Michigan recently auctioned off mineral (oil and gas) leases, and some were in neighborhoods in and around Oakland County’s tony lake shores, the State’s wealthiest county. This was accompanied by a slew of concerned emails. So, how did this happen; what does it mean; can the property owners stop it; and can this happen in my backyard?
Interestingly, the State retained the mineral rights when it conveyed the property; in some cases, it is tax reverted property. In some cases, the properties have been tagged for “development,” which means a well may go there and in others, not.
Can it happen to you? Maybe — check your deed. If someone (the State included) reserved the mineral rights out of your title, then yes, it can. If not, then no, it can’t happen to your property unless you agree to lease the mineral rights to someone. That doesn’t mean you may not see an oil or gas well in your neighbor’s yard.
Can the property owners stop it? Maybe — temporarily. Many property owners are at least talking about trying to out-bid the oil and gas companies at the auction. Emails flying around say one might be able to bid $10 to buy the rights. The problems are that the leases only last 5 years, require a bond of at least $10,000 (which the emails make no mention of), and if one can buy them for $10, how likely was it that someone in the industry thought they were worthwhile? Another approach would be to seek to enjoin the drilling but there are many problems with such an approach to stop something that is legal and arguably can be done safely and for which monetary damages would certainly be available. The owner’s rights to bring a suit (commonly known as standing to sue) could be at issue although recent case law should favor them. Also, local judges might be swayed by local adverse sentiment.
What does it mean? Well, it doesn’t necessarily mean a well in someone’s backyard. People are often stunned to find out that, legally, the owner of the minerals (in this case, the State and then its lessee) is actually the dominant estate and has rights to use the surface even though it doesn’t own the surface. In many cases, the lessee doesn’t need to pay the surface owner a dime as long as they don’t unduly utilize the Property and pay for the damages that they cause. The lessee will need to get a drilling permit from the MDEQ Supervisor of Wells. Further, the lease terms themselves require:
— The Lessee to pay for all damages or losses (including any loss of the use of all or part of the surface), caused directly or indirectly by their operations.
— Before a drilling permit application is submitted, notification to enter the land must be provided to the surface owner, and that either voluntary agreement or stipulated settlement relative to surface use and damages has been reached. When a mutual agreement cannot be reached, after a 30 day cooling off period, if the issue is not resolved, then drilling and development can proceed and the property owner and company will need to fight it out. The law on this complex and evolving.
It is ironic that some 120,000 acres are now coming up for lease. Oil is difficult and expensive to produce from the formations that run through Michigan, while the price of natural gas is at an all time high. Can fracking (hydraulic fracturing — a more aggressive approach to extracting oil and gas by injecting chemicals and sand to crack the formations, releasing minerals more easily) be used in these locations, as many have expressed concerns about that? The answer is, if permitted and done in accordance with applicable laws and rules, then yes it can be. If the operations cause harm, the property owners can sue but, as many have expressed concern, the damage will already be done.