Binghamton Univ. Study Says Drillers Bully Landowners to Sign Leases
One more embarrassing report: Negative, of course.
Binghamton Univ. Study Says Drillers Bully Landowners to Sign Leases
FORCED POOLING | INDUSTRYWIDE ISSUES | LEASE & ROYALTY PAYMENTS | OHIO | RESEARCH | STATEWIDE OH
August 21, 2024
A study led by Binghamton University and the University of Nevada, Las Vegas (UNLV) claims it has uncovered that energy companies pressure landowners into allowing hydraulic fracturing (fracking) on their properties, “often resorting to persistent and personalized tactics.” In other words, those nasty frackers bully poor landowners into signing leases. We have no doubt there are landmen who twist arms a little too tightly, but this study has a few flaws in our humble opinion.
The research team examined data from the Ohio Department of Natural Resources (ODNR), which covered every compulsory unitization application submitted in Ohio from January 2014 to April 2021. The team selected 37 applications “at random” from 331 forced pooling requests (from 18 different companies) and formed its conclusions based on the information found in those 37 applications.
The two primary conclusions the team arrived at in the study are this:
1. Energy companies use persistent and personal strategies (phone calls, emails, visits) to overcome landowner reluctance.
2. Energy companies use the threat of forced pooling to pressure landowners into a deal.
Here’s the first glaring problem. How many leases (in Ohio) have been signed between drillers and landowners for shale fracking? It’s likely in the tens of thousands. The researchers ignored all of the voluntarily signed leases and instead focused on a subset of 331 leases for those who refused to sign and, therefore, were subject to “compulsory unitization” (or forced pooling). That’s right, there were only 331 forced pooling leases over 7 1/2 years out of tens of thousands of leases signed. So, to begin with, the study is flawed by ignoring the vast majority of voluntary (mostly happy) landowners who signed leases in order to focus on those who were disgruntled.
The second way this study is flawed is that it focused on a small (10%) subset of disgruntled landowners forced into a lease. The researcher selected (cherry-picked?) 37 of them. So, the conclusions of this study are based on 37 landowners who unwillingly leased their property for shale drilling — out of tens of thousands of leases in total. It’s hardly a good representative sample.
To be sure, there are bad actors in the O&G industry. There are in EVERY industry. We make no excuses for poor behavior.
What we reject are sweeping statements that paint the entire industry as bullies who force landowners to sign leases at forced pooling gunpoint.
The BU public relations article:
Energy companies use persistent and personalized pressure to get landowners to give permission for hydraulic fracturing (fracking), and even when landowners decline, companies use legalized compulsion to conduct fracking anyway, according to a new study led by researchers at Binghamton University, State University of New York and UNLV.
“Hydraulic fracturing is a controversial issue, but a lot of the controversy has been focused on the big-picture consequences, for the climate and the economy,” said Benjamin Farrer, lead author and former PhD student at Binghamton University. “One of our hopes for this paper is that it will encourage policymakers to pay more attention to the individual experiences of the people who are closest to the issue.”
Because many fossil field reservoirs in the United States lie under private land, energy companies often have to negotiate with private landowners, offering compensation in exchange for access to the minerals under their land. Since a well is only economically viable if you can drain a large spatial area from a single well, drilling companies have to pool multiple mineral claims into a single working contract before drilling. But landowners often hold out from such deals for various reasons – they might be wary of the potential health risks, holding out for more money, or they simply might be unreachable.
This is where compulsory unitization comes in. It’s a law that many oil- and gas-producing states have in which if some percentage of the land on top of an oil/gas reservoir is owned by people who have already given permission for drilling, then the owners of the remaining land can be compelled to join the drilling. For example, if there are 1,000 acres of land on top of a gas deposit, and the owners of 650 acres have given permission, the owners of the remaining 350 acres of land can be compelled to join.
“Under conventional vertical drilling, the use of compulsion generally was a net positive for mineral owners – it prevented holdouts looking for better contract terms from tanking a project and it allowed small properties or properties along the border of a drilling area to force themselves into a contract if the drilling company tried to shut them out,” said Robert Holahan, associate professor of political science at Binghamton University. “Under fracking, though, where the drilling happens horizontally under multiple properties, compulsory unitization can force mineral owners who otherwise don’t want to lease their property to do so.”
A research team including Holahan, Farrer, and former Binghamton students Kellyanne Allen and Tara Riggs examined data from Ohio, a state that saw a boom in fracking in the 2010s. The team obtained the full online database from Ohio’s Department of Natural Resources, which covered every compulsory unitization application submitted in Ohio from January 2014 to April 2021, during the height of the fracking boom. The team reviewed a random sample of 37 applications, each of which included a log of every time a landowner was contacted about leasing, including the date, method and result of the conversation.
In one example, a landowner is opposed to signing a lease, but the company persists in its attempts to obtain her signature. The landman calls, sends letters and when those are returned with “REFUSED” hand-written across them, the landman drives to the landowner’s house. When the landowner refuses to answer the door, the landman speaks with her neighbors and family.
In another example, a landman contacts a landowner undergoing radiation treatment at a hospital. The landowner seems willing to sign but wishes to get home from the hospital before discussing it. However, the landman continues to contact them while they’re at the hospital for weeks.
“Overall, we find widespread use of personalized tactics like phone calls and visits, as well as evidence that these tactics are used persistently, as landmen make multiple attempts over multiple months to contact landowners. We also find that many negotiations end in compulsion rather than in consent,” wrote the researchers.
The evidence also suggests that compulsory unitization is being used in negotiations with many different types of landowners, rather than just with economic holdouts and unreachable landowners.
“Legal instruments, like compulsory unitization or pooling, are often designed to solve one type of problem (ensuring all mineral owners get a fair share of revenues from an oil or gas well), but eventually can be used for other purposes (forcing mineral owners to lease their rights),” said Holahan. “Effective resource policy requires a continuous updating of the law as technologies change.”
The researchers are conducting a follow-up survey with individuals whose conversation records were used in the paper to verify their accuracy. In addition, Holahan and his team conducted a survey of 3,000 people in the Twin Tiers of New York and Pennsylvania to assess opinions on drilling and wind turbines to better understand how, or if, ’green energy’ is viewed differently from ’conventional energy’ at the scale of property owners.
The paper, “Assessing How Energy Companies Negotiate With 31 Landowners When Obtaining Land for Hydraulic Fracturing,” was published in Nature Energy. (1)
The lead author of the study, Benjamin Farrer, got his Ph.D. in political science from BU but is now a visiting professor at UNLV — hence the connection between the two universities cooperating on the study. We emailed Farrer for a copy of the study and he graciously sent us one, which we appreciate. However, the published version of the study requires paid access, so we are unable to share the copy we received.
Here’s the abstract of the published article appearing in Nature Energy:
To extract natural gas through hydraulic fracturing, energy companies often need to obtain consent from many different private landowners, whose properties lie atop the gas reservoir. Negotiations with these landowners have important economic, environmental and social implications. In this paper we present a dataset on negotiations in Ohio and use these data to investigate how landowners may be advantaged or disadvantaged in these lease negotiations. We find that they are disadvantaged in two ways. First, because energy companies can use persistent and personal strategies to overcome landowner reluctance. Second, because of the institutional context: specifically the widespread use of compulsory unitization. We conclude by discussing the implications of these findings for equity in energy policy and by drawing out the other potential uses of these data. (2)
Mainstream media has noticed. The Hill (required reading in the D.C. swamp) published this article about the study and its findings:
The record U.S. oil and gas boom may lie on a bedrock of aggressive sales and legal “compulsion,” a new study has found.
Many Ohio landowners who ended up with fracked wells on their properties were forced by state law to accept them, according to findings published Monday in Nature Energy.
Others gave in only after repeated and aggressive sales attempts, researchers at New York’s Binghamton University found.
The study highlights an underdiscussed topic in the public debate surrounding fracking, a practice which has drawn renewed scrutiny amid the dueling Vice President Harris and former President Trump presidential campaigns in Pennsylvania.
That debate often hinges on “big-picture consequences for the climate and the economy,” lead author Benjamin Farrer said in a statement.
But Farrer emphasized that this leaves out a key part of the story — the experience of private landowners whose properties oil and gas companies must access if the vast majority of U.S. oil and gas production is to go forward.
Fracking uses explosives and a highly pressurized blend of water, sand and caustic chemicals to force open layers of rock deep underground to extract oil and gas — a suite of technologies that has enabled U.S. oil and gas production to reach record levels under President Biden. In 2023, fracking accounted for about two-third of U.S. oil production and more than three-quarters of U.S. gas.
Fracking is different from traditional oil and gas development in a few key ways. Its combination of high pressure and proprietary blends of caustic chemicals raises the risk of localized pollution to land and water, according to the Environmental Protection Agency. And because it relies on horizontal drilling through broad swaths of geological strata — as opposed to vertical wells into traditional reservoirs — it tends to require far more wells spread across a far larger area.
The work of gaining access to properties for that drilling falls to one of the most important, and least well-known, jobs in the oil patch: the “landman,” whose role is to convince landowners to sign leases for oil and gas extraction.
The structure of these deals — and how the landmen secure them — is often shrouded in secrecy.
But the Binghamton team got access to detailed records of landmen’s dealings with 31 landowners who companies ultimately sought to force to lease their land. They found a distinct reluctance on the companies’ part to take no for an answer.
“Overall, we find widespread use of personalized tactics like phone calls and visits, as well as evidence that these tactics are used persistently,” the researchers wrote in Nature Energy.
Landmen, they found, spent many months making repeated attempts to contact reluctant landowners. In one instance, an Ohio man faced repeated visits from a drilling company representative while in the hospital for cancer treatment.
Another property owner who was opposed to signing a lease to allow fracking on her land received repeated calls and letters after she refused to do so — and then had company agents seek to persuade her through in-person pitches to her neighbors and family.
And when persuasion fails, the researchers wrote, “we also find that many negotiations end in compulsion rather than in consent.”
In many states, when the hard sell doesn’t work, oil and gas drilling companies can seek to get the state to force landowners to accept wells they don’t want.
This practice is called “compulsory unitization” or “pooling,” and it provides landmen with a powerful trump card against wavering landowners.
In many oil and gas states, if a majority of landowners atop an oil and gas reservoir consent to drilling, then the state can force the rest to accept drilling as well.
In the past, when companies were using conventional oil and gas drilling — a practice that poses equivalent risk of localized pollution to land or water supplies to fracking but uses much less land — this was “a net positive” for landowners, Binghamton political science professor and study coauthor Robert Holahan said in a statement.
The practice kept a few holdouts from scuttling a lucrative oil deal for everyone else — or allowed those landowners who wanted in on a big deal to force oil companies to admit them, Holahan said.
But fracking is different, because drilling happens horizontally under so many more properties over a far wider area than traditional drilling, he said — a situation where compulsory unitization allows companies to “force mineral owners who otherwise don’t want to lease their property to do so.”
By looking at dozens of randomly-chosen properties that had been the subject of compulsory unitization applications in Ohio, the researchers found that the tactic was being used in early-stage negotiations with landowners — not just holdouts to largely-secured leases or those who refused to respond.
Holahan argues that oil- and gas-producing states should reform their laws to better reflect the new reality of oil and gas drilling.
“Legal instruments, like compulsory unitization or pooling, are often designed to solve one type of problem (ensuring all mineral owners get a fair share of revenues from an oil or gas well), but eventually can be used for other purposes (forcing mineral owners to lease their rights),” said Holahan.
“Effective resource policy requires a continuous updating of the law as technologies change,” he added. (3)
Again, no excuses for strong-arm tactics (we don’t like it). However, we believe such tactics are the exception and not the rule. Knocking on doors, sending emails, phone calls, and “buy now or lose this deal” is part of the great American system called free enterprise and capitalism. Another word is freedom. We’re not thrilled with forced pooling laws, but we’ve not seen a good alternative. Should one or two minority owners in a unit be allowed to block their neighbors from profiting and block society from the greater good of having this important energy resource? Compulsory unitization (forced pooling) is not perfect, but it’s the best solution we currently have.
(1) Binghamton University – BingUNews/John Brhel (Aug 19, 2024) – Energy companies pressure landowners into fracking, study shows
(2) Nature Energy/Springer Link (Aug 19, 2024) – Assessing how energy companies negotiate with landowners when obtaining land for hydraulic fracturing
(3) Washington (DC) The Hill/Saul Elbein (Aug 19, 2024) – Fracking wells forced on many US landowners, study finds