The promise of money is enticing, but before signing a mineral rights lease in the midst of the current shale boom, landowners need to do a lot of homework.
That was the message Dale Arnold, director of energy policy for the Ohio Farm Bureau Federation, brought to members of the Washington and Monroe County farm bureaus Thursday evening in the Graham Auditorium at Washington State Community College. Intense interest in the mineral resources of the Utica and Marcellus shale formations, accessible by newer deep, horizontal drilling methods, has led some area residents to sign new mineral rights leases and many others to at least consider it.
If the area starts seeing the kind of 21st century, horizontal drilling and hydraulic fracturing technology being used in Pennsylvania and New York, the type of leases used in years past aren't going to cut it, Arnold said.
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EVAN BEVINS The Marietta Times
Dale Arnold, director of energy policy for the Ohio Farm Bureau Federation, discusses oil and natural gas leasing issues during a presentation to members of the Washington and Monroe County farm bureaus Thursday in Washington State Community College’s Graham Auditorium.
"That five-page, 1990s-style lease ... is not going to begin to attempt to address everything you need to talk about to accommodate this type of technology on your farm," he said.
Arnold went over a number of factors landowners should consider when negotiating a lease during his nearly two-hour presentation. He stayed for more than half an hour afterward, answering individual questions.
Warren Township resident Jay Van Horn, 58, said he found the program enlightening - and wished he'd heard it before signing a lease that took effect in September of last year for the mineral rights on his 86-acre farm in Morgan County. If the company doesn't pay him by March 27, he'll be free to pursue another lease. Van Horn's hoping that will happen so he can get a higher per-acre bonus payment and additional protections and benefits.
Fact Box
What's ahead
- Oil and gas issue briefing by Dale Arnold, Ohio Farm Bureau Federation - 9:30 a.m. March 24, Swiss Hills Career Center, Ohio 78 east, Woodsfield.
- Southeast Ohio Fracking Interest Group sponsoring video presentation of Cornell University professor discussing the horizontal fracking process, the industry and the environment - 7 p.m. March 27, Unitarian Universalist Church, 232 Third St., Marietta.
"It's given me better ammunition for next time," he said. "There (were) things that I just wasn't aware of."
One example was when Arnold told those in attendance that even if they weren't entitled to free natural gas under their deal - that's only available to the owner of the land on which the well head is located, not people whose land is part of the overall parcel - they can negotiate for other considerations.
State law limits the amount of free natural gas available under an arrangement like that to 300,000 cubic feet. Those who aren't entitled to the free gas could ask instead for an allotment of that much gas to "sell back" to the company. The money they make could pay for their energy needs for a year, he said.
"This is not a printing press to make money, but it's not chump change either," Arnold said.
Arnold noted that not everybody will be able to negotiate their arrangements since they may be operating under leases signed years ago. But there are steps to take to avoid getting locked in to unfavorable lease conditions.
Old leases can be canceled under provisions of the Ohio Dormant Minerals Act.
"That gives you the ability basically to start negotiating free and clear," Arnold said.
Sometimes the company holding the old lease - which may not be the one who originally signed it, since leases are frequently bought and sold - may contact a landowner saying they are owed money for payments not made over the years. But accepting that money can automatically renew a lease, so Arnold recommends holding onto it, rather than taking it straight to the bank. The company will likely make contact within a few months.
"You get one of those checks, sit on it for a while," he said. "See who comes to the door."
If the company approaches the landowner about redoing certain lease provisions, that opens up the entire document to new negotiations.
"Let's bring the lease signed by Grandpa in the '50s, '60s and '70s up to the standards of 2012," Arnold said.
Landowners should also negotiate for approval of the placement of wells, tanks, access roads and other features on their property, compensation for damages and shut-in royalties, minimum payments for when a well could produce but isn't due to market conditions.
Having legal representation to help with the leasing process is essential, he said. People should check with prospective attorneys about their knowledge and experience in the field, and seek help from someone specializing in such matters.
"Ignorance is bliss, but incredibly expensive," Arnold said. "You're going to need (an attorney)."
Arnold also recommended people be just as selective when vetting landowner organizations to join with an eye toward leasing mineral rights.
"You're going to have to practice as much diligence signing into a landowners association as you are signing a lease," he said.
People shouldn't expect a landowner association to eliminate the need for their own attorney, Arnold said. While most associations have attorneys working with them, that individual represents the group, and some issues may necessitate a person having their own counsel.
Arnold also stressed the importance of doing baseline testing to determine if the drilling and hydraulic fracturing processes have had a negative impact. In addition to water production and water quality, baselines should be established for soil quality and production yields as well.
Local soil and water conservation districts, health departments and the U.S. Department of Agriculture's Farm Service Agency can assist in such testing, Arnold said.
