January 2007 "Landowner Gas Rights Part 1"

PLANNING FOR WEALTH & SECURITY
By attorneys Jennifer & Jeff Hawkins

LANDOWNER GAS RIGHTS PART 1

The gas men are coming! The gas men are coming! If you own land a outside the limits of the city or town, the gas company representative may have visited you or may visit you soon. At least three companies are actively purchasing rights to extract natural gas from area landowners’ properties. How should you respond to a gas company representative when he knocks on your door?

Two different kinds of gas production systems exist in this area. The most common and well known system is the conventional extraction of gas from voyage and spaces lying under landowners’ properties. The other system targets a form of gas commonly referred to as coalbed methane.

Both forms of gas result from the natural decay of prehistoric organic material. The decay process produced gas underground long before any one was aware of its presence. (It is essentially the same stuff that a bean supper may produce in a person.) The most commonly known form of gas accumulated in cavities in spaces under the earth. Coalbed methane gas, however, was formed with and trapped inside of seams of coal as part of the coal itself.

The conventional gas extraction process requires a production company to drill a well down to the space where gas has accumulated. The gas is often pressurized naturally and it easily extracted. To regulate and maintain the pressure, however, production companies will often inject fluids into the ground to displace the gas and force it to the surface through the gas well apparatus.

Coalbed methane gas is extracted by breaking up the coal seam that contains the gas and thereby releasing the gas for extraction. This gas is not highly pressurized and requires particular expertise to compress the gas adequately for extraction and transmission.

Southern Indiana has a long history of mineral extraction. Mineral rights were sold by many landowners more than half a century ago, causing a separation of ownership between land and the minerals lying beneath the surface. Many landowners have known for decades that Indiana courts have distinguished conventional oil and gas from coal and other minerals and ruled that mineral owners do not necessarily own the rights to oil and gas lying above and a separated from their coal. However, coalbed methane gas extraction technology has blurred these distinctions and created new conflict.

Courts are developing a new body of case law concerning coalbed methane gas. Although Indiana has not published a case on the subject yet, a majority of published cases from other states has determined that coalbed methane gas belongs to the mineral owners because it is part of the coal. This means that an owner of minerals could extract coalbed methane gas from under your land without your consent as long as he can access the coalbed without setting foot on your property.

This article will conclude next month with discussion of how gas companies negotiate with landowners to extract gas. The article will also reveal some key issues that many landowners try to resolve in the negotiation process.

THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN.