Laws In Oil & Gas-Producing States Can Force Homeowners To Lease Underground Mineral Rights

Jul 8, 2019

Deciding what happens on private property might seem like a basic right. But when it comes to fracking, Ohio and other oil and gas-producing states have laws that can force landowners to lease their underground mineral rights to energy companies.

That’s what happened to Patrick Hunkler and his wife, Jean Backs (pictured above). It began in 2010, when a landman for an energy company knocked on their door.

Hunkler didn’t know much about fracking then. The landman offered them $137 an acre for the mineral rights under their 21 acres in Belmont County, in eastern Ohio.

“$137, that’s probably the closest I ever came to signing a lease,” he said.

But they held out. By 2014, they were offered $8,500 an acre.

Concerns for Water

Jean Backs was getting ready to retire. After 30 years working for the Ohio Department of Natural Resources (ODNR), the money might have been nice. But, she worried about the millions of gallons of water used to frack each well, and the waste it creates.

 

Patrick Hunkler and Jean Backs get drinking water for their house from spring water collected in this cistern. They are concerned that fracking could impact their water.
Credit Julie Grant / Allegheny Front

“My big concern about signing a lease would be where’s that water going to come from and then what will happen to it when they’re finished,” she explained. “You can’t know that at the time that you signed a lease.”

But still, her husband, who had worked for the Ohio EPA, and built a passive-solar house with recycled materials, was open to the idea. But he wanted a way to assure a lease would take into consideration his environmental concerns, including the bright lights used at well pads.

“This is a beautiful dark sky out here,” he said. “If there is a well pad down the road, it’s just like Hollywood.”

And landmen pursued Hunkler and Backs like celebrities, making hundreds of calls to the family.

“We would express our environmental concern, the only thing that they could offer us was money – a price per acre, and royalties,” he said.

But making money wasn’t as important to the family as protecting their environment. They say landmen called them foolish. They went as far as following them on vacation, even threatening to bring the sheriff over to force them to sign.

Backs said she felt harassed.

Then in 2017, they got a notice from ODNR that Chesapeake Energy was seeking to unitize their property. That meant the state could force the family to sign a lease under a state law.

An Old Ohio Law Meets Fracking

Heidi Robertson, is the Steven W. Percy distinguished professor of law at Cleveland Marshall College of Law and a professor of environmental studies at Cleveland State University.
Credit Photo courtesy of Patricia Donovan

“We normally think of the rights of the landowner as being things like the right to decide what’s done with your land. Or what’s not done with your land,” explains Heidi Robertson, a professor of law and environmental studies at Cleveland State University.  She published a law review article in 2018 about Ohio’s unitization law.

The law, passed in 1965, was to ensure the efficient extraction of oil and gas. Before, landowners used to setup wells all over their land, without regard to their neighbors. But, too many wells so close together, adversely affected the underground pressure that allowed the oil and gas to be extracted.

So the law requires the land for a well to be a certain size and shape.  For shallow wells, that was an acre.

The law didn’t get much use until the fracking boom. Nowadays, wells snake horizontally for miles, deep beneath the ground. According to industry experts, most land units in Ohio today range from 300 to 1,100 acres.

Robertson says one unit of land can have hundreds of different landowners.

“Then you have to have the agreement of all of the landowners in order to cobble together the rights to drill,” she said.

The problem for energy companies and for people who want to lease their land comes when other landowners in the unit, like Patrick Hunkler and Jean Backs, say no to drilling.

“It’s almost like a veto, a single landowner being able to veto the ability of all the surrounding landowners to drill,” Robertson said. 

Under the law, if a company gets 65-percent of landowners in a unit to agree to lease their mineral rights, it can apply to the state to unitize the rest, forcing dissenting landowners into leases.

Since 2011, the chief of ODNR’s Division of Oil and Gas Resources Management has approved 144 forced unitizations.

Voluntary Leases?

Energy companies offer upfront bonus payments and royalties as a carrot to get landowners to sign leases. Robertson says the unitization law also gives companys’ landmen a stick.

“They come in and say things like’ we’re offering you X amount of money.’ They’ll in fact say if you refuse to quote volunteer you’ll be forced through this administrative process through the state, and it will cost you more.”

Still, energy companies try to avoid unitization, because the state fees, $10,000 to unitize a landowner and attorneys fees can add up. ODNR also requires continued efforts to negotiate with holdout landowners.

Around the Hunklers, one neighbor who leased his land to Chesapeake was fine with it. The signing bonus meant he could take time off work for his back surgery.

 

Jos Miller, a neighbor of Patrick Hunkler, signed a lease with Chesapeake Energy, but felt he was taken advantage of by the company.
Credit Julie Grant / Allegheny Front

But down the road, Jos Miller said he would have been better off without leasing to Chesapeake. He’s an Amish farmer with horses and sheep, and seven children. He teared up when describing what happened. He said he shouldn’t have admitted to the landman that he couldn’t read or write.

“I was desperate,” he said.  

Miller leased his 170 acres for $50 an acre. But he later found some of his neighbors were getting as much as $6,000 per acre.

“I like to be fair so but I guess the world don’t work that way anymore,” he said. “It’s whoever got the most who’s the smartest to wiggle it around.”

A Columbus Hearing

When companies can’t get landowners to sign leases, they can ask the state to step in.

Every month, the Division holds multiple unitization hearings like one in Columbus on May 15. Ascent Resources applied to unitize landowners who have refused to sign a lease. The company brought a geologist, an engineer, and a landman to testify, along with a slew of attorneys.

At the hearing, in front of ODNR staff, the landman details efforts to locate unleased landowners, and get them to sign. The company engineer testified that Ascent’s project is a $20 million investment.  Without those last, unleased tracts of land, the company would lose the ability to collect enough gas for the project to be financially viable.

“That would likely be the difference between what we would pursue vs what we would not pursue,” testified Ascent Reservoir Engineer Taylor Henderson. 

The profitability of the project is the only factor the state can consider in unitization hearing. 

Profits over Landowner Rights?

Megan Hunter, of Fair Shake Environmental Legal Services in Akron, who represented the Hunklers in their case, calls the law unjust.

“I think you have constitutional problems where the reason you’re taking it is because it’s more profitable than not for a private company to develop those resources. So at that point you’re not doing an evaluation of whether there is a public benefit.”

At Chesapeake’s unitization hearings against his family, Patrick Hunkler asked the state to also consider his environmental concerns. But transcripts from the hearing confirm that ODNR told him they had no authority to do that.

“Hey ODNR, we have concerns about our natural resources. Who can we talk to? They didn’t listen to us in the hearing,” he said.

Mark Bruce, administrative officer with ODNR, counters that the unitization process does allow for citizens to comment.

“Mineral owners have an opportunity to be heard verbally or in writing during the process and their comments are always considered,” said Bruce. 

The state has never ruled against an energy company in a unitization hearing. According to Bruce, that’s because companies only apply once they’ve met the state’s requirements.

“The law specifically states that the division must issue an order if the applicant meets the criteria defined by the Ohio General Assembly,” he said. 

Hunter says the process is stacked against landowners. The state has never ruled against  an energy company in a unitization hearing.

“It is just so clear that [the company] is really well represented and the government is often aligned with them in these administrative forums and the citizen is left to fend for themselves,” she said.

ODNR did issue orders for Chesapeake to unitize Hunkler’s property. But after constructing the well pad nearby, the company abruptly sold all its Ohio assets and the unitizations were dissolved.

Now, Hunkler and Backs, along with their neighbors, wonder what will happen with the next company.

Find this report and others at the site of our partner, Allegheny Front. *This story was updated on July 29, 2019 to include comments from Ohio Department of Natural Resources, which were provided after the article was originally published.