a petroleum engineer, the owner of an oilfield services company and a former rancher with experience in mineral leasing.
Panel members are hoping to negotiate better deals for residents by reaching out to surrounding neighborhoods and creating a larger pool of leases. They are encouraging residents not to sign until the negotiations are complete.
“Your average Fort Worth resident — if a landman walks up to your door, it’s going to be pretty tough to decipher what that lease form means,” neighborhood association President Jim Bradbury said.
Other areas
In some areas, however, residents complain they don’t have time to organize.
“People started signing then cashing their little bonus checks so fast we didn’t have a chance to negotiate,” said Eunice Givens, who lives in the Highland Hills neighborhood south of Interstate 20. She eventually signed for a $300 bonus and 20 percent royalties.
Oakhurst, in northeast Fort Worth, was one of the first neighborhoods approached by the gas companies. Residents began signing leases before the neighborhood association was aware of it.
“I think we were hurt a little bit because we were on the front end,” neighborhood association President Libby Willis said. “We went back and asked Dale [Resources] for a contribution.”
The company donated $25,000, and the association is studying how best to use the money, she said.
Emogene Mashburn, who lives on Fort Worth’s north side, weighed offers from two companies before signing with Dale for a $400 bonus and 20 percent royalties. Still, she said she felt as if she wasn’t getting the information she needed to decide.
“If we don’t have someone to help and they’re not upfront about it, we’re not going to know we’re getting cheated,” she said.
Competition can also affect offers. Drillers can access gas within about a mile of a wellhead. That means that unless another company has a well nearby, the drill site’s owner has control of the area. Indeed, Dale Resources originally offered 20 percent royalties in Rolling Hills but began offering more because of competition from Four Sevens, which has a nearby drill site, said Dale, the company president.
Taking advantage?
For minorities the disparities evoke memories of discrimination from decades ago when oil companies signed leases with blacks in East Texas for far less than what white residents received.
The recent spurt in leases has some community activists working to protect residents.
Fort Worth City Council members are discussing whether the city could post gas information on its Web site. The city can’t provide legal advice to residents, but Espino said he has lined up private lawyers willing to provide free advice.
In Worth Heights on the south side, Councilwoman Wendy Davis helped organize a meeting between residents and landmen from Fort Worth Energy. Many of the homeowners in the area only speak Spanish and had difficulty understanding the details of the contract.
Davis, a lawyer, publicly questioned some aspects of the contract — including clauses that gave the company the right to explore for other minerals besides natural gas, and another clause that required homeowners to pay for part of the cost of transporting the gas.
Company President Dub Stocker agreed at the Oct. 28 meeting to strike those clauses — but only for new leases. It wasn’t clear how many people had already signed leases in the neighborhood.
Residents were still worried that they weren’t getting the best deal.
“Are you going to drill for the same gas? Are you getting better quality gas on the north side?” asked C.Z. Bonilla, who lives in the area and recently signed for a $500 bonus and 22.5 percent royalties.
Davis said she’s worried that similar things are happening across Fort Worth.
“I feel like people are being taken advantage of,” she said. “They’re sending these landmen out and making low-ball offers. They know they’re dealing with that desperation.”
NEGOTIATING POINTS
The language of gas leases can be difficult. A standard lease contract, for instance, includes a “transportation clause” that allows the gas company to charge the homeowner for the cost of compressing the gas and transporting it through a pipeline.
That’s bunk, said Keith Milberger, a third-generation oilman whose Frisco company, Proven Concepts, negotiates gas leases for landowners.
“The mineral owner is not a working-interest owner,” he said. “Therefore they should not be held liable to pay for any associated costs.”
Another common problem is the term of the lease. Typically, a lease requires the driller to sink a well within a set number of years, or the landowner gets to resell the lease. But unless the language is clear, the driller can find a loophole, Milberger said.
“Some operators have gone so far as to cut a fence and put in a road and then say ‘We’re exploring,’” he said.
Once the driller finds gas, it’s important for the landowner to get royalties for as long as the well is producing. The lease can also dictate other conditions, like location of roads, fencing and security. But it’s virtually impossible for an untrained person to win against an oil company, he said.
“If you determine you have a brain tumor, I don’t know a hell of a lot of people who will go out and get a can opener and try to take it out themselves,” he said. “The first rule is, don’t play another man’s game.”
KEY POINTS IN A NATURAL GAS LEASE
Primary term: The amount of time the drilling company has to begin actively exploring for gas. A shorter term is better because it puts more pressure on the drilling company to perform.
Secondary term: The amount of time the well will be producing gas. A lease should specify that the land or mineral owner will be paid for as long as the well is producing gas or oil.
Bonus: The amount paid upfront to an owner; not as important as the royalties.
Royalties: The percentage of the proceeds that are paid to the landowner or mineral owner.
Transportation cost: A fee often subtracted from the royalties to cover the cost of moving the gas from the well to market. Producers say this is a standard fee; other experts believe that it’s the producer’s responsibility, not the landowner’s.
Other conditions: Landowners who are leasing mineral rights to gas companies can negotiate various issues, including the placement of roads, landscaping and security around the drilling site. It’s good advice to have someone with experience in the gas business review a contract before signing it.
SOURCE: Proven Strategies
