Texas Nonprofits Pumping Up

February 1, 2007       Tom Pope      

One color of natural gas usually is blue, but for nonprofits in and around Fort Worth, Texas, the color is green as they cash in on mineral rights to the tune of millions of dollars.

Shale deposits that contain natural gas provided the opportunity, yet the situation may test nonprofits’ reaction to possible environmental issues.

Donor William C. Putman of Tarrant County, Texas, probably didn’t think about shale as he left property to the American Cancer Society (ACS). When the ACS sold the possessions in 1961, the mineral rights remained before being sold for $5.3 million this past May to the Oklahoma City, Okla.-based Chesapeake Energy Corporation.

At the center of potential concern is the removal of water in the shale during the extraction process that releases the gas. Some environmentalists worry the shale extraction in the Ft. Worth area could lead to a de-watering that affects wells.

Despite the potential problem, the opportunity to take advantage of the mineral rights occurred because the ACS relied on experts with a background in oil and gas. “The Barnett Shale is going through a frenzy of a boom in this area,” said Bill M. Roberts, associate corporation counsel for the ACS. “Some questions about the rate of return of keeping those rights along with the present activity of the market combined to make this the moment to sell.”

The Barnett Shale is a gas field, discovered in 1981 that ranges over 15 Texas counties. Estimates give the field the rank of the second-largest domestic natural gas field after the San Juan Basin area in New Mexico and Colorado. “Because of my experience, I already knew some companies that were active in the market,” Roberts said.

Extracting shale technology is relatively new during just the past 20 to 30 years and involves a fracturing process. In the past, vertical drilling was required, although the new technology allows operators to drill at a right angle to move horizontally to a reservoir area of rock.

“In the late 1990s, the mineral rights increased in value,” Roberts said.  “We saw this time as a big advantage to obtain the amount in one sum.”

Typically, donors leave part of their estate to the society through wills and trusts. “Those minerals come to us through an estate that includes a home, for example,” said Todd Braulick, vice president of Probate and Trust Management. “The home may have mineral rights and those rights could lie dormant for years until someone begins drilling.”

The increased funds will be used across a range of programs. “We’ll continue to fund mission services nationwide,” said Jackie Bayly-Bryant, vice president of communications for the High Plains Division of the ACS. “In one area, we fund $100 million a year in research.”

In another case, the High Plains Division is considering paying off a debt on a Hope Lodge, one of 22 lodges across the country that provide housing to cancer patients and family during treatment when the family travels to a city away from home.

The Chesapeake Energy Corporation is a natural gas exploration corporation that operates in 16 states, and is a major sponsor for the ACS’s local Relay For Life.“In the past, it was harder to obtain the product from as deep as 20,000 feet,” said Carol Troy, director of corporate communications for the Chesapeake Energy Corporation.

“Now we have an opportunity because we’re afraid of running out of domestic natural gas,” she said. “Also, our technology of drilling has increased over the past 10 years.”

Those wishing to offer deals for mineral rights should be aware that landowners don’t necessarily own rights to minerals, according to Troy. “We encourage them to find out through their title to the property,” she said. “They might have mineral rights and are not aware they have shale with them.”

Officials at the YMCA of Metropolitan Fort Worth weren’t sure if they even owned the mineral rights at two properties until they did a thorough background check. The YMCA, which has 12 branches in the Fort Worth area, has leased two of its properties to gas companies, yielding about $400,000 for the nonprofit before any drilling has even started, according to President & CEO Tony Shuman. Signing bonuses totaled almost $400,000 for mineral rights at the 300-acre Camp Carter, about 15 miles northwest of downtown, and the 17-acre McDonald Branch in southeast Forth Worth, adding to the Y’s $19-million annual budget.

If the private companies yield any natural gas, the YMCA’s take will be 25 percent of the gross revenue, Shuman said. Should a lease expire, it could be re-bid or renewed with a new signing bonus, he said, as was the case with Camp Carter’s first agreement. Included in the lease agreements are provisions for when and where the companies can drill if they choose to, Schuman said, so as not to disrupt programming and activities at the sites.

While the addition of funds helps the nonprofit, there are environmental concerns about the Barnett Shale field. The level of drilling activity could vent leaks or flares of burning gas at the site. Emissions of compounds, including hydrogen sulfide, organic compounds and other hydrocarbons, are a potential outcome, according to Jim Rada, of the Garfield County Health Department in Colorado, who currently is studying such conditions.

The dangers are related to water removal or contamination within the shale, according to Bruce Baizel, staff attorney for the Durango, Colo.-based, Oil & Gas Accountability Project, a resource dealing with oil and gas development. The project serves as part of EARTHWORKS, a Washington, D.C., nonprofit that focuses on the environment.

“We have some questions whether the quantity of water in drinking wells has been affected,” he said. “In talking to people, two to three wells have already been mentioned.”

While he was not aware of documented cases with contamination, a possible controversy could arise because of toxicity. “The reason for concern is that to get gas out, they have to break shale with a cocktail mix of chemicals,” he said. “When they put those down in the ground to break the shale, not all of the chemicals come back out.”

Data sheets of what companies use in the three states of Colorado, Wyoming and New Mexico list some 200 chemicals. “Companies won’t tell us specifically which ones they use,” Baizel said. “The companies are not required to report those facts and say the information is proprietary.”

Possible toxin contaminants could leak into the wells because of the fractioning as cracks emerge underground through which the gas is vented, according to Baizel.

The nonprofits are probably safe from legal problems. When people take environmental cases to court, the infractions usually don’t include sellers of mineral rights. “They usually go after the operator who handles the extraction,” he said.

“I think it’s a stretch to hold a former owner accountable when he liquidated the rights,” said the ACS’s Roberts. “I practice law in Oklahoma and Texas and am not aware of any occasion where the lessor was held responsible for an accident or incident.”

Chesapeake’s Troy talked about possible environmental issues of drilling in an urban area. “We are considerate of the city and landscape so the horizontal drilling is done to retain the beauty of the land,” she said.

“In life there are always risks, but we’re very proud that our environmental safety records are very high,” she said. “Certainly we’d be remiss if we said no risk existed, but drinking water has never been one of the risks.”

However, Baizel posed the possibility of the environmental issue becoming a public relations problem. “In this case, the ACS might have an issue because the organization has the mission of decreasing sources of cancer,” he said. “In some of these cases, the chemicals are known carcinogens.”

Is the possible environmental problem involving a health organization a perceptional problem that could affect the public relations of the organization? “In dealing with perception problems, we can’t generalize,” Troy said.

The ACS’s Bayly-Bryant downplays the potential problem. “We don’t have a lot of holdings like this and we just sold the rights,” she said.

Proactive planning might be best. Owners of mineral rights have more leverage with any company during the negotiations, according to Baizel. “Officers could demand the company stay away from carcinogenic chemicals,” Baizel said. “You could get information about those chemicals more at that point than when you try later through public information.”

Baizel also explained that a range of chemicals exist that are non-toxic alternative mixes.

“Nonprofits have the chance to make the operation as safe for the environment as possible,” he said. “But as soon as you sell those rights, you lose the leverage.”  NPT

Tom Pope, a New York City-based journalist, writes about management issues. NPT Senior Editor Mark Hrywna contributed to this report.