Citizens' Rights in Michigan's Oil & Gas Fields
State could force property owners to allow drilling
May 1, 1997 | By Hans Voss
Great Lakes Bulletin News Service
Late in the autumn of 1994, Sue Falco, a greenhouse owner and longtime Antrim County resident, was busy shutting down her business for the season when she received an unexpected visit from an oil company leasing agent. He outlined the company's plans to drill for Antrim Shale natural gas in the area, and said that Sue would be well-rewarded if she signed over her mineral rights to the company.
But Sue Falco is not the kind of woman who signs anything on the spot. She told the agent, who was working for the Traverse City-based Oilfield Investments Ltd. (O.I.L.), that she wanted some time to think it through.
Sue then learned as much as she could about oil and gas leasing,while fending off numerous pleas from leasing agents, and braving two formal hearings in Lansing. Now she is desperately defending what she always thought was a given: Her right to not sign a lease.
Sue is not the only holdout in her Jordan Township neighborhood. Thirteen other landowners have refused to lease, and four others had leased but refused the company's plan for dividing up the royalties. They all are named in a petition that O.I.L. filed with the Department of Environmental Quality, to force them into accepting the company's terms.
And it looks like the DEQ is going to allow it.
Michigan law allows companies to "compulsory pool," or force, unwilling mineral owners to join drilling units. The rationale is that holdouts should not be able to prevent neighbors from developing their oil and gas resources. The law typically is used when a small minority of landowners -- representing less than 5% or so of a unit's acreage -- refuse to lease, or when the owners can not be located.
What is astonishing about O.I.L.'s action in Sue Falco's neighborhood is the scale. The company, which secured authorization from the owners of just 1,517 acres, is trying to force pool 1,283 more acres to form a drilling unit. Even though this would force an unprecedented 45% of landowners into a drilling unit, current law allows such an action.
A DEQ administrative hearing was held in Lansing last fall. The state has not yet made a final decision on the matter.
Hal Fitch, the DEQ's Assistant Supervisor of Wells and the decision maker on compulsory pooling issues, defends the forced pooling process as an "important mechanism" to prevent "waste" of oil and gas.
"It certainly does not take away anyone's property rights" Mr. Fitch said. Instead, he said that the reverse is true, and that the law is necessary to protect the rights of those who want to lease.
"(If the DEQ did not force pool) we would be in effect taking those rights without compensation," said Mr. Fitch.
One of the main factors of the state's decision will be based on whether O.I.L. made a reasonable effort to obtain signed leases. The company's petition to the DEQ shows that in some cases the agents called and visited landowners, but in other cases they did nothing more than send a lease by certified mail.
Sue Falco says that O.I.L. did not really negotiate with her. She had consulted with a lawyer, and wanted her lease to be more explicit. She asked for contract language that assured her there would be no roads or pipelines on the property. She wanted a slightly higher royalty rate. And she wanted to specify which geological layers she was leasing. The company agents, however, insisted that they could not change the "standard" lease format.
"I was willing to work with them, but the point is that you just can't work with them," she said.
Sue also questions the whole premise of state-controlled negotiations for private property. "Would it be right for a logger to come and log my land for a price that isn't fair to me?" she asked. "No way. You should have the right to deny them." G