Texas' Rule 37, Similar Laws In Other States Aid In Energy Companies' Land Grab That Wrestles Away Some Land Owners' Mineral Rights For Little Or Nothing

In Arlington, Texas, Reuters reports:

• Ranjana Bhandari and her husband knew the natural gas beneath their ranch-style home in Arlington, Texas, could be worth a lot - especially when they got offer after offer from Chesapeake Energy Corp.
  
  Chesapeake wanted to drill there, and the offers could have netted the couple thousands of dollars in a bonus and royalties. But Bhandari says they ultimately declined the deals because they oppose fracking in residential areas. Fracking, slang for hydraulic fracturing, is a controversial method used to extract gas and oil.
  
  Their repeated refusals didn't stop Chesapeake, the second-largest natural gas producer in the United States. This June, after petitioning a Texas state agency for an exception to a 93-year-old statute, the company effectively secured the ability to drain the gas from beneath the Bhandari property anyway - without having to pay the couple a penny.
  
  In fact, since January 2005, the Texas agency has rejected just five of Chesapeake's 1,628 requests for such exceptions, a Reuters review of agency data shows. Chesapeake has sought the most exceptions during that time - almost twice the number sought by a subsidiary of giant rival Exxon Mobil, Reuters found.
  
  Chesapeake says it only seeks exceptions to the Texas statute - called Rule 37 - as a last-ditch effort, and often because it cannot locate the land owner. The law, company spokesman Michael Kehs said, "protects the rights of the majority of mineral owners."
  
  Not so, say many local residents.
  
  "The principle of it is insane," said Calvin Tillman, a former mayor of Dish, Texas, a small town north of Fort Worth where drilling has been heavy. "Not only can they take your property, but they don't have to pay you for it."
  
  Chesapeake's use of the Texas law is among the latest examples of how the company executes what it calls a "land grab" - an aggressive leasing strategy intended to lock up prospective drilling sites and lock out competitors.

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• Some land owners oppose fracking, and New York, Vermont and Maryland have all refused to grant fracking licenses. The technique's effects on groundwater are still under review by the U.S. Environmental Protection Agency.
  
  But Chesapeake and other energy companies, which view fracking as safe, are now using state statutes to access the minerals under unleased land even if owners object to the drilling technique.
  
  If property owners refuse deals, Chesapeake and its land men have made clear their plans to take the oil and gas from beneath the land by using little-known laws in Texas, Ohio and other states. The terminology varies from state to state - a Rule 37 exception in Texas, mandatory pooling or unitization in Ohio. But the result is often the same: getting state regulators to enable the company to drill, sometimes against the owner's will.
  
  The economic argument for granting access to unleased land is logical. Difficulty in stitching together large plots leaves holes in drilling units that can make development less profitable. Large, contiguous plots enable drillers to pump more oil and gas. Allowing companies to access remaining land means that property owners who want to sell their mineral rights aren't shortchanged by a few holdouts.
  
  "Under Ohio law, it's not legal for one or a few land owners to keep the vast majority of land owners from exercising their rights to develop their minerals and get the benefits," said Heidi Hetzel Evans, a spokeswoman with the state's Department of Natural Resources, which rules on such requests.
  
  Chesapeake has based some of its petitions on just such a premise: that it is protecting the rights of people who want to drill, rather than succumbing to the will of holdout land owners.
  
  That marks a turnabout in Texas. When the state passed the Rule 37 statute in 1919, it was meant to prevent excessive drilling of oil wells and to protect the mineral rights of small land owners, say legal experts. The rule prohibits companies from drilling too close to unleased properties.
  
  Today, Rule 37 exceptions "seem to be a new creative use of the statute in a way that was not intended when it was designed," said Matthew Festa, an associate professor of law at South Texas College of Law. "It's possible that this amounts to the transfer of private property from one private entity to another private entity."

For more, see The casualties of Chesapeake's "land grab" across America.

Thanks to Deontos for the heads-up on the story.