OSU Extension Helping Landowners, Communities Handle Shale Gas Issues

November 8, 2011

COLUMBUS, Ohio -- Shale gas development in Ohio could mean thousands of Ohio jobs, windfalls for landowners leasing away their mineral rights, and economic development for struggling communities.

But landowners also need to fully understand the potential financial, legal and environmental ramifications of the highly complex leases, which could last for generations. And public officials often need guidance on the implications for their communities, as well.

Ohio State University Extension is providing such leadership, offering educational programs to landowners, public officials and other stakeholders to help them make informed decisions. And people are asking for more.  

“I’ve been with Extension for 27 years, and I’ve never seen anything like this,” said Stephen Schumacher, an Ohio State University Extension educator in Belmont County. "You can't go to the fair or to the coffee shop without talking about oil and gas."

Schumacher and colleague Mike Lloyd coordinate the OSU Extension Shale Gas Workgroup, which gathers monthly to allow educators, researchers and state Extension specialists to meet with representatives from the Ohio Department of Natural Resources and the Ohio Farm Bureau. Participants give updates about what's happening regarding shale gas around the state -- and across campus, with the university's newly formed Subsurface Energy Resource Center (http://serc.osu.edu).

So far, Extension has offered more than 40 programs attracting nearly 5,300 Ohioans on topics including:

  • Legal and Financial Issues Involved in Finalizing a Lease.
  • Understanding the Geology of the Marcellus and Utica Shales.
  • Business and Economic Impacts of Shale Development.
  • Water and Environmental Issues.
  • Financial Management and Tax Planning.
  • Public Policy and Leadership Education.

The information can't come soon enough. At a recent presentation, Extension educator Mike Hogan recounted a meeting he led in Mansfield last spring in which he offered general guidance on oil and gas leases. "A man came up to me after the meeting and said, 'Well, you're too late for me,' and showed me a lease he had signed selling the mineral rights on his land for $5 an acre." In eastern Ohio, landowner groups recently have been selling such rights for up to $5,000 an acre as a signing bonus, with up to 19.5 percent royalties.

Schumacher said Extension is in the unique position of offering guidance as a disinterested third party. "We're not for or against the drilling. But we want to make sure people have the information they need to make good decisions, and we can help people work together to try to do things right."

That's just what Licking County landowner Fred Schwarz was looking for. Schwarz, who owns a total of 132 acres in two parcels, was approached by a landman seeking his mineral rights.

"We had a lease offered to us and I wasn't comfortable with it," Schwarz said. Although neighbors signed away mineral rights for $10 an acre, Schwarz contacted some local law firms to get their advice. "I still wasn't sure if I was getting good information, so a paralegal I talked with told me to contact Extension. My local office put me in touch with Steve Schumacher, and he set the matter straight. As an outside person who doesn't have a stake in this game, his word had a lot of influence. It made all the difference in the world."

Hogan, Schumacher and other educators strongly encourage all landowners to consult with a lawyer familiar with shale oil and gas leases before signing anything. That advice is echoed by Peggy Kirk Hall, director of OSU Extension's Agricultural and Resource Law Program.

"My advice is that the first contract you see is probably the worst contract you can sign," Hall said. "The contract that's first presented to you isn't going to reflect your best interests. You want to extend the conditions of the lease to include what's important to you."

Hogan said, in general, he tells landowners that a lease should cover both economic and environmental considerations.

"You want to make sure groundwater and future land use is protected, for you and your heirs. Even if you're a young person, the lease you sign will affect your kids for a long time to come," Hogan said. "And bad leases are worse than bad marriages -- it's a lot harder to get out of a lease than a marriage. Keep that in mind."

Some of the issues landowners should consider building into leases include:

  • Protecting groundwater resources. "I saw one contract in which the landowner put in a clause that if anything happened to their water supply, the company would replace the water for 20 years," Hogan said. "Twenty years? I think it should be 'in perpetuity.'" Any landowner considering a lease should get their water supply tested by a third party and pay for the testing themselves to act as a baseline.
  • Air quality, noise, additional background radioactivity could also be considerations, as well as "viewshed" issues -- preserving the view from the home or the road.
  • The right for a company to construct a pipeline, to use surface or groundwater in the drilling process, to store water, gas or oil on the property, or to construct injection (disposal) wells should all be covered under separate agreements.
  • Landowners might want to consider including a non-development clause in their lease, which would prevent companies from constructing a drill pad on their land. With horizontal drilling technologies now being used, companies can mine the gas and oil resources beneath the surface up to a mile from the drilling site.
  • Specify that only oil and gas and their constituents are included in the contract. "Who knows what else might be valuable 50 years from now?" Hogan said.
  • Include specifics about the location of any roads or structures the company can build on your land.
  • Make sure the lease term is clear and what type of activity could extend the lease.
  • Include a negotiations or arbitration clause in case questions come up in the future. Also, it's helpful to have a "commencement of operations" clause that requires a company to begin drilling within a certain time period after receiving a drilling permit.
  • Consider joining -- or forming -- a landowners' group to band together to be in a better negotiating position with companies. Schwarz, the landowner in Licking County, is trying to do just that. "I think that's the way to go," he said. "We can pool our resources and our influence to get the best deal."

These are just a handful of issues landowners need to consider when considering leasing their land's mineral rights, Hall said, and none even touch the terms for bonus and royalty payments -- which is what most landowners think of first.

"I can't emphasize enough -- before signing anything, get advice from an attorney experienced in mineral rights," she said.

In June, Hall offered a symposium on the legal issues surrounding the shale gas plays. More than 120 attended, and she continues to take calls from lawyers interested in learning more.

Also in June, OSU Extension organized a tour to Pennsylvania for 23 Ohio public officials, who saw firsthand the shale gas plays in the eastern part of the state and learned from their Keystone State counterparts' experiences.

"Ohio isn't the first guinea pig," Hogan said. "We're the second or third guinea pig. We can learn from others' experiences -- our learning curve won't be as steep."

As a result of that tour and other legwork done by local officials, Hogan said, Jefferson County is now recognized as a model for properly preparing for a surge in truck and heavy equipment traffic on rural roads that results from shale gas development. "They're really doing things right," he said.

More information on the legal issues around Ohio's shale oil and gas production is available at http://aede.osu.edu/programs-and-research/agricultural-and-resource-law-program/law-library/oil-and-gas-law. In addition, the Ohio Department of Natural Resources' Division of Oil and Gas Resources Management has extensive information on shale development at http://www.ohiodnr.com/mineral/shale/tabid/23415/Default.aspx

 

Author(s): 
Martha Filipic
Source(s): 
Steve Schumacher, Peggy Hall, Mike Hogan, Fred Schwarz