Many landowners are finding these days that they have been sitting on a pile of wealth without knowing about it. Landowners all over the country are discovering that there may be valuable hydrocarbon deposits under their ground, which were previously disregarded because they were not viable as a commodity due to their relative inaccessibility.
In the late 1940s, a concept known as hydraulic fracturing was introduced into subsurface shale formations. Referred to now as “fracking,” it is the fracturing of a rock formation by the injection of a pressurized liquid (over one million fracks have been performed in the United States alone). Once the formations are penetrated in this fashion, oil and gas more easily flow to the wellbore where they can be pumped to the surface. As of 2010, it was estimated that 60 percent of all new oil and gas wells worldwide were being hydraulically fractured. The concept has come under some criticism of late due to environmental concerns about contamination or depletion of groundwater, air quality, the migration of gases and hydraulic fracturing chemicals to the surface, surface contamination from spills and flow-back and side effects of these. Hydraulic fracturing, combined with the more recent concept of horizontal drilling where the terminal drill hole is completed as a “lateral” that extends parallel with the rock layer containing the substance to be extracted, means that much more of a subsurface formation becomes available for the extraction of oil or gas from one well.
The combination of these technologies has led to a boom in oil and gas production worldwide. Many landowners are now being approached by oil and gas landmen who are offering to lease their property for an initial payment plus a promise of royalties if oil or gas is found and produced. These landmen are normally a front for a bigger energy producer who wants to assemble a large tract at the lowest possible cost and doesn’t want the landowner to realize the true value of the minerals under the surface. A recent example involved a client who received an unsolicited offer to lease 240 acres of land at an initial bonus payment of $4800. When we finally settled with the oil company, the bonus payment amounted to $865,000 for a three-year lease with a 25 percent royalty. Most leases aren’t this lucrative, but the average landowner is not equipped to know what constitutes a fair lease and appropriate lease terms. The above lease is now being drilled and the landowner has been paid an additional $21,000 as surface damages for the well site.
The lesson here is that without good representation, a landowner might easily make a sale of a valuable part of his property without being appropriately compensated. A good lawyer can help (that means us!) with either the negotiation of a lease or the orderly transition of mineral interests from one generation to future heirs. To paraphrase the old western movie saying, sometimes “Thar’s gold in them thar holes.”
