Replies to This Discussion

Permalink Reply by Finnbear on October 10, 2011 at 5:18am

If you are a surface owner who doesn't also own the oil and gas rights you need to do a few things.

Find out who reserved those rights away and when.

Find out if that person ever exercised those rights (signed a lease, sold them, etc.).

If it has been a long time (20 years or more) since they were reserved and nothing has been done with them, contact a good oil and gas experienced attorney and try to have them vested back to you through the Ohio Dormant Minerals Act and the corresponding sections of Ohio Revised Code. If the attorney is not IMMEDIATELY familiar with the previous sentence, hang up the phone and look for a good oil and gas experienced attorney.

If you go through the Dormant Minerals Act and are NOT successful in regaining those rights, have your attorney contact the mineral interest holder and try to determine their intentions. If the mineral interest holder intends to lease, tell them that you have concerns about these surface use issues and that you would like to partner with them in the process so that your land is protected. If they are not willing to cooperate, have your attorney tell them that you will fight them and the lessee on ANY surface disturbance that they intend to do on your land. This will cause them to at least re-think their position as it will affect them financially with respect to their lease activity. Oil and gas producers don't normally want to be stuck in the middle of surface owner vs. mineral holder disputes and will shy away from any activity on those parcels until the issues are resolved.

If the oil and gas rights HAVE been leased by the interest holder, get a copy of the lease. Not just the memorandum copy that may be on file with the county (although this is a good place to start), but the full copy from the lessee who holds it if possible. You have to know exactly what is contained in that contract before you can even begin to address any of these issues. See the previously mentioned attorney and ask about the concerns listed above.

On to your concerns listed above:

1) If you prepare as I have outlined above, you may well have some say in the locations of these surface disturbances. A lease can be signed by the rights holder that has a "no surface use" clause. It can specify that the surface owner must approve all locations. It can and should have a "no pipelines" clause which causes the pipeline people to negotiate a separate contract with the surface owner on the pipeline right of way.

2) Drilling pad - get a copy of the lease. Most of the recent shale leases have property use or surface use clauses that spell out how much the lessee pays out for the well pad, how much acreage can be used, how it will be maintained, location from existing buildings, etc. . All the leases that I have seen spell out that the "lessee shall pay to the lessor" damages fees for the drill pad location, fresh water impoundment ponds, crop damages, timber use, etc. In this case, where the lessor is NOT the surface owner, these fees should go to the surface owner, and not the lessee. Their intent is to cover damages incurred by the drilling process and the mineral interest holder is suffering NO damages because the do not own the surface rights. See your attorney, but I believe you have a case for collecting those fees, should that damage occur. For this very reason, oil and gas producers normally will not do any surface activity on leaseholds where the mineral interest holder and the surface owner are not one in the same.

3) See 2) above

4) Have your water tested and documented BEFORE any surface activity takes place on your property or anywhere within a half mile of it and pay for it yourself.

5) Water supply usage - it all depends on the lease being offered. The preparations I listed above could cause the lessor to require the inclusion of a "no water use" clause on the lessee which causes them to have to truck water in from an outside source. Many of the better shale leases I've seen are now including this as an addendum.

6) Some of the better shale leases require the producer to pay the increased real estate tax caused by the oil and gas activity. The fact that producers are willing to do this means you may be able to get them to pay this for you, especially since you were not a party to the transaction that caused the increase. See your attorney.

As to retaining half the mineral interest, I wouldn't do it. i would either take all the interest or price the land+rights and market it accordingly. Splitting the interest makes you a business partner with all future owners and brings into the equation all the problems you mentioned above plus more - not a good or efficient way to do business (unless you are an attorney).

Permalink Reply by Farmer P on October 10, 2011 at 10:49pm

Thanks Finnbear!  Very educational.  I am looking at purchasing surface rights on some acreage.  The owner wants to retain the oil and gas rights under an old lessee friendly 2008 lease.  I want to be sure to include surface owner damage compensation for crops, timber, etc. to address my concerns above in a legal document (the deed?).  Any additional thoughts?

Permalink Reply by Finnbear on October 11, 2011 at 1:03am

You need a copy of that deed first, before you can even think about damage compensation or any other protections. Because it is under lease, the property is bound by that lease until it expires. What is the term of the lease? Is there a renewal specified in the lease? Is it just a lease from 2008 or has a well been drilled which would result in the lease being HBP until the well is capped? The protections specified by that lease are about all you can get at this point unless you can get the current property owner to agree to compensate you for damages that may result from the actions of the oil and gas producer. I don't see that happening as he would be assuming responsibility for the actions of the oil company who he has NO control over. If I were you in this case, I would want that half interest in the mineral rights (make sure the deed specifies gas & oil) to be included in the sale of the land to me. That half interest will be an eternal headache for both you and the previous owner in the future if you don't both agree on issues concerning the oil and gas but it would at least afford you a little bit of leverage with the lessee.

Permalink Reply by Hunter on October 11, 2011 at 2:05am

All the dual ownership issues are solved by one party having executive rights. Most likely the seller. He would have control over all mineral rights but bonus and royalties would go to both mineral owners at whatever percentage of ownership they had. I would find it hard to believe someone selling surface would give up any mineral rights at this time. If they did the cost of the land could easliy be twice as much than just the surface would go for.

Permalink Reply by Finnbear on October 11, 2011 at 2:16am

And if the seller makes an executive decision that impacts the surface owner in a negative way, does the s-o have recourse?

Permalink Reply by Hunter on October 11, 2011 at 2:37am

In texas no but here I am not sure.

 

I saw the story last month on the jewitt sportsmans club which had no mineral rights stopping chesapeake from drilling. In texas they would be drilling. Mineral rights trump surface, but in Ohio I am not sure that is the case.

Permalink Reply by Finnbear on October 11, 2011 at 2:40am

As the surface owner I'd rather share the rights than give executive rights to one party. I'd want as much control as possible, even if it were only 50%.

Permalink Reply by Hunter on October 11, 2011 at 2:49am

So would I, but that is probably not an option now. What is the value of surface land in eastern ohio right now for farming or recreation? Two years ago it averaged 2000 acre. It might have come with mineral rights but that probably didnt factor into someone's decision(unless it came with free gas lol) Right now the mineral rights alone are worth 4000-5000 acre just in bonus. What is the royalty worth? Maybe millions on a 100 acres. Surface and minerals together are a thing of the past for eastern ohio. For the person still interested in farming or recreation land they are just buying the surface.

Permalink Reply by Farmer P on October 11, 2011 at 3:24pm

It is now in my court to draw up a deed for the seller to approve and sign.  I am going to request all surface damage compensation from the lessee to the lessor to be passed on to the surface owner as well as some of the other issues mentioned above.  I realize that some of the requests will be void if the property is drilled under the current lease since I did not own the surface rights when that lease was signed and my terms weren't in effect.  Does anyone have a sample deed of this sort for my reference?  My next step is to meet with an attorney.  Thanks for your help.

Permalink Reply by Farmer P on October 11, 2011 at 3:12pm

Did the Jewett Sportsmans Club legally stop the drilling or was it more of a PR reason that Chesapeak pulled out?

Permalink Reply by Hunter on October 11, 2011 at 3:25pm

The news story I saw was on News 9 I believe. During that story they interviewed an attorney whose name I have seen on here before and he specifically said without permission from surface owner they could not drill. I found this article just now so some agreement is being reached

http://wowktv.com/story.cfm?func=viewstory&storyid=107341

Permalink Reply by Hunter on October 11, 2011 at 3:31pm

Here is the original story with a quote from a jefferson county attorney about surface owner rights

http://www.wowktv.com/story.cfm?func=viewstory&storyid=106540

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