A Protest in U.S. Oil Country Spells Trouble for Fracking Abroad

This vehicle was dumped by protesters in Gardendale, Texas, a neighborhood near Midland in the heart of the Permian basin, none other than the largest oil province in the U.S. Courtesy Dan Boggs. Close

This vehicle was dumped by protesters in Gardendale, Texas, a neighborhood near Midland... Read More

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This vehicle was dumped by protesters in Gardendale, Texas, a neighborhood near Midland in the heart of the Permian basin, none other than the largest oil province in the U.S. Courtesy Dan Boggs.

Gardendale, Texas, sits on the Permian Basin, the largest oil province in the United States. That makes it an unlikely site of anti-fracking protests and an even more unlikely bellwether for shale gas drilling activity in Europe and Asia. And yet it is.

About 15 residents in the town, population 1,574, are waging an anti-drilling crusade against Berry Petroleum. They have tried to turn Gardendale into an official municipality, which would give them more control over gas exploration and production near their homes. They launched a website to chronicle Berry's alleged misdeeds, and a YouTube channel with short "Berry Tales" videos. They have, if nothing else, painted a drilling trailer which they playfully call the “Gardenhell scar" and dumped it near a group of oil storage tanks (see above).

Many Gardendale residents I spoke to say they aren’t against drilling, just against Berry's manner of drilling, which involves fracking — the technique in which water, sand and chemicals are blasted deep underground to break up hydrocarbon-rich rock formations. Their reasons for kicking up dust over Berry’s development plan resemble the complaints of landowners in Pennsylvania and other areas where shale drilling has taken hold: There are too many wells in a small area; the rigs are too close to backyards; the stream of trucks flows all hours of the day and night.

Annalee Gulley, a spokeswoman for Berry Petroleum who works for KGBTexas Communications, declined to comment. Berry created this website to describe its plans and has held community meetings to answer questions and address concerns, participants say.

The residents’ main objection however is largely unspoken: Unlike TV’s oil-soaked Beverly Hillbillies, or the many landowners who became fracking millionaires, the Texans don’t really get paid for their inconvenience and worry.

In the U.S., most landowners own the mineral rights to their properties. They are willing to allow drilling because it can make them rich. Oil companies have put wells in the middle of residential neighborhoods and beside schools and churches in the Fort Worth area because landowners enjoyed a financial benefit.

That’s not the case in western Texas, where land has changed hands so many times over decades that it’s rare for a landowner to own his mineral rights.

This predicament, an aberration in the U.S., is the norm in the U.K., Poland, Canada, China, France and pretty much everywhere else. That’s what makes Gardendale an unusual indicator of how shale gas initiatives might proceed abroad.

Gardendale’s situation “is quite common around the world,” said Kevin Shaw, a lawyer specializing in energy and natural resources at Mayer Brown in Houston. “In the end, you’re still going to get those wells drilled, but it’s going to be harder. It’s going to take longer and it’s going to be more expensive.”

Companies from Exxon Mobil Corp. to Royal Dutch Shell Plc. have inked mega-deals in the past year to take the U.S. gas revolution on a road show, including Shell's $10 billion Ukraine exploration agreement signed in January.

Fracking might need a makeover if it’s going to fly in, say, the English countryside, where landowners won’t have a chance to get rich, said Barry Munro, leader of Ernst & Young’s oil and gas practice in Canada, another place it is rare for landowners to hold mineral rights.

Without the option of buying landowners’ esteem, drilling companies have little choice but to engage in what might be called fracking diplomacy.

“In the past, people always thought developing a ‘social license to operate’ was important, but didn’t make a direct link to success or failure that impacted their profitability,” Munro said. “Now oil and gas companies have come to realize that their ability to turn a profit depends as much on reputation management as good engineering or strong geoscience skills.”

Translation: Companies such as Berry must address and quell complaints like those that Gardendale’s protesters have about drilling. Community relations — “stakeholder management” in the anodyne jargon of corporate sustainability — has become a critical part of operations for many extractive industries.

Berry’s website explains the company’s local philanthropy to community initiatives and education. The company appears yet to deploy sustainability measures as systematically as much larger firms. Berry ranks below the industry average in its disclosure of environmental, social and corporate governance performance, according to public data assembled by Bloomberg LP.

Energy executives warn against counting on a fracking-fueled oil and gas boom outside the U.S. for the same reasons Berry faces in Gardendale. U.S. fracking “is advanced for a number of reasons,” including the “royalty component,” Michael Yeager, CEO of the oil-producing arm of Australian conglomerate BHP Billiton, said in a March interview. “It’s going to stay that way in our opinion for a long period of time.”

Visit www.bloomberg.com/sustainability for the latest from Bloomberg News about energy, natural resources and global business.

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