Mineral rights back in spotlight in Ohio

Possibility of oil, gas drilling raises issue

5/9/2011

Even with the value of oil and natural gas on the rise, Ohio has fairly straightforward laws governing mineral rights.

With rare exception, what exists beneath the ground belongs to the person who owns the land at the surface, according to Tom Tugend, deputy chief of the Ohio Department of Natural Resources’ oil and gas program.

In parts of eastern Ohio, coal that exists underneath some parcels belongs to outside parties.

But not any oil and gas that might be found, Mr. Tugend said.

There usually aren’t the kind of legal disputes that occur out West, where the federal government has larger land holdings.

“There’s less likelihood of that in Ohio, where the landowner owns the lease,” Mr. Tugend said.

The United States is the only country in the world where mineral rights can be held by individuals instead of the government, according to Colorado-based Western Royalties LLC, an oil and gas exploration company that has been active in buying royalties and mineral rights for nearly 30 years.

Questions about mineral rights may resurface if northwest Ohio ever experiences another boom like it did in the 1890s, when the region was the world’s hottest spot for drilling.

The boom faded in the 1930s as reserves became more difficult to extract, a problem created by the fledgling industry’s rudimentary drilling techniques. The focus then shifted to Texas and Oklahoma.

Tons of oil and natural gas remain, but sources familiar with the situation have said that excessive drilling deflated below-ground pressure so much it never may be practical to go after what’s left.

Larry Wickstrom, chief of the Ohio DNR’s geology division and the one expert designated as the state’s official geologist, said that while it is “very difficult for us to do any meaningful reserve estimates,” he believes there could be as many as 1 billion barrels of oil remaining in the ground.

“If we can come up with a good way to locate that oil and produce it, we might be able to recover another 10 percent of it, which would be about 100 million barrels producible reserves in your area,” he said.

But he cautioned against reading too much into that.

“There have not been sufficient modern test wells for us to make any good estimates,” Mr. Wickstrom said. “This is a wild guess at what might be there based on typical production from other fields.”

Should there ever be a resurgence in northwest Ohio drilling, though, the mineral rights come down to title searches and what’s written into individual deeds. That information is not compiled in a statewide database. It is on a county-by-county basis, in each county recorder’s office, Mr. Tugend said.

“In general, if you’re buying a piece of land, you own the mineral rights,” he said. “The selling of mineral rights is very infrequent.”

What typically happens these days in eastern and southern Ohio, where most of the state’s commercial-scale drilling and exploration exist, is an arrangement in which farmers and other large landowners are guaranteed a percentage of whatever is recovered within a set amount of time.

A typical lease is for one to five years, with the property owner getting one-eighth, or 12.5 percent, of what’s extracted, Mr. Tugend said.

“It’s just not all that prevalent for a farmer to sell. It’s much more prevalent to lease for one to five years,” he said. “If the land is drilled, [the property owner] gets a prorated portion. Usually in Ohio, it’s one-eighth of the production to the landowner.”

Large parcels are needed because of today’s setback laws. The deeper the well, the more acreage required.

The last attempt to extract northwest Ohio oil on a commercial scale ended in failure in the fall of 1995, barely a year after it began.

Meridian Oil, a subsidiary of the former Burlington Resources of Houston, injected water into the bedrock of its 620-acre drilling site in Allen County’s Perry Township, near Lima, some 1,300 feet below surface. The water helped push oil deposits upward.

Jonathan Airey, a lawyer in the Columbus-based Vorys, Sater, Seymour, and Pease LLP law firm which represented Meridian, has said the technique worked fine, but the amount of oil being recovered was not enough for the company to justify continued operation. It had made a $5 million commitment to the pilot program.

That attempt was the first time since 1956 that anyone had tried to extract large quantities of oil from northwest Ohio.

Most of northwest Ohio’s oil is in a geological area known as the Lima-Indiana Field, characterized by Trenton limestone. It forms a broad, 185-mile arc across Lucas, Wood, Hancock, Allen, and Van Wert counties in Ohio, and extends into northeastern Indiana.

It was the first major field discovered in North America. It runs from almost Toledo to Indianapolis.

The Lima-Indiana Field in northwest Ohio was the nation’s most active in the 1890s, with production peaking in 1896, when it produced more than 23 million barrels of oil.

It produced more than 380 million barrels of oil while in commercial-scale operation from the 1880s to 1930s, when 76,000 wells were drilled, according to state officials.

Many people may be surprised to learn Ohio ranks fourth nationally behind Texas, Oklahoma, and Pennsylvania in terms of wells drilled over time.

Ohio has drilled 275,774 throughout its history.

Despite the shift to Texas and Oklahoma 80 years ago, Ohio remains a leading producer of oil and natural gas. The department of natural resources said Ohio still ranks in the top half of all oil-producing states.

In 2010, Ohio’s oil and gas industry drilled 431 wells in 44 counties, the most active being Cuyahoga.

The Buckeye State produced nearly 4.8 million barrels of oil worth $356 million and 72 million cubic feet of natural gas worth $362 million, the natural resources department said.

Ohio still has 64,378 wells in operation, though most produce fewer than 10 barrels of oil or less than 60,000 cubic feet of natural gas a day, the state agency said.

Each barrel contains 42 gallons of oil.

Contact Tom Henry at: thenry@theblade.com or 419-724-6079.