bp prudhoe oil field indian affairs

Judges and assessors assign values
land rent maryland leasehold location

Winners and losers in the race for rent

An Alaskan judge ruled against BP, a Maryland judge awaits testimony, and Maryland assessors know a pricey site when they see one. We trim, blend, and append three 2011 articles from: (1) Associated Press, Jan 5, on Alaska; (2) Baltimore Sun, Jan 6, on Maryland by Andrea F. Siegel; and (3) The Capital, Jan 9, on locational value by Bob and Donna McWilliams, real estate agents with more than 20 years of combined experience in the Annapolis area.

by AP, by A. F. Siegel, and by B. & D. McWilliams

BP PLC has closed a small portion of the Prudhoe Bay oil field following a judge's ruling that they owe landowners more rent.

In November, federal claims court Judge Nancy Firestone said the Oenga family, Inupiat Eskimos, is owed millions in unpaid rent because the Bureau of Indian Affairs allowed BP to tap three offshore oil deposits from the family's allotment without the family's consent.

The federal agency told BP a week ago to shut down production from the Raven unit, which produced about 25,000 barrels of oil in November. Friday's shutdown affects less than 1% of production from the nation's largest oil field.

Oenga family member Tony Delia said last week that the family is willing to renegotiate the lease. "Earlier this month we made BP a fair offer -- pay what is owed and we will renegotiate the lease so they can use our land to produce from Raven and wherever else they want to drill. They haven't responded.Ē

The dispute involves a sliver of land called Heald Point that extends into the Beaufort Sea.

The family acquired its 40-acre allotment at Heald Point decades ago for subsistence hunting. In 1989, family patriarch Andrew Oenga signed a contract allowing BP to use the land as a right of way.

In 2005, eight Oenga family members sued the BIA, claiming that BP was paying less rent than the land was worth. The family said it sued because the BIA, which is in charge of collecting the rent from the oil giant, wasn't taking action on its behalf.

The judge sided with the family. She said the BIA owes the family about $5 million for unauthorized use of the land. Firestone also said BP is paying too little for the land it is authorized to use. She is still considering the exact amount owed.

Firestone said in her ruling that trial evidence showed BP withheld critical information about Heald Point's strategic value for oil development when it negotiated the contract with the family.

JJS: Unless they can get away with keeping the entire value of oil to themselves, oil companies pay a lot for oil in the ground. But to whom should they pay? The people above the ground? The local government? The people in the region? The state government? All the people in the nation? Or the federal government? Why not pay as many people as feasible? None of us created oil and all of us create its value. Same goes for surface land.

In Maryland, many people lease the land beneath their homes, especially in Baltimore City, and pay ground rent to their leasers.

A small group of investors had used the old laws to seize hundreds of houses in Baltimore when pittances in rent went unpaid.

The General Assembly adopted a new law that abolished the legal process used to seize homes, banned the creation of new ground rents, and required leaseholders to register their leases with the state or lose them. The registry is the subject of a separate legal challenge.

The leasers challenged Maryland's 2007 ground rent law and will have their day in court. Anne Arundel County Circuit Judge Paul F. Harris Jr. ruled that the issue deserves a full hearing.

The lawsuit argues the legislation made ground rent leases worthless and causes an unconstitutional seizure of private property without compensation. In addition to seeking payment from the state, the lawsuit argues that the laws are unconstitutional.

If they win their case, thousands of leaseholders could seek hundreds of millions of dollars from the state.

JJS: In Marylandís capital, home buyers are reminded what they pay for.

Overwhelmingly, where a house sits is the dominant factor in determining what it's worth. "You can always change the house, but you can't change where it is."

Let's take an average house (2,000 square feet, three bedrooms, two and a half baths), and put it on an average lot in Hillsmere, a nice community in Anne Arundel County, just outside Annapolis city limits. Sited there, people would probably pay about $350,000. Just inside the Annapolis city limits, the value of that same house rises to $450,000. Another half mile closer in, in the sought-after community of Eastport, the price would be $550,000. Finally, on the Eastport peninsula that same house would command $650,000.

So in a span of just a couple of miles, without adding any other variables such as lot size or water views, the price of a house can go up 85% based on nothing more that its location.

Waterfront and water views are why the subdivision of Wardour has the 25 highest assessed homes in Annapolis. That $350,000 house in Hillsmere pays about $3,500 a year in real estate taxes. Conversely, those top 25 homes in Wardour pay an average of almost $50,000 a year. Sure, most of those places have more house, but the majority of the value is derived from the location.

The most important aspect of real estate currently is, and will always be, the location.

JJS: And locationís value is created not by an owner or seller but by buyers, the market, choosing the social advantages and the natural benefits. So, why do we pay the owner or seller who do not create the value and donít pay the members of society who do create the value? If we did the fair thing and shared the value of locations -- the essence of geonomics -- we could make our lives so much better.

---------------------

Editor Jeffery J. Smith runs the Forum on Geonomics.

Also see:

Will BP Make Out Like Bandits From Its Gushing Oil?
http://www.progress.org/2010/oilleak.htm

Guess which tax gets singled out?
http://www.progress.org/2010/taxliens.htm

Even Americans are ready for change
http://www.progress.org/2009/survey.htm

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