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Tuesday, August 21, 2012

Natural Gas Storage Fields Causing Issues for Landowners Looking to Cash In on Leases

From The Business Journal:
Natural gas storage fields beneath tens of thousands of acres in Ohio have become the flash point of the latest legal battle over drilling rights across the state.
At issue is whether landowners within these fields own the deep drilling rights to their land, an especially sensitive issue since major energy companies are stepping up oil and gas exploration in the Utica shale and paying generous bonuses and royalties to residents.
"It's going on all over the state," says Dale Arnold, director of energy policy for the Ohio Farm Bureau. "This issue comes up in every storage field in Ohio."
Natural gas storage fields came into prominence shortly after World War II, Arnold says. These fields are areas of the Clinton sandstone strata between 3,000 and 6,000 feet below the earth where energy companies once drilled, some as far back as the 1930s. Once a particular region of the sandstone was drilled dry, these companies converted the acreage into storage areas connected to major pipeline networks that pump natural gas to and from the underground fields.
Ohio is home to 16 such storage fields.
The premise is for natural gas companies to keep a reserve for the winter months where it can be tapped when demand increases. "There's an injection season and a withdrawal season," Arnold says.
Natural gas is purchased and transported into the storage fields between April 1 and Oct. 31 each year, Arnold explains. That reserve is then drawn down between November and March, demand being highest during the colder months. "They're designed to address at least three to four cold snaps or adverse winter climate," he says.
The main legal question before courts in northeastern Ohio is whether those who own land within a designated storage field also own the mineral rights, Arnold says.
During the 1940s and ‘50s, energy companies negotiated many leases with landowners that specifically awarded these companies the rights to storage, Arnold says. However, drilling companies exploring the Clinton formation would often cut into the storage field and extract gas from the reserve.
After that, the language in these leases was changed to include not only storage rights, but also mineral and production rights of any potential drilling on or even near the land, Arnold notes. "They wanted to protect the storage field," he says. "Depending on how your lease is worded, it could mean any new gas coming out underneath the field," such as gas drilled from the Utica shale.
Fast forward to today. It's these leases that are complicating matters for thousands of landowners as an entirely new phase of development and billions of dollars of investment from the oil and gas industry take root in eastern Ohio.
Read the rest of the article here.

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