North Carolina Assembly Passes Energy Modernization Act

Earlier this month, the North Carolina General Assembly passed a new law known as the Energy Modernization Act in an effort to open the state for business in drilling for oil and gas.

Our clients and friends may have read about the new law and perhaps the debate surrounding it as the General Assembly was working to establish regulatory standards around hydraulic fracturing, also known as “fracking.”  As you may know, fracking is growing in popularity in several states around the country.  Now that the fracking bill has taken law in the form of the Energy Modernization Act, here are a few things we think you should know.

First, the new law will fall under the administration of the Oil and Gas Commission (formerly named the Mining and Energy Commission) under the state Department of Environment and Natural Resources (DENR) and its Division of Energy, Mining, and Land Resources.  The General Assembly has given the commission until January 1, 2015 to adopt any new rules related to the practice of fracking.

Over the course of the next seven months, we anticipate that many individual owners of real property across the state may want to explore leasing their property to oil and gas exploration companies.  As the new legislation has a purpose of creating a modern regulatory program for oil and gas exploration, property owners should be aware of procedures and potential hurdles that exploration companies must mitigate to begin drilling.  For example, even after agreeing to lease real property for the purpose of hydraulic fracturing, the company must give the surface property owner 30 days’ notice before starting any type of work related to the development of the property for exploration or any actual production activity.

Also of note under the new law is that the Act empowers the state’s regulatory commission over any local governing body with respect to any ordinances on the practice of fracking.  The Act also enables the commission to deny permits based on the energy exploration company’s record of violations of statutes, rules, orders, or permit conditions.  In addition, the commission can regulate the spacing of resulting individual wells, and furthermore limit or prorate production once in process for the purpose of limiting waste.

From a liability standpoint, landowners should know that when they lease real property to an exploration company, the company is liable for any wastewater contamination for a half-mile radius.  Fracking companies are also protected, from a trade secret perspective, from having to disclose to the public at-large or to individuals any of the chemicals used during the fracking process.

The attorneys of the Forrest Firm are here to serve parties interested in oil and gas exploration as it begins to take shape in the Tar Heel State in 2015 and beyond.  North Carolina property owners should explore the business opportunities related to oil and gas drilling just as they would any other business, with an appropriate level of due diligence and advance protection from the risks associated with the endeavor.  Legal advice, especially in a new business area like fracking in North Carolina, can be critical to a sustainable, profitable enterprise.