Driving north from Columbus along State Route 23, Dale Arnold offers a reminder.
“John D. Rockefeller didn’t make his money in Texas. He made it in northwest Ohio,” said Arnold, Ohio Farm Bureau’s director of energy policy.
He is on his way to meet with a group of landowners in Wyandot County after receiving calls from Farm Bureau members concerned about recent offers to drill for oil and gas on their properties.
For many here, this is something new. Oil and gas exploration had all but disappeared since the days of Rockefeller. But farmers are finding out that reserves still remain, and the companies are coming back to get what their predecessors left behind.
To get a sense of what’s coming, Arnold said farmers can look to the east.
His advice: “You need to start asking questions.”
Today, you may have to circle the Carrollton town square once or twice before finding a parking spot.
“It didn’t used to be like that,” said John Davis, president of the Carroll County Farm Bureau in eastern Ohio.
He walks through the courthouse pointing out tables set up in the hallways, makeshift workstations to accommodate people searching property records. Another room is filled with people thumbing through old books.
It all began a few years ago when locals started to notice strangers with southern drawls – oil and gas men out of Texas and Oklahoma. New technology was allowing drilling companies to explore for minerals in the Marcellus and Utica shale formations that lie deep under this part of the state. Soon, farmers were approached by landmen who were offering payouts in exchange for signing a drilling lease.
Ron Carlton, who owns a tree farm, saw things were going wrong. Some leases offered a small fraction of what the minerals were likely worth. Others tilted the terms completely in favor of oil and gas companies. One landowner might be offered $100 per acre while another would get 10 times that.
Carlton realized, “The best thing we could do to protect ourselves was protect our neighbors.” He helped organize a group of property owners who could pool their acreage and strengthen their negotiating power.
“Probably the most meaningful thing we did for Carroll County was to bring in the competition,” said Lynn Anderson, a landowner who has also been involved in group negotiations.
With a more competitive leasing process, payment offers started to increase.
“It was all about helping neighbor to neighbor to neighbor. We knew that in fact we’d be helping ourselves,” Anderson said.
But keeping a group together wasn’t easy. Some landowners needed the money sooner than others and were ready to jump at the first offer. The confidentiality of the negotiations left some wondering what, if anything, was being done on their behalf. All the while, landmen were tempting members to leave the group.
“What you need is good, solid community leaders,” Carlton said.
In the end, the landowner group was able to negotiate higher bonus payments and royalty rates as well as leasing terms that protected themselves and the community. A surplus in funds, which group members had paid to cover administrative costs, was then donated to local charities.
While lease prices appear to have leveled off for now, signing bonuses had climbed as high as $5,800 per acre with royalties between 12 and 20 percent. Tens of millions of dollars were pouring into the county seemingly overnight.
Community in Transition
A few blocks down from the courthouse, Amy Rutledge, director of the Carroll County Convention and Visitors bureau, catches her breath before reflecting on what has happened to her small town. She’s soon interrupted by the phone and it’s not too long before she has to excuse herself for a visitor.
“All those wells going up, any way of getting a map of that?” the man asks.
Rutledge takes the increased activity in stride, but knows that it has only just begun. And community members are still sorting out just what lies ahead. She said many farmers in the area had scraped by their entire lives, and now some of them are trying to understand what it means to be a millionaire.
“They talk to their minister because they’re not used to dealing with financial planners,” she said.
New money will likely be reinvested in farms – an opportunity to build a new barn, pay down loans or to upgrade the tractor. But some may see an avenue to leave behind a risky business and a grueling work schedule, which could have impacts on the local farming infrastructure.
A Penn State University study recently found a correlation between an increase in drilling and a decline in dairy production.
“Agriculture plays important local economic, environmental and social roles, so it’s important to understand the implications of Marcellus Shale development on farming,” said Timothy Kelsey, professor of agricultural economics.
According to Rutledge, people have recognized that there will be challenges that come with the opportunities. For example, some community members will benefit more than others, meaning there could be social tensions. Home and apartment rental prices are expected to climb as more people come looking for work, putting pressure on low income residents. And in an area that has battled unemployment, there is now concern about the ability of local businesses to retain their skilled workers as more job opportunities open up.
“The hope is that all of the people who want a job can get a job, and that’s going to happen,” Rutledge said.
Not surprisingly, some who moved to Carroll County for its bucolic setting are bristling at the possibility of development.
On the other hand, local charities and nonprofits are thinking through ways to allow people to give, when few had the opportunity to give before. New businesses, such as equipment rental services, are coming to support the drilling industry. And there is more incentive for investment in infrastructure-from broadband and cell phone service to roads.
One thing is for certain, “They tell us it’s going to look a lot different five years from now,” Rutledge said.
Making the Most of It
Just outside of town, changes can already be seen at FFA Camp Muskingum. Todd Davis is the executive director of the camp, which provides young people with opportunities for recreation, leadership development and conservation education.
He walked through the wooded campgrounds showing off construction on a building that will accommodate teachers and chaperones. Farther up the hillside, a new nature center is being built. Standing in what now is a parking lot, Davis beams as he describes his vision for a lakeside meeting facility.
The camp, which is primarily self-funded, would not have been able to make these investments so quickly, Davis said, if it hadn’t received a financial boost when it leased its adjacent farm for drilling.
“We got a good lease and that was the most important thing,” Davis said of protecting the integrity of the camp.
Done safely and responsibly, Davis believes the oil and gas exploration can offer a real life lesson on how people can benefit from natural resources.
“If it’s in your backyard, it’s in your backyard,” he said.
But those ideas are now being put to the test as drilling in the county gets underway.
When Keith Burgett’s son showed him the map of the road that would cut through their pasture, he knew his prized shingle oak tree was likely gone.
The Carroll County veterinarian and cattle farmer had mentioned the sentimental value of the tree to Chesapeake Energy when he negotiated a lease agreement, but realized it stood directly in the path to the drilling site.
Burgett chuckled when he recently drove back toward the large gravel pad on his property. The tree was encircled with an orange construction fence, the road bending around it.
To him, it’s just a simple example of how, once the lease terms were in place, the company has been willing to make every reasonable attempt to work with him.
“We’re in a partnership with them, basically,” he said.
That’s not to say there haven’t been problems. The project required large disturbances to his property. But they’ve worked through them, and overall, he says he’s pleased.
“They treat us very well, from the supervisor down to the lowest guy on the totem pole,” he said.
The company has shut down its equipment to let him move his cattle, put up barriers to protect his buildings and made a wide gravel lane, giving him a place to store round bales. His son, who has been involved with the Soil and Water Conservation District, said there have been no signs of erosion.
Burgett believes that with a partnership approach, the overall impact from drilling will be good for Carroll County. But like many others in this community, he is well aware of the need to prepare for the challenges that development will bring.
“There’s two sides to all of it,” he said.
Time to Ask
Back in northwest Ohio, it soon becomes clear what Ohio Farm Bureau’s Arnold means when he tells landowners gathered in a Wyandot County meeting hall that they need to be engaged in community planning.
“Congratulations. Welcome aboard. I’m glad you’re all here because you’re now all part of that planning process,” he said.
Already, there are stories of farmers here who have signed leases for just a few dollars per acre when the actual value could be in the hundreds or thousands of dollars.
“It all depends on what’s under your feet,” Arnold said.
Consulting an attorney is expensive, he said, but not having one could cost farmers more. And he cautioned against boilerplate leases that are only a few pages in length.
“Ask for a more detailed lease,” he told them. “Demand it.”
According to Arnold, information is available, and knowledge is power. Now is the time, he said, to think through your goals-as individuals, as families and as a community.
“You already have all of the answers,” he said. “It’s the questions we don’t know.”
Lawsuits show need to research property, study deeds and agreements
Lawsuits filed between landowners and Chesapeake Energy have shown the importance of landowners researching titles to their properties and paying attention to the language of deeds and lease agreements.
In a case filed by a landowner in Harrison County, the court was asked to determine if the language in a deed more than five decades old allowed Chesapeake to set up a horizontal drilling operation that would pull gas from neighboring properties that Chesapeake also holds under lease. The judge agreed with the landowner, ruling that the language in the deed only allows Chesapeake to use the surface of the property to extract minerals from that property, but not to use the surface to extract minerals from other leased properties.
In a case filed in federal court against landowners in Carroll and Columbiana Counties, Chesapeake is challenging landowners’ assertions that a clause in their leases allows them to end the leases if they receive a better deal from another party that Chesapeake does not match.
The rights of landowners and oil and gas companies depend upon precise language found in leases and mineral rights reservations in deeds. Landowners can locate deeds and leases in their chain of title at the County Recorder’s Office with the assistance of a title examiner or real estate attorney. Deeds and leases should then be taken to an oil and gas attorney for review.
Ohio Farm Bureau’s Dale Arnold has helped thousands learn options when considering oil and gas lease agreements.
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