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California Royalty Owners Aroused by Ballot Battles

While they celebrated into the night about the defeat of an anti-oil/natural gas measure in Santa Barbara County after last week's elections (see Daily GPI, Nov. 5), royalty owners in California sobered up the next day to discover that similar opposing measures passed handily in two other counties, albeit ones with little or no active drilling.

Measure J, banning hydraulic fracturing (fracking) in San Benito County, which has one principal oil/gas operator, passed 57% to 43%, and Measure S in Mendocino County, which has no oil/gas production, passed with 67% of the votes supporting its ban.

“We’re trying to figure out a way to do our own thing here in California,” said Ed Hazard, president of the California chapter of the National Association of Royalty Owners (NARO). “I don’t know where it will go,” he added, noting the vice president of the California chapter is a prominent oil/gas attorney in the state.

NARO's legal counsel has offered the opinion that the various local fracking bans are unconstitutional because local jurisdictions lack power over so-called "down-hole" activity; their powers are confined to surface impacts such as zoning, fire protection, public safety, noise, etc., Hazard said. They have further opined that the bans constitute a regulatory taking from the mineral owners in violation of the Fifth Amendment to the U.S. Constitution.

Hazard has made these opinions known to local officials, such as the City of Los Angeles, and Santa Barbara, San Benito and Mendocino counties.

In addition to possible legal action, in which NARO would make a friend of the court filing, the mineral owners want to continue a series of educational meetings around the state with some of the estimated 600,000 royalty owners with financial interests in California oil/gas operations.

One of the positives that Hazard saw coming out of the defeat of Measure P was that the oil/gas industry, royalty owners and local citizens all worked together to engage the community in what he said were basic community outreach efforts.

He calls the meetings "Fuel Yourself with Knowledge" events, which is a nationwide effort involving other NARO chapters in other states. They provide basic industry information as it relates to the mineral owners, detailing leasing rights and other topics, Hazard said.

"We're just trying to get them organized, energized and educated," he said, noting that NARO estimates that there are 8.5 million to 12 million royalty owners nationwide. There are not a lot of good statistics on the segment, so the California Department of Conservation has asked Hazard's group to sponsor a demographic and economic study to get an overview of the mineral owning populous.

"We're raising funding for that study right now," Hazard said. "We've received a proposal from The Communications Institute, which co-authored a recent study on the Monterey Shale with the Price School of Public Policy at the University of Southern California."

While a lot of the California royalty owners live outside the state, NARO is attempting to get more information on those living in California from the two major industry associations -- the California Independent Producers Association (CIPA) and the Western States Petroleum Association.

State officials and NARO want to know "how many people are out there, what's their economic impact, how much are they receiving in royalties, what kinds of taxes are they paying, etc.," said Hazard. The other question, he said, is what sort of potential is there for additional royalty owners if oil/gas development is allowed to progress under state well-stimulation rules and the 2006 state climate change law?

There is no timetable for getting the study done, but Hazard is hoping that the royalty owners’ active support with industry and labor to defeat Measure P will provide the momentum to get it done.

"If there is more future development in the state, there will be more mineral owners, more royalties paid, and a bigger economic impact," Hazard said. "That's a projection of the future we want to try and quantify."

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