Love It or Lease It

Love It or Lease It

Property owners, who own both the surface and mineral rights, must consider their attachment to the land when confronted by natural gas development. Do they love the land and their full use of it enough to reject a signing bonus and future royalties, or should they sign a lease for financial gain? Some are concerned about environmental damage or lost productivity while others see no risk and are comfortable in taking “free money.”

Conflicting attitudes about natural gas development bring a love-hate relationship to families and communities. Owning mineral rights but not being involved with the land’s surface use generally tips the decision in favor of leasing. But when intangibles like stewardship, heritage, legacy, and quality of life are valued higher than any monetary enticement, resistant landowners may be dismayed to find that by securing enough leases on nearby properties, companies may develop a unit including those who resist.

An uninformed public is likely to offer little sympathy for landowners regarding drilling impacts on their land or the grim living conditions development brings. “They signed a contract, didn’t they?” “Look at the money they’re gettin’!” These comments are typical of individuals who have never heard of unit consolidation through “forced pooling.” Many are surprised to learn that individuals refusing to sign a gas lease cannot stop a company from using their land without compensation on which to locate a staging area, well pad, waste pit, pipeline, or road. Impacts on property rights and property value are significant.

The idea of integrating minerals owned by different individuals into a unit started in Texas, but for very different reasons than why it is used today. In the early wildcatting days many independent mineral owners crowded the Spindletop Oil Field of east Texas, where the modern petroleum industry was born. The well density was so great that if a rig caught fire, it could rapidly spread placing multiple owners at risk. Wells in close proximity also led to mineral exploitation. In order to control development of the resource and provide an element of fire protection, the government created a system for establishing minimum spacing between wells within a defined unit of land.

Today the practice has been turned on its head in order to maximize resource development within a unit. Well density is determined by the number of wells needed to extract 100 percent of the resource. Once 50 percent of the unit’s acreage has been leased, the remaining mineral owners, who can be located, are approached to sign a lease, sell their minerals rights or be “force pooled.” Those who are force pooled will receive royalties in proportion to their share of land in the unit, but they will have no voice in the way the work is done.

A Landowners’ Bill of Rights should be passed in the Arkansas Legislature to guarantee landowner protections when dealing with gas companies. The time has come to change the current scenario where landowners lose property rights and “free money” comes at great cost.


Categories: Commentary