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Want Farmland Preservation? Better Get Fracking Now!

DRBC fracking ban - Tom Shepstone ReportsTom Shepstone
Shepstone Management Company, Inc.

 

A new study by the USDA Economic Research Service demonstrates yet again there is no better farmland preservation program than fracking for oil and gas.

The USDA Economic Research Service, one of the best research outfits there is, just came out with a marvelous study entitled “Ownership of Oil and Gas Rights: Implications for U.S. Farm Income and Wealth.” While, there are a few points to be argued with the results, it demonstrates something I’ve felt from the very beginning of the shale revolution; there is no more effective method of preserving farmland and open space than natural gas development, which is now dependent on fracking. This is because nothing else can produce so much income for the landowner with so little impact and there is no farmland preservation without farm income.

This map, from the study, illustrates the tremendous amount of oil and gas production taking place on farmland, production that translates into farm income, farm values and farmland preservation. Here are some of the key findings of the study:

  • From 2005 to 2014, high energy prices and innovation in extraction methods spurred annual U.S. production of oil and gas to grow by 69 percent, with almost 67 percent of the production occurring on farmland in 2014.
  • In 2014, farm operators and non-operator landlords owned $32.9 billion in oil and gas rights that generated $7.4 billion in payments through leases with energy firms, which represented almost 17 percent of total net cash farm income for farm operators and non-operator landlords in oil- and gas-producing counties.
  • Farm operators owned $19.1 billion in oil and gas rights in 2014. In counties with oil and gas production, farm operators’ oil and gas rights amounted to 3 percent of the value of land owned, and in the high-production States of Oklahoma and Pennsylvania, those shares were 7 percent and 9 percent of the value of land owned, respectively.
  • Nationally, oil and gas rights generated $3.8 billion in payments in 2014, equal to about 4 percent of net cash farm income. In oil and gas counties, payments represented 11 percent of those counties’ net cash farm income, and in Oklahoma, Pennsylvania, and Texas, payments represented almost 30 percent of those States’ net cash farm income.
  • In the oil and gas counties, 11 percent of farm operators reported owning oil and gas rights with positive value, and in Oklahoma and Pennsylvania, the share reached 14 percent.
  • Much of the leasing of oil and gas rights to energy firms by farm operators has occurred with the recent growth in drilling in shale formations. Of the operators who leased out their oil and gas rights in 2014, more than 27 percent signed leases after 2011, and 44 percent signed after 2008.
  • Oil and gas payments generated $3.6 billion for these landlords in 2014 and represented large shares of net cash farm income: 17 percent nationally, 37 percent in oil and gas counties.

Those are mighty stats. Oil and gas income was almost a third of farm income in Pennsylvania’s oil and gas counties and that is an average figure. It’s undoubtedly much higher in places such as Bradford and Susquehanna Counties where both farming and natural gas are huge.

The study also quotes other research:

Research suggests that these rights might be a considerable component of farm wealth in some regions. When reporting farm real estate values, farm operators who own oil and gas rights may include the value of the rights in the reported values. Weber et al. (2014) estimated that each $1 in lease and royalty payments for oil and gas was associated with $2.50 in higher farm real estate values for farms nationwide. Looking at changes in farm real estate values in areas with and without shale gas development on the Pennsylvania-New York border, Weber and Hitaj (2015) estimated that leasing activity led to a nearly 50-percent appreciation in values. The findings of both studies suggest that oil and gas rights may be a substantial farm asset in some regions.

It also points out farmland gets a disproportionate benefit from oil and gas development taking place:

Oil and gas production disproportionally occurs in areas where large shares of land are operated by farmers and ranchers. Using data on land in farms from the 2012 Census of Agriculture and oil and gas production at the county level from Drillinginfo as detailed in the footnote below, we estimate that, in 2014, the value of oil and gas production on land operated by farms amounted to $226 billion, accounting for 67 percent of the total $338 billion in oil and gas production in the contiguous United States. However, in 2012 farmland accounted for only 48 percent of the land area in the contiguous United States.

Fracking, in other words, is just what you need if you want more farmland preservation.

 

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4 thoughts on “Want Farmland Preservation? Better Get Fracking Now!

  1. Problem with this premise is that the majority of the surface rights have been separated from the mineral rights. This means that the vast majority of the income is going to a person far from the land who never even sees the land. The surface owner will get some form of damage payment, but that is where the money stops. I am not against this arrangement, I have been involved in for the last 45 years, but this is the simple fact of the matter.

    • That’s not the case in PA where split estates are not that common in farm areas. The study documents this, in fact.

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