Oil and gas commission looking to lawmakers for increased royalties, fees

The commission in charge of new rules for leasing Ohio’s state lands to oil and gas companies will seek legislative tweaks to award leases through bidding and to allow for more lucrative royalties. Meanwhile, the commission is pushing forward with a standard lease form over the objections of environmentalists.

They worry that, despite repeated statements to the contrary, the proposal opens the door to surface uses like setting up drilling equipment within state parks.

Lease concerns

The Ohio Oil and Gas Land Management Commission introduced its standard lease form at a meeting in February. The public comment period for that draft has now closed.

Environmentalists have zeroed in on a particular section which notes “without a separate written surface use agreement,” companies can’t build structures like well pads, pipelines or pump stations on public land. Cathy Cowan Becker argued that language creates a supposition that surface use is possible, but that directly contradicts what Gov. Mike DeWine has promised.

“The administration has a policy of prohibiting any new surface use impacts,” she explained. “But if you go to their draft at least form, it says that they can have surface impacts with a separate written surface use agreement.”

“And so that can be negotiated after a lease comes to this commission and is approved, then that’s all done out of sight, all behind closed doors,” she added.

Public lands advocates voiced frustrations with the proposed nomination process whereby interested companies select and pursue a given parcel. Roxanne Groff wants to see more time for public comment.

“We asked for a minimum 60 days,” she said, “and we cannot accept 45.”

With the public comment period concluded, next steps include a determination from the state’s Common Sense Initiative which intervenes when rules could hamper business development. After that, the commission has to hold an additional public hearing and go before the Joint Committee on Agency Rule Review.

How Muskingum does it

The bulk of the commission’s hearing went to a presentation from the Muskingum Watershed Conservancy District. The district has worked on oil and gas leasing for decades, and commissioner Stephen Buehrer had recommended getting its input. The commission only handles subsurface leases. But they can prepare a standard agreement for agencies to use if they choose to sign a separate surface lease.

Muskingum’s land manager Nate Wilson described how they require additional setbacks, testing, and additional containment facilities in case of accidents.

“So you can have all these extra protections, and you can do the best you can, and the lease can still be economical for the operator to develop and develop efficiently,” he argued.

Still, even with all those added safety provisions, MWCD Executive Director Craig Butler explained they don’t put the surface construction on their own land.

“We do not have, and it’s generally one of our one of our pillars, I guess, in our lease, is to not have ‘non-developmental’ leases, to not have well pads on our properties — have them on adjacent properties. We do have pipeline access and gathering line access and water lines and those types of things.”

“It’s not a prohibition, if you will,” he added, “but it’s just been a practice to date.”

Legislative tweaks

Butler encouraged the commission to look at their operation as a model, but not necessarily an approach to replicate completely. One aspect commissioners picked up on is how the district handles royalties — a share of the operators’ income handed over to land owner.

Among potential legislative changes, Commissioner Matthew Warnock criticized setting the royalty percentage in statute.

“Firstly, I think that should be something that gets a bid on as opposed to having just a fixed number in statute,” Warnock argued, “Having it, I think it’s 12.5% right now, making it at least 12.5% so that’s kind of the minimum.”

Picking up on that idea, Commissioner Michael Wise asked Wilson from the MWCD what they charge in royalties.

“We always try to get the most we can,” Wilson said, “so our leases range from 18 to 20%.”

“As we have it right now,” Wise said, “we’re probably leaving dollars on the table.”

Before adjourning, commissioners agreed to charge chair Ryan Richardson with lobbying lawmakers to increase fees for nominating and bidding on a parcel as well as altering the royalty structure to set 12.5% as the floor.

Follow OCJ Reporter Nick Evans on Twitter.