By Anne Stanton
In the course of a few weeks, a Leelanau Township landowner was
approached by landmen representing 10 different natural gas companies.
They were pressuring him to sign a lease that would allow natural gas
drilling on his property. Some werent so polite.
Since early May, landmen have approached Northern Michigan homeowners
for natural gas drilling rights. The landmen, mostly local folks, are
representing companies such as Encana, a Canadian company and one of
the largest natural gas producers in the world, according to the state
Department of Natural Resources and Environment (DNRE).
John Herrold of Leelanau County said he was offered a signing bonus of
$50 an acre for 158 acres that he put into a conservation easement a
few years ago (he wrote into the agreement that he would retain
petroleum extraction rights).
The landman told me, You wont hardly know were here. Im
paraphrasing, but its pretty close. He said, You can even tell us
where you want to drill. I told them, I have a real sensitive nose,
and I can smell the gas wells when I drive by them. He was very
reassuring. Weve conquered that. You wont be able to smell it. He
told me they want to lease as much property in Centerville as they
Michigan is now facing a potential natural gas boom thats
unprecedented in the states history. Statistics tell the story. On
May 4, the State of Michigan auctioned off leases to drill on 118,117
acres in 21 counties. The highest bidsreaching $3,340 per acrewent
for land in Charlevoix County, said Mary Dettloff, a DNRE spokeswoman.
For an historic perspective, the state has been tracking auction
totals for public lands since 1929, and from 1929 until the May 4
auction, the total amount of money received by the state at oil and
gas lease auctions was $190 million. The May 4 auction made $178
million in one day, Detloff said.
I do think it will be unprecedented and may provide a greater
economic stimulus in Northern Michigan, more than anything weve seen
in a long time, said David Potreous, an attorney in Reed City, who
has helped craft oil and gas leases for homeowners over the last three
The thing for landowners is to be very careful and cautious about the
lease terms and the relative impact it could have on their land. Every
situation is different and everyone should consult with a lawyer who
specializes in gas and oil before they ever sign a lease.
The recent excitement owes to an exploratory drill site in Missaukee
County that showed promise of the Utica Collingwood shale. Unlike the
shallow Antrim County shale, the Utica shale lies at a depth of one to
two miles. To pry the natural gas from the shale requires hydraulic
fracturingcalled frackingthat involves tremendous pressure of one to
eight million gallons of water per well and close to 600 chemicals,
the identity of which companies refuse to divulge.
Once the well is drilled, the company recaptures about 70% of the
fracking water, leaving about a third under the earth. A cement seal
protects the site as the brine and poisoned water returns to the
surface. After the mammoth drill is taken down, the pumping continues
for 30 to 40 years.
Its a big boy play, said Warren Baumann, a petroleum engineer of
Suttons Bay who said that most of Michigans 100 or so natural gas
companies were priced out of the action. The drilling, testing and
completion of these wells are going to cost many, many millions of
dollars, and the payback could be very long, and most small companies
cannot invest that kind of money.
These huge companies are doing test borings, seismic surveys and
whatnot to see whats there, and a lot of it is kept under high
secrecy. The only thing we know for sure is one well was drilled in
Missaukee County and showed promise, and thats the only thing. So in
my opinion, the verdict is still way out there if its going to be
economical or not.
Concurrent to the natural gas find, horror stories of natural gas
fracking have also emerged. The documentary, Gasland, was just
released on HBO, and captured on video the most high profile
incidents, such as the plight of residents in Dimock Township,
Pennsylvania, where a water well exploded on New Years Day in 2009,
contaminating the drinking water of 14 homes.
A state investigation revealed that Cabot Oil & Gas Company had
allowed combustible gas to escape into the regions groundwater
supplies. Cabot Oil & Gas Corporation has been banned from further
drilling in the entire state until it plugs wells believed to be the
source of contamination.
Most recently, a well blew out on June 3 at the Punxsutawney Hunting
Club grounds in Pennsylvania, spewing 35,000 gallons of natural gas
and polluted water into a 75-foot fountain for 16 hours. The water
also reached surrounding forestland, forcing the evacuation of
campers. An emergency team from Texas was delayed by weather, but once
they arrived, it took only about an hour to cap the well, according
to published reports.
Yet Marty Lagina, a natural gas veteran who is now pursuing wind
energy, doesnt believe Michigan drinking wells are at risk. The state
has some of the toughest regulations in the country, and the wells are
drilled so deepone to two milesthat the chance of migrating natural
gas to water wells is nil. (See his interview in last weeks Express
Hal Fitch, who heads the states Office of Geological Survey, the
states overseer of the gas, oil and mining industry, agreed that
Michigan has stiff regulations, but acknowledged there is always a
potential for accidents, particularly at the surface.
We start with a permitting processthey have to give us all the
specifications on how to case and cement the well, the blow-up
preventers, proper containment on the surface to allay problems.
Youll never eliminate all opportunities for risks, but you can reduce
it to an acceptable level. We have some of the toughest regulations of
any of the states, and inspectors go out to every site. If we find a
problem, we pursue enforcement.
HERE WE GO AGAIN
With the biomass controversy put on the back burner in Traverse City
because of health concerns and public opposition, natural gas drilling
will likely take center stage.
For each drilling site, millions of gallons of water will get drawn
out from the earths depths unless a company re-uses the water. All
this makes environmental attorney Jim Olson of Traverse City extremely
concerned about the states multitude of rivers, lakes, and
groundwater, which are held in the public trust.
Do the numbers. If a unit is 80 acres or 160 acres per well, divide
that into a million acres and multiply by five to eight million
gallons of water. How does that affect the quality of our lakes and
streams? Nobody is talking about how much water this involves, and
where its going to come from, and what its going to do to the water
quality of our lakes and streams. Michigan is water and weve got to
make sure were still a water wonderland.
Olson wants a drilling moratorium until the state does an independent
environmental impact study on the cumulative impacts of all the drill
sties. Fitch said no such study is planned, although companies are
required to submit an environmental assessment for each drill site.
Five million gallons sounds like a lot, I dont want to downplay it.
But that number, when you put it in context, is not overpowering.
Its about how much nine acres of corn uses in a season, Fitch said.
A TERRIBLE JOB
Environmental consultant Chris Grobbel dismisses Fitchs assurances of
tight regulations. He contends that the states oversight department
cant be wholly relied upon. Two years ago, for example, he testified
as a legal expert in the case of an organic dairy farmer in Gladwin
He had two releases from pipeline spills of brine, associated with
crude oil. Summit Petroleum did an evacuation of impacted soil in the
area, and mixed it with manure, hay and beneficial bacteria and let it
bake. It leaked and contaminated the groundwater.
The resulting benzene levels were 612 times the clean-up standard.
Chloride was five times the level required by the DNRE, yet the DNRE
had signed off on the site. The contamination destroyed the farmers
business, owing to his suspect milk supply. The farmer ultimately
settled with the company for damages.
Heres a case where we had to play the role of the DNRE because the
DNRE wouldnt do it. There are cases when the DNRE does a terrible
job, Grobbel said.
The dairy farm was one among nearly 200 contaminated gas and oil
sites listed in an DNRE October 2009 report, which Grobbel said was
not readily available to the public. The report said six drinking
wells were contaminated by natural gas and/or oil. I know of at
least three personally, so Im not sure of how valid that number is,
With the depths of the Utica shale, Grobbel doesnt consider migration
to groundwater as much a concern as surface spills and pipeline flaws.
A particularly delicate phase is when drilling companies transfer the
polluted fracking fluids and brine water to off-site deep injection
Grobbel said the Office of Geology is funded by the very same industry
its charged to regulate, which presents a conflict of interest. The
60-man staff is funded from a portion of permit fees and the cash
market value of the gas and oil thats produced, Fitch confirmed.
Fitch countered that his department is objective in its regulation.
Its budget allocation at the beginning of the fiscal year is unchanged
no matter the level of gas and oil revenues. As to lack of consistent
enforcement, he said: I would dispute that in the strongest terms.
Those sites are from bygone eras. Its like anything; weve improved
our oversight and our requirements. Decades ago, the industry was
allowed to discharge brine water into earthen pits, some of those are
from old sites. I think if you tracked it over the years, youd see
spills and contamination issues have declined significantly. Most are
cleaned up immediately; they dont even get to the groundwater, and if
they do, its recovered in a timely manner.
Grobbel said that Fitchs statement doesnt square with his experience
on sites in Gladwin and Otsego counties. His advice to landowners: get
an experienced gas and oil attorney to write a lease that ensures
compensation in the event of pollution and contamination, as well as
complete restoration of the site. Also, the lease should detail how
much water will be used, notification of when and where equipment will
go, and traffic regulations. Baseline measurements should be taken of
water and soil, and on-site monitoring required.
As landmen have fanned out across the state, the Michigan State
Extension office has held informational meetings that are consistently
packed by residents seeking answers.
People are standing outside trying to listen through the windows.
Ive been in Lake City, Grayling, this is the second time Im going to
Cheboygan because there was such an overflow crowd the last time,
said Susan Topp, one of the top attorneys in the state specializing in
gas and oil.
This has been going on for six weeks. There have been some sad
cases, where people signed and didnt understand all thats involved.
These drill sites are five-acre well pads; they are huge. These arent
the small little Antrim wells that you see in Northern Michigan. It
takes big equipment to drill it because its so deep. Only two rigs in
Michigan can drill down to 9,500 feet.
Topp said signing bonuses range from $50 to several thousand dollars
an acre, with royalties as high as 3/16 per year.
It could mean a ton of money. Ed Lennington, who owns 160 acres in
Mancelona, has received natural gas royalties since the early 1990s.
Lets put it this way, I paid $70,000 for my farm, and the gas
moneys gone way past that. I got my farm free. And Im way ahead of
the game. By at least two or three times, he said.
Lennington wrote the original lease himself in 1992, holding the
company to strict standards of clean-up, traffic, noise, and
Then my wife got ill, and I was raising my one last daughter, and
they called me out of the blue and told me they wanted me to clean up
the lease. I was busy, and I didnt have time to give it to an
attorney. What I found out later is they took out everything I had
written in; it was an open lease, giving them all rights to the core
of the earth and thats why today I dont have any rights, although I
still have1/8 royalty.
DONT DO IT
The thing people should remember, these folks are good business
people, but theyll do everything for their benefit. If theres an
extra nickel to be made, theyll do it. Its their responsibility for
being in business. After an attorney signs a lease, you still have to
keep your wits about you. They might change it to their advantage.
Dont do it.
Even if a resident chooses not to allow drilling on their land, they
can still be forced into a pool of surrounding landowners and get paid
royalties under state law. Thats what Carrie Weed from Leelanau
County thinks shell do if push comes to shove.
I asked the landman how much he was proposing, and he said $30 to $50
an acre and then 1/8 of the profits for life. I said, Lets see.
Youre talking $5,000 for 100 acres, and he said, Yeah, thats about
it. And I said, Wow, thats not very much. I dont think were
Herrold isnt signing a lease eitherat least until he better
understands the risks and benefits.
Of course, if none of the exploratory wells pan out, these offers will
disappear. Baumanns advice is to go ahead and sign.
The future, its all up in the air, nobody knows.
For more information on the issue, Google: Michigan State Extension
Service and oil and gas leases.