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When A Drilling Lease Goes Wrong
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Rich deposits of natural gas buried deep beneath Ohio have brought a flurry of companies to the state to lease up plots of land to drill for the resource. The landowners stand to gain thousands in upfront payments, but can encounter a world of frustration if they don’t understand all the terms of those lease agreements.
When Harry Boyd purchased 71 acres of land in Monroe County in southern Ohio, he had big dreams of planting a ginseng farm and retiring off the income. For a guy born and raised in the city, Boyd says the rural stretch of hillside, trees and creeks was the perfect escape.
“It was a beautiful piece of land, but it did have some oil wells existing on it that were put in in like 1980. I was really reluctant about buying it because of that, but the timber and everything was so nice, that I really looked into it closer,” Boyd says.
Boyd bought the land eleven years ago and proceeded to plant his farm. Six years later, he was approached by the company Appalachian Energy Resources. It wanted to lease those old wells to “recomplete” them — re-activate them using hydraulic fracturing to extract more oil and gas.
Boyd says he jumped at the opportunity to profit from the royalties he would be paid for any gas those wells produced.
“I’m thinking man I’m good, this can’t be happening, I’m going to get an opportunity like this to make some money off of this, they’re going to protect everything, so I signed the lease. Well, that went good until that first well they started to recomplete.”
Boyd says he arrived at the property one day to find the company dumping hundreds of gallons of wastewater from the fracking process on his land, damaging the ginseng and violating the terms of his lease.
Boyd figured he’d take the company to court and sue for damages.
To his surprise, Boyd says his lease stipulated that any disputes between him and the company had to go to arbitration, not a civil court.
I thought that if you had a problem, it would be just like going to a trial, you could say hey man, you’re going to pay my legal fees, you’re going to pay whatever deposition fees and things like that. It’s not that way.
Attorney Don Fischbach has many years of experience representing oil and gas companies. He says it’s increasingly common for lease agreements to require the arbitration process.
“The premise and the basic concept of arbitration is that its quicker, easier and cheaper on the litigants to have a third party review the facts, and make a decision. And I agree even though I don’t know that third party, I agree that whatever conclusion they draw about my facts, that’s fine with me.”
Fischbach says the process itself doesn’t inherently favor the industry or the landowner, and in most cases arbitration works; the parties accept the arbitrator’s judgment.
But not all legal experts agree.
Peggy Hall is an assistant law professor with Ohio State University, and heads up an outreach and education program for landowners. She says while it’s helpful for lease agreements to spell out arbitration as the procedure to use in the event of a conflict, many landowners still want to know they have another legal recourse.
“If it’s offered as a quick alternative to a problem, that’s a good thing. But if it’s offered as the only way to solve a problem and forecloses you from being able to go to court, then that could be problematic.”
Hall says in addition to resolving disputes, lease agreements often spell out other rights that the landowner is giving to the company such as the right to access their water source, or to store equipment on the property.
“That’s a pretty common problem that we see that the landowner has given all these other property rights and not really known that that transition occurred or that transfer occurred.”
After nearly five years, landowner Harry Boyd’s arbitration case still isn’t resolved. He’s paid over ten thousand dollars in legal fees. But even after all that, Boyd says he’s not against doing business with the industry in the future.
I’m not anti-oil and gas. I am if you do it wrong.
In fact, Boyd says he’s currently negotiating with a few companies for some land he owns in Belmont County. But this time, Boyd says he’ll ensure there’s no arbitration clause in his lease.