Grand theft hydrocarbon? Post-production clauses and inequity in the US. shale gas industry

Abstract

We describe the presence of post-production cost clauses (PCCs) in shale gas leases in two Northeastern Pennsylvania counties. Using a large, random sample of leases (N=1031), we demonstrate (1) how common PCCs are, (2) how frequently landowners address the risks of these clauses directly in the lease, (3) and several factors associated with greater likelihood of landowners addressing PCC risks in a lease. We find that nearly every lease contains language allowing for post-production costs to be taken out of landowner royalty payments, and that the language is often sufficiently general to allow for exploitative industry practices. However, we do find that (1) a small majority of landowners directly address these risks by inserting counter-acting lease terms, and (2) that these alternative lease terms increase over time, indicating a social learning process through which landowners are able to insulate themselves from financial risk. We find that the primary source of variation in landowner efforts to reduce risk is the firm that landowners signed with, expanding on other recent findings. While our study is geographically constrained, the results from this study inform ongoing discussions of equity in unconventional oil and gas development, particularly for landowners who lease privately owned land to the oil and gas industry.