By Matt Reese
As the oil and gas boom is in full force in many parts of eastern Ohio, words like shale, Marcellus, directional drilling, seismic testing and deep wells have almost become part of the regular vocabulary in many of those communities. These terms may sound somewhat more foreign, though, to landowners in other parts of the state as Ohio’s energy resource boom marches westward.
“We are seeing this in the northwest part of the state now and not just the northeast,” said Dale Arnold, director of energy services for the Ohio Farm Bureau Federation. “We have been seeing this movement quite a bit in the last year or two. A number of farmers have been calling from Delaware, Richland Crawford, Morrow, and Wyandot Counties. We’re seeing a tremendous amount of leasing activity in southwest Wood County as well. Williams, Fulton and Henry are seeing oil and gas land agents talking to farmers about leasing activity. I have gotten calls from Hancock, Mercer, Darke, Shelby and Montgomery County, and all the way down to Butler County.”
If the area has a history with oil or gas production, chances are there is still some there.
“In talking with a number of petroleum geologists here in Ohio, they feel that there are still oil, natural gas and natural gas liquids in many areas,” Arnold said. “During the 20th Century, we drilled over a quarter of a million wells in Ohio. Due to the technology at that time, we got between 40% and 60% of those resources out of the ground and there are a number of companies very interested in coming back and getting the rest of that. If you have seen any type of oil and gas production project, odds are you are going to see exploration of that area again.”
As individuals representing energy companies begin to show up in the neighborhood, it is important to find out several things.
“Is the leasing agent working ‘for’ a company or ‘with’ a company? These are two different things,” Arnold said. “Working for a company means that the land agent is working directly for a the company which would be doing the drilling on your property. They have a very specific area to cover and they can give you a list of names and numbers to contact.
“There are a lot companies that are working with oil and gas producers, which means they have no allegiance to one company. They are contacting landowners and putting together portfolios of leases that they want to gather for one particular file and sell that portfolio of leases to a company. Those agreements are more speculative in nature and the value of that lease will change as it changes hands.”
From there, there are many situation-specific factors that need to be considered.
“Some folks have a brand new lease and they want to know about bonus provisions and what is a good royalty to expect. They want access to legal council to help interpret these complex lease agreements that may be 20 pages long. They are wondering what questions they need to ask when working with a developer,” Arnold said. “There are also people with an old lease on their property, maybe from grandpa or great-grandpa. Those folks want to know what rights, responsibilities and options they have to re-negotiate provisions of old leases. Many of the old leases did not detail the protection of soil and water resources. If given the opportunity to re-negotiate, what do they need to do to make sure that happens?”
It is also important to remember factors other than financial.
“People concentrate more on the financial things, but people also have to look at things like repair and compensation of crop damage,” he said. “The wellhead is only one part of this. There are service roads, service lines, equipment and other things. Unless you specify in the lease that you have the right to tell them where those pieces of equipment are placed, they will put them anywhere they see fit. This could even be right in your front yard. Unless you specify that you have a final say, you could have some problems with this.”
Fortunately, as the oil and gas craze moves westward, farmers can learn from the experiences of their neighbors to the east.
“Farmers have become a little wiser. There are people asking a lot of good questions now,” Arnold said. “My first meeting on this was at the beginning of this boom back in February of 2008. What is a concern right now are the farmers in central and western Ohio that might not be aware of all of these things because they have not been exposed to this kind of thing for decades in those areas. For example, I have heard that there are land rental agreements being offered for $10, $15, $25 or $30 in some places, but our friends in eastern Ohio are getting much more than that. Take your time and think about this very seriously.”
There are many other considerations as well, based on the situation.
“Farmers really need to think about these land rental payments. These can affect your farm for 2 or 3 generations. This needs to be beneficial for everyone long term and you need to consider how it can affect the future of the farm and the land,” Arnold said. “There can also be some tax issue when these large royalty checks start coming in. Sometimes family mediators are needed when working these things out. What about philanthropy? Many of us have felt like we wanted give money to our community if we ever had the money. These kinds of things all need to be accounted for.”
Ultimately, no matter what the details are, careful consideration is the most important factor for a successful outcome.
“Take your time. That oil and natural gas has been in the ground for 250 million years, it can stay there a little longer,” Arnold said. “There is no deadline on these projects. Get good and competent legal council. Everything is negotiable. Make sure a lease represents and fits your particular needs for your farm or rural residence.”
To find out dates and locations of informational meetings related to this topic, contact a local Farm Bureau office or visit www.ofbf.org.
Arnold said other good resources on this issue include:
• The Ohio Department of Natural Resources Oil & Gas Resources Management 4383 Fountain Square Drive, Bldg. B-3 Columbus, OH 43224-1362, (614) 265-6922
• The Ohio Oil and Gas Energy Education Program (OGEEP) P.O. Box 187 1718 Columbus Road SW Granville, OH 43023 (740) 587-0414
- Ohio State University Extension (OSUE) Water Testing Basics http://ohioline.osu.edu/aex-fact/0314.html. Where to Have Your Water Tested http://ohioline.osu.edu /aex-fact/pdf/0315.pdf
• The Ohio Oil and Gas Energy Education Program (OGEEP) P.O. Box 187 1718 Columbus Road SW Granville, OH 43023 (740) 587-0414 www.oogeep.org.