The deck is stacked against property owners who seek compensation for damages done by oil and gas drilling

Today is the last in a three-part series that’s looked at how increased oil and gas drilling will take away property rights in Stillwater and Carbon counties. On Wednesday we looked at the negative impact drilling has on property values, and how surface owners have few rights to protect themselves against the loss. Yesterday we examined how mortgage companies have begun to shy away from lending on properties on or near drilling sites.

In this post we’re going to consider the factors that make it difficult for property owners to receive compensation for damages to their property, either through their homeowners insurance, or from drilling companies. We’re also going to look at data that shows the long-term impacts of increased oil and gas drilling on communities.

Recovering damages caused by oil and gas drilling
Think your homeowners insurance covers damage to your property caused by drilling accidents? Think again. It may not. Increasingly insurers are removing coverage for oil and gas drilling from their policies. And even though Montana law makes the driller liable for damage, you may have trouble collecting.

  • Nationwide Insurance has stated specifically that it will not provide coverage for damage related to fracking. According to Business Week, an internal memo outlines the company’s policy:

“After months of research and discussion, we have determined that the exposures presented by hydraulic fracturing are too great to ignore. Risks involved with hydraulic fracturing are now prohibited for General Liability, Commercial Auto, Motor Truck Cargo, Auto Physical Damage and Public Auto (insurance) coverage.”

Montana Bonding Requirements
Montana bonding requirements. These amounts are simply inadequate to cover damages to individual property and the community, especially those that occur over time.
Source: Administrative Rules of Montana

Other insurers will certainly follow suit.

  • Often a driller or well operator’s insurance won’t cover damages, according to a summary published by the  New York State Bar Association. Homeowners may have to sue for damages and, even if they win, may not get paid for all damages since drillers admit in their regulatory filings that they may not carry enough insurance.
  • A white paper from Environment America Research and Policy Center , which I strongly recommend you download if you are concerned about this subject, explains the magnitude of the risk imposed by a lack of financial assurance to individual property owners and communities:

Current state and federal financial assurance rules for fracking are intended to ensure that oil and gas wells are plugged and well sites are reclaimed when production is complete. Few states, however, require financial assurance in amounts sufficient to complete plugging and reclamation, much less account for damage to natural resources, broader environmental cleanup or the compensation of victims. By releasing drillers from financial assurance requirements too early, current rules also leave the public potentially liable for environmental and public health damage that emerges over a longer period of time. Finally, while some states have used financial assurance tools imposed by fracking on infrastructure and public services (editor’s note: this does not include Montana), these tools have been insufficient to fully protect taxpayers.

The long-term impact on communities
Over the last three days we’ve now looked at  how oil and gas drilling creates a triple threat of problems for the surface rights holder: diminished property values, a reduction in the amount of available capital for borrowing, and insufficient assurance against damages. These all happen with little input from or control by the surface rights owner.

Basically, your property rights are taken away by the oil and gas companies, and you’re getting little protection from state agencies. These factors have immediate impacts, but what’s more disturbing is that they have negative consequences for the long-term economy and way of life in rural communities, and they’re well documented.

Six states

The study showed that in six states, including Montana, the longer the period of oil and gas exploration continues, the more negative the economic impact when it ends. You can see from the map that Carbon and Stillwater counties have primarily escaped these impacts, but we may not be so lucky during the fracking boom.

The negative long-term impacts of increased reliance on oil and gas drilling are summarized in a study from The Headwaters Institute entitled   Oil and Gas Extraction as an Economic Development Strategy,” which looks at the longitudinal impacts of  drilling booms since the 1980s in six states, including Montana, from 1980 – 2011.

Their findings are stark. Counties that participated most heavily in the boom and specialized most intensively in oil and gas industries actually saw greater declines in income, higher crime rates, and lower rates of educational attainment in the 1980 to 2011 period.

“The magnitude of this relationship is substantial,” the authors write, ” decreasing per capita income by as much as $7,000 for a county with high participation in the boom (greater than 8% of income from oil and gas) and long-term specialization (greater than 10 years) versus an identical county with only one year of specialization in oil and gas.”

This suggests that U.S. towns and counties that specialize too heavily in oil and gas development can indeed suffer from what’s known as the “resource curse.” They become too reliant on a single industry, and when the oil and gas stops flowing, the counties end up worse off than if they’d never enjoyed a surge of production in the first place.

  • For counties that experience increases in oil and gas production, per capita income declines with longer specialization.
  • The longer the duration of oil and gas specialization, the higher the crime rate.
  • Educational attainment declines with longer specialization.

We need to be in action
If you’ve been reading this blog, you know that all over North America communities have embraced the immediate economic impact of fracking, mostly because they didn’t know what was coming. We’ve seen it through the personal stories and other posts in the Bakken, in Wyomig, in the Marcellus Shale in Pennsylvania, in the Eagle Ford Shale in Texas.

Along the Beartooths we have the advantage of seeing the mistakes that others have made, and we can learn from them. There are actions available to us to manage this. If we don’t take them we have only ourselves to blame.

See also:
The New York Times has compiled hundreds of pages of documents related to drilling and property rights and values that include federal guidelines, emails from realtors and mortgage brokers, memos from bankers etc.

About davidjkatz

The Moses family has lived on the Stillwater River since 1974, when George and Lucile Moses retired and moved to the Beehive from the Twin Cities. They’re gone now, but their four daughters (pictured at left, on the Beehive) and their families continue to spend time there, and have grown to love the area. This blog started as an email chain to keep the family informed about the threat of increased fracking activity in the area, but the desire to inform and get involved led to the creation of this blog.
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10 Responses to The deck is stacked against property owners who seek compensation for damages done by oil and gas drilling

  1. S. Thomas Bond says:

    This is a fine series! I live in West Virginia, which has low population density and is the long-time victim of mineral extraction. I think this lays out the property value aspect of extreme energy extraction as well as anything I have seen. Here in the Marcellus, everyone wants to play politics with no thought of who gets hurt now or in the future. Where will food and timber come from? Keep up the good work!

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