State and drilling companies forcing landowners into gas exploration projects against their will

Fracking foes face little-known and seldom-used provision of Ohio law called “unitization.”
MCT Regional News
Jan 14, 2014

Steve Neeley did not want to get involved in Utica shale drilling.

He had invested heavily in building a country estate on 9½ acres off Pontius Road in the southwest corner of Portage County. He was concerned about hydraulic fracturing, or fracking, and wanted nothing to do with it.

The 57-year-old Neeley was repeatedly approached by Chesapeake Exploration LLC, part of Chesapeake Energy Corp., to lease his land. The company offered a signing bonus of $1,200 per acre plus 12½ percent royalty of natural gas and liquids from the well. He repeatedly refused.

Then, in late 2011, Neeley and 23 neighbors who also had rejected the company’s lease offers were forced to take part in Utica shale drilling under a little-known and seldom-used provision of Ohio law called “unitization.”

With approval from the Ohio Department of Natural Resources, Chesapeake was allowed to include 24 unwilling landowners in the large drilling unit — an area of land under which the company can extract resources — even though the owners had not signed leases granting rights to the minerals below.

By establishing what is called a unit operation, Chesapeake was allowed to drill horizontally through the shale thousands of feet beneath their properties and maximize profits from natural gas and liquids. The unwilling participants receive payments after wells go into production, but the rate is not negotiated in the way it is with others.

The Suffield unitization case was the first to be sought and approved in Ohio in recent decades, but more are being filed as drilling intensifies.

To date, 22 unitization requests have been filed in Ohio, of which six were approved, six were resolved or dropped and 10 are pending.

The requests would create units totaling nearly 15,000 acres in Portage and Stark counties in the Akron-Canton area, and Carroll, Belmont, Harrison, Columbiana, Trumbull and Jefferson counties, which stretch from Warren to the Ohio River and Interstate 70.

Chesapeake has filed 14 requests; Gulfport Energy Corp., three; Halcon Resources Corp., two; BP America Production, two; and Atlas Noble LLC, one.

Conflict of rights

Critics say the law effectively allows government to take something of value from private property owners and give it to for-profit companies.

But the ODNR and the industry say unitization is needed to prevent a minority of landowners from blocking their neighbors’ right to develop mineral rights.

Without the state approval, Chesapeake would be unable to tap as much natural gas and liquids as it hoped from the Utica shale well off Congress Lake Road.

The well has not yet been drilled, but the property unit containing the unwilling participants now is reportedly up for sale, along with other Chesapeake properties.

Neeley, who has gotten no money from Chesapeake, remains angry.

“I’m still not 100 percent sure that what happened is legal,” he said. “How can they take and use my property, if I refuse to sign a lease? … It’s just wrong. It’s taking my property without my permission. It’s all a scam and the property owner who refuses to sign a lease is the one who gets screwed. … It’s been shoved down our throats, as far as I’m concerned. They’re walking all over us.”

Fighting Chesapeake was frustrating and at times confusing, said Tim Muckley, 42, a commercial real-estate attorney who lives in Lake Township with his wife, Elizabeth. They own just under four acres at the edge of the state park where they intend to build. They mostly ignored Chesapeake’s offers, thinking it would all go away, he said.

“This process really bothered me,” Muckley said. “I wasn’t happy about it but it’s the law and it’s out there. It’s frustrating. You feel like something has been taken away from you. … When you buy next to a state park, you feel like you have added protection and then it’s gone.”

Drillers don’t need unitization to proceed on leased property, but they want it to be able to expand the area and maximize profits, said attorney Nathan Johnson of the Columbus-based Ohio Environmental Council.

“It’s fundamentally unfair in a lot of respects,” he said. He likened unitization to eminent domain with government taking private property but then turning it over to a private interest, the drilling company.

Asked what she thought was wrong with unitization, Vanessa Pesec of Lake County answered: “Like everything.”

“There are no good options for unwilling landowners. ODNR and the drilling companies are excessive bullies. With unitization, the drilling companies are just being greedy. That’s what’s so troubling to me,” said Pesec, a spokeswoman for Network for Oil and Gas Accountability and Protection, a grass-roots group that challenges drilling-industry practices.

The process is weighted toward ODNR and drillers and against stubborn neighbors, she said.

“The process is hidden and it’s hard for landowners to get the information they need to deal with what is a very complicated issue,” she said. She questioned whether ODNR provides full due process.

“We need someone to fight this whole unitization,” she said. “It’s horrible. It’s terrible. … It’s the problem no one knows about or understands. And we’re stuck with it.”

The process

Ohio is not unique, in that unitization is permitted in other states. In Pennsylvania and West Virginia, where drilling also has accelerated in recent years, it has become an issue.

Shawn Bennett of Energy in Depth-Ohio, a drilling industry advocacy group, says that the law is intended to prevent a few holdout landowners from blocking a majority of landowners who want to develop their oil and gas interests.

The process to unitize the Portage County properties began Nov. 7, 2011.

Chesapeake — the No. 1 player in Ohio’s Utica shale — filed its 133-page application with ODNR, along with its $10,000 application fee.

The Oklahoma energy giant had leased 858.5 acres in a rectangular tract that was dubbed the Rufener Unit after a local farmer who had leased mineral rights to the company. The tract ran on a northwest to southeast axis and was parallel to Congress Lake, extending into Stark County and under a corner of Quail Hollow State Park in Lake Township.

Chesapeake initially had leases on 89 percent of the acreage, in excess of the 65 percent required by Ohio law to proceed with the unitization request.

In addition, Chesapeake wanted to add another 100 acres to create a 958.5-acre unit.

The entire tract had 146 property owners, of whom 122 signed leases before Chesapeake filed its unitization request.

$71 million projection

In its request, Chesapeake said it was prepared to spend $52 million to fully develop the Rufener Unit, where it intended to drill as many as six horizontal wells from a single well pad with the laterals extending from 5,000 to 6,000 feet to the northwest and to the southeast. More wells were possible, depending on the results, the company said.

Chesapeake told the state that its ultimate recovery from the Rufener Unit could be as much as 3.4 billion cubic feet of natural gas, plus 4.5 million barrels of oil and 500,000 barrels of natural gas liquids (ethane, butane and propane), worth as much as $71 million.

That’s enough natural gas to heat more than 25,000 homes for a year, according to industry estimates.

Without unitization, the production would be “substantially less,” said Columbus attorney W. Jonathan Airey, who filed Chesapeake’s request.

Rejection would require shorter laterals and cut production perhaps 75 percent, the company argued.

Notices of a public hearing in Columbus were sent by certified mail, and on March 12, 2012, Chesapeake produced three witnesses who told a panel of three ODNR staffers that the company was in compliance with all the unitization rules.

The company argued that the Rufener Unit was part of an underground pool of natural gas or liquids and the value of additional production if unitized would exceed the additional incurred costs, which are two key state requirements for approval.

Two neighbors, Todd Francis and Troy Campbell, attended, but there was no organized opposition.

The request was approved by Rick Simmers, chief of the Division of Oil and Gas Resources Management, on July 10, 2012.

Chesapeake’s request is “reasonably necessary” — the key state standard — to boost access and increase production from the tract, ODNR wrote. Approval will allow “a greater ultimate recovery of [product] and is protective of correlative rights,” the agency wrote.

Appeal rejected

One couple, Andrew and Kristi Stalker, appealed ODNR’s decision to the Ohio Oil & Gas Commission, but the panel of gubernatorial appointees dismissed it because it was filed four days past the deadline.

The Stalkers declined to talk about the case.

A second appeal was filed by neighbor David J. Conrad, who later withdrew it.

The objections could have gone on to Franklin County Common Pleas Court, but no one was willing to pay the legal bills for such a fight.

By August 2012, Chesapeake had secured additional Suffield leases. It had leases on 887.12 acres and was seeking inclusion of an additional 70 acres owned by the unwilling landowners.

Because four acres under Quail Hollow State Park are in the unit, it could make the 701-acre state park the first in Ohio to be fracked.

Officially, the undrilled Rufener well is classified as “temporarily inactive.” That designation came last November from ODNR.

Two years of dormancy could have resulted in the permit being revoked.

It is reportedly on the sale block along with other Chesapeake wells and leases that are outside the company’s core area in Carroll and surrounding counties. Any potential buyer must operate the Rufener unit under Ohio’s unitization rules.

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By Bob Downing - Akron Beacon Journal (MCT)

©2014 the Akron Beacon Journal (Akron, Ohio)

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