Electronic Field Guide » Pre-Development Issues » Effects on Agriculture

Effects on Agriculture
 
Prepared by Patrick Drohan, Ecosystem Science and Management; Gary Sheppard, Penn State Extension in Westmoreland County; and Mark Madden, Penn State Extension in Sullivan County
 
Farmstead concerns relating to Marcellus natural gas development revolve around land, water, economics, and community.
 
 
On-the-Ground Impacts
 
Natural gas development in Pennsylvania may include construction of drilling pads, access roads, pipelines, compressor stations, water impoundments, water withdrawal access sites, and drilling-related storage and equipment construction areas (“laydown yards”).
 
These various land uses require different landforms, but they frequently occur in former agricultural land because it is already cleared and generally flat and well-drained. Land for some of these uses—the more long-term developments—is typically purchased, and for other more short-term uses, land is more often leased. Besides specifically industry-related land disturbances, agricultural land is being lost in Pennsylvania to development of facilities such as hotels and expanding retail outlets to service the natural gas industry. (The state is also seeing local losses due to the depressed dairy economy.)
 
So how much farmland is being lost? Geographic information systems analysis by Penn State researchers of Pennsylvania Department of Environmental Protection’s Marcellus data shows that about 5,000 acres of farmland had been developed for Marcellus gas as of June 2011. Assuming drilling of all wells permitted as of June 2011, the total land conversion could be about 17,000 acres of agricultural land in Pennsylvania.
 
The total footprint of drill pads has decreased with the increasing use of horizontal drilling, which allows extraction of gas from a greater area via one well, and the placement of more than one well per pad. Some farms see very little surface development even though the gas below their land is being extracted. Not all pads are developed in intensively managed crop land; some may be in pastures or even woodlands.
 
Marcellus development can influence the workability of the remaining farmland on a property by cutting through it with a road or disrupting historic travel patterns around a farm, which may change drainage patterns and cause drainage problems in new areas of fields. Changed road slopes can necessitate the use of different equipment and/or extra caution to work the land. Alteration of landscape contours can dry up springs that had been important sources of water for farm use. However, when roads are built for oil and gas development, they are often planned in consultation with the farmer and often improve travel about the farm.
 
Most farm families rely on private wells for their drinking water. Marcellus development raises the potential for contamination of these wells from accidents or spills during the drilling process, methane gas migration if the gas well casing is not properly constructed, damage to water lines via heavy traffic, or changes in water quantity related to landscape alteration. Where issues related to gas development have arisen with private water wells, gas companies have typically been quite responsive in supplying a replacement fresh water source and addressing the problem.
 
Heavy truck traffic is another impact. There is no doubt that Marcellus development damages roads, but in many cases they have been well repaired, and a new issue of safety with increased vehicle speed can arise. Narrow road shoulders and deep ditches have been a problem on some reconstructed rural roads; however, construction standards may be changing to ensure the safe passage of wide loads. Dust and noise are also problems.
 
 
Recommended Best Practices for Minimizing Impacts
 
For all natural gas development, the topsoil should be reserved for replacement when the infrastructure is removed, at which point the land should be restored to original or better grade.
 
Pipelines should be installed using “double ditching,” in which the soil is removed and stored for replacement in the order it was removed. Installation should ideally be done during dry periods, such as at the end of summer. This may result in loss of some crop yield, but over the long term, this may be preferable to the soil compaction that can result from operating on the landscape during wet conditions. Farmers should specify in the agreement that crop loss (damages) payments do not end in the year of installation. Decreased yield may be expected for several years following disturbance or pipeline installation, because of compaction and landscape reshaping. Some farmers have expressed greater concern about losing fields long in no-till to pipelines, because these areas are higher in organic matter and have developed improved soil structure compared to tilled fields.
 
 
Changes in Farm Labor, Housing Market, and Commodities
 
Marcellus development also brings broader impacts to farms. Some farms may have a hard time finding laborers, because many have either gone to work at better pay for the gas industry or are replacing someone at another business who has gone to work for the industry. High demand for labor has pushed wages up. Housing rents have escalated significantly in gas-rich areas. In Bradford County, for example, a house that once rented for $500 per month might now rent for $4,500 per month. Some farmers have gained extra income by renting out a property that used to house their laborers. So clearly some are challenged by this situation, while others may benefit.
 
Some industries are flush with cash, while others are disappearing in the wake of the Marcellus boom. This can affect the availability of certain farm inputs. For example, mulch is in high demand for erosion and sedimentation control on gas sites. As local supplies are exhausted, farmers who purchase mulch for animal bedding might expect their costs to increase. Gas companies in northeast Pennsylvania are importing mulch from Delaware, Maryland, Ohio, and Virginia.
 
Along with loss of farmland, some areas of Pennsylvania in the Marcellus hotspots are seeing a reduction in the size of the dairy industry. Penn State extension agents note, however, that some of this is due to a poor dairy economy and the high price of commodities compounded by low yields and poor-quality feed put up during the 2011 growing season.
 
 
Planning Required
 
Farm families should begin to explore a potential oil and gas leasing agreement with a frank conversation about future expectations, plans, and goals for the farm. Who will own and work the farm in the future? Into what new crops, commodities, or other directions does the farm family want to go, and how could gas leasing affect those operations? (A farmer interested in marketing organic or sustainably grown products, for example, should ensure that gas development will not affect their markets or certifications.) Will any leasing profits be shared, and if so, how? 

Any farmer considering leasing should start with a consultation with an attorney familiar with gas leasing and estate planning. Additional perspectives on how leasing may affect the agricultural operation should also be sought from advisors familiar with natural gas development, including, but not limited to, private farm consultants and public advisors such as the U.S. Department of Agriculture or Cooperative Extension. Penn State Extension has available a free Landowner's Guide to Leasing Land in Pennsylvania.
 
A number of Marcellus lease holders report being quite satisfied with their relations with the gas companies. They have often found them to be responsive to landowner concerns, but emphasize that landowners need to be well informed going into the relationship and stand firm for what they want in the lease and throughout the relationship.
 
 
Financial Considerations
 
So how much money might the typical Pennsylvania farmer earn from leasing? That depends on many variables, but for a single well harvesting 80 acres of land, the amount could be about $1.75 million in gas royalties over the life of the well. (This assumes that a well pulls 3.5 billion cubic feet of gas from land leased by a single owner. Gas prices have hovered around $4/thousand cubic feet of gas, which gives this volume of gas a gross value of about $14 million. Apply the common state-minimum royalty rate of 12.5%.) This is a declining curve of earnings, with most of it occurring early in the well’s life. Another way of looking at this is royalty income could be about $22,000 per acre of leased land. It is important to note that this is not a steady stream of income on which people could expect to depend indefinitely.
 
Leasing can have other financial implications. If farmland enrolled in Pennsylvania’s Clean and Green tax program is leased, the land’s status changes and the landowner may owe tax to the county. Gas impacts may violate agreements for land enrolled in USDA’s Conservation Reserve Program, and the landowner may owe a federal fine and penalty. Pipelines are allowable on land in the Conservation Reserve Program. For land mortgaged through the USDA Farm Service Agency, with sale of the land and/or natural resources, any money earned goes straight to the balance on the mortgage. Some landowners have needed to borrow money to pay income taxes in this case because although the money is credited to them, it is not available to them.
 
The question arises of whether a farm with a gas lease or with potential for development for natural gas is still eligible for federally funded farmland preservation dollars. The USDA Natural Resources Conservation Service says no, but the Pennsylvania Department of Agriculture disagrees. Each property is unique, and a decision by a state, federal, private land trust, or historic easement organization for funds is based on a Title Review of the recorded documents related to that land. Farmers for whom this is a concern should fully explore the issue and the ramifications before making any decisions.
 
 
Social Impacts
 
Leasing can have social impacts, especially for organic farms or those farms seeking local markets. Even though there may be no documented reduction in farm product quality because of gas drilling, some people may perceive a risk or have other concerns that could make them less willing to buy from a farm with a gas well. The decision whether or not to lease can affect neighbor relations, and possibly broader political support for farm programs. If the public and legislators perceive farmers as wealthy and privileged due to hefty Marcellus earnings, they may provide less support for preferred tax treatment for agricultural lands, farmland preservation, and other programs.
 
 
Summary
 
Overall, there are no absolutes in the gas industry. It is a dynamic and mobile industry that reacts quickly to many influences in the energy industry worldwide. Different operators do things differently, and the same operator does things differently in different places. If in doubt, ask. Inform yourself up front, and don’t be shy about asking for what you want. Experts emphasize that holding a gas lease is not a passive responsibility. It requires frequent interactions with the company.
 
More information on other impacts of Marcellus development on agriculture, including more detail on effects on families, finances, and social issues, is available through Penn State Extension's natural gas site and a Penn State Extension webinar.