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Mineral Rights
On Display in Colorado: America's Unique Advantage in the Shale Boom

The battle over hydraulic fracturing in Colorado is a demonstration of a unique advantage that the U.S. has in exploiting its shale resources. A number of the state’s cities have enacted moratoriums on fracking, citing environmental concerns over the controversial drilling process. But for many property owners, whose land rights also include ownership of underground hydrocarbons, these bans are an unwelcome barrier between them and a potentially life-changing payday. The National Review reports:

For Colorado’s mineral-rights owners, [recent fracking bans] are a disturbing trend, says Dan Stroh, a businessman who owns property throughout the state. “When I buy property, I buy a bundle of rights, and my bundle of rights includes the minerals,” he says. “I should have the right to explore and take the minerals. I should be able to, because I own it, I paid for it, I paid property taxes on it, and the public did not…. It’s not right for them to preclude me from exploring, under controlled circumstances, my full bundle of rights on my own property.”

Greens will contend that property rights mean little if and when activities on your land affect your neighbor’s, and to an extent they’re right—localities need to ensure that wells are sited smartly, cement casings are installed correctly, and wastewater is disposed of responsibly.

But the fact that Americans are afforded mineral rights is a key factor in what has been, so far, an inimitable formula for shale success. Many in the U.S. take it for granted that they have ownership of more than just the surface of their property, but in other countries, these mineral rights default to governments. That’s made it difficult for drilling companies to make headway, because landowners don’t have the same incentive to sign off on disruptive drilling. In the U.S., individuals are compensated by these companies for the risks they assume. Compare that with the UK, where a lack of mineral rights has led to local protests so vociferous that they’ve managed to block drilling altogether.

A wide variety of factors—from favorable geology to deep capital markets to mineral rights for property owners—helped the shale boom take off in the U.S., and have made this energy revolution devilishly tricky to replicate abroad.

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  • Boritz

    Don’t see the difference. Either way you can ‘t drill. Take another example of US vs. Europe. In the US as soon as you close on your house you are awarded the deed document which you can file away in your home office. You may owe $600,000 on the house but you’ve got the deed. In France you are not awarded the deed until you pay off the mortgage. In both countries you lose the house (at least that was the tradition) if you stop paying the mortgage. Holding the deed or ‘owning’ the mineral rights can be thwarted.

  • Jacksonian_Libertarian

    This is only 1 of the reasons American shale oil will continue to vastly outshine, shale oil development in other countries. Another reason is that companies are less likely to have their developments Nationalized (stolen) by the Government. Most of the nations with potential shale oil, have a history of Nationalization. The expertise in fracking and horizontal drilling developed by drilling companies in the US is proprietary, and not easily stolen by Government Bureaucrats. So these companies if they consent to develop national resources at all, will charge an arm and a leg up front as the risk of working for known crooks is very large and ethically repugnant. Also why waste your time when there’s so much left to develop in the US where your profits and property rights are protected.
    It is a little known fact that the productivity of American shale oil wells has been skyrocketing because of the expertise the drilling companies have gained. This is why although the number of drilling rigs has fallen significantly in various regions, production continues to be added at a similar rate as before. I doubt national oil companies without the “Feedback of Competition” can build a similar expertise, so their developments will be both very expensive and disappointing in productivity in comparison.
    In conclusion the development of shale oil in places like Mexico, Russia, Venezuela, China, the Middle-East, etc… is unlikely to provide even a fraction of of the production the talking heads, and national and international bureaucrats are all speculating about.

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