Mineral Rights and Wrongs: Contemporary Oil and Gas Leasing Contracts As Artifacts of Social Inequalities

How are social inequalities embedded in legal instruments? I answer this question using the case of mineral-rights lease contracts negotiated during the US shale-energy (i.e., “fracking”) boom. Under typical leases, lessee-firms agree to pay mineral-rights-owners (lessors) specified royalties, paid monthly or annually, once they begin production from leased tracts. The royalty is a percentage of the production-value of oil or gas. Fracking has generated enormous revenues: in 2014, private lessors received an estimated $39 billion in royalties.

However, lessors can experience wide variation in lease terms, especially royalties. Scholars have begun documenting local economic, environmental, and social impacts of fracking. Yet we only have limited, localized qualitative evidence of leasing outcomes, which suggests that socioeconomically disadvantaged lessors and communities receive unfavorable terms compared to more privileged individuals and areas. I evaluate such claims systematically and across locations.

I draw on socio-legal studies, economic sociology, and inequality literatures. Although market forces, property rights, and contract rules can guide transactions, they neither determine economic relations nor necessarily lead to efficient outcomes. Instead, economic transactions are embedded in and influenced by non-market, extra-legal social forces (e.g., trust, networks, norms) (Macaulay 1963; Granovetter 1985).

Building on an underutilized socio-legal approach to contracts as “social artifacts” (Suchman 2003), I situate mineral-rights leases as material objects produced and negotiated by actors but structured by social contexts and (potentially) constitutive of inequalities. Underrepresented groups and communities experience disparities across domains – pollution, housing, consumer-credit, labor markets, etc. (see Lobao et al. 2007; Massey 2007). I examine how social characteristics (e.g., race, class, and property-ownership) of communities and lease-holders affect contract outcomes (royalties), net of purely economic factors often cited by industry.

I combine a propriety dataset of mineral-rights leases with sociodemographic Census data, resulting in a sample of 260,945 observed leases recorded during 2010 across 2,830 Census-tracts and 18 states. I estimate multilevel models to distinguish between individual and contextual effects on disparities in royalties. The main individual-level variable of interest is lessor’s race/ethnicity, which I proxy using established methods. Primary Census-tract-level predictors include percentage identifying as Black or Hispanic, education, income, and non-English speakers. I control for lease-size, lease-term, supply, and market factors (e.g., geology, recoverable oil and gas, market prices). Preliminary findings indicate Black and Hispanic lessors receive lower royalties than white counterparts.

With this paper, I add a new institutional domain – mineral-rights contracting – to literatures on inequality and a contracts-as-artifacts approach to theories of property rights and contracting. Moreover, by revealing disparities embedded in these leases, I offer sociological insights into contemporary debates regarding fracking. 

References 

Granovetter, Mark. 1985. “Economic Action and Social Structure: The Problem of Embeddedness.” American Journal of Sociology 91(3):481–510.

Lobao, Linda, Gregory Hooks, and Ann Tickamyer. 2007. The Sociology of Spatial Inequality. Albany, NY: SUNY Press.

Macaulay, Stewart. 1963. “Non-Contractual Relations in Business: A Preliminary Study.” American Sociological Review 28(1):55–67.

Massey, Douglas. 2007. Categorically Unequal: The American Stratification System. New York: Russell  Sage Foundation.

Suchman, Mark. 2003. “The Contract as Social Artifact.” Law and Society Review 37(1):91–142.