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August 18, 2014

Gas Alert; Other Energy Business Developments

IPI expert referenced: Merrill Matthews | In The News | Media Hit
  Foster Natural Gas/Oil Report

Institute for Policy Innovation (IPI) resident scholar Merrill Matthews, Ph.D., in a recent editorial written for the Wall Street Journal, entitled, Anti-Fracking Laws vs. Property Rights, argued that growing efforts by state and local governments to stop hydraulic fracturing, or "fracking," to extract natural gas could end up in the Supreme Court-- "because they may unconstitutionally limit property owners' ability to profit from their mineral rights.

The Fifth Amendment to the U.S. Constitution says, in part, that private property cannot be taken for public use "without just compensation." If a landowner won't sell voluntarily, the government can "take" it through eminent domain, but still has to pay. "Government regulations that substantially reduce the value of an owner's property may also constitute a taking, according to the Supreme Court." Absent certain defined circumstances, Matthews warned that "courts may rule that an outright ban on fracking or drilling would constitute a taking--and that would likely mean that the municipality (i.e., taxpayers) would have to financially compensate mineral-rights holders for their loses." He suggested the valuation could stem from "a process for estimating the net present value of untapped minerals--drillers often use that process when contracting to drill on someone's property, paying the mineral rights' holder a flat amount, plus some royalties. Municipalities that refuse to let property owners drill might be required to use that or a similar process to assess the lost value."

"Not every citizen with mineral rights would necessarily seek an immediate remedy in case of a ban on fracking. Many might prefer to hold onto their mineral rights, hoping the next election would lead to elected officials with a more favorable attitude toward drilling. But the citizens of communities that want to be 'green' could end up paying a lot for the privilege," Mathews wrote in the Journal.



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