Who Owns the Minerals Underlying My Property?
Usually the owner of the surface land is also the owner of the minerals underneath
the surface of that land. If you have access to your property deed, look
for a title transfer in fee simple meaning that all interests
in the property were transferred from the property Seller to the property
Occasionally a Seller does not sell all rights, title and interest
to a property. This can be accomplished by reserving certain
interests in the property before they are transferred to the new owner.
Coal rights are a historical example from southeastern Ohio. Many large
tracts of land in coal country have ownership of the coal separated
from ownership of the surface property. Sometimes this is referred to
as a split estate or severed minerals." Oil and
gas rights are usually conveyed with the surface land, but, like coal,
they may not be necessarily owned by the surface owner. Due to this
concern, a mineral title study is conducted before an oil and gas well
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Is There an Oil and Gas Lease Covering My Property?
If an oil and gas company is asking you about leasing your property, it most likely has done its research and believes there is no currently valid
lease on your property. Leases are usually a public record document on file
at your County Recorders office. Most county records in Ohio can be searched
on the Internet. If you are receiving oil and gas royalty checks, then it is
almost certain there is a valid oil and gas lease on your property.
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There is a Well Not Too Far from my Property Now. How Does that Affect my
That can be good news or bad news for the oil and gas royalty income potential
from your property. If you are receiving a royalty check now, it is likely
that your property is part of the drilling unit that contains the well that
you see, or another nearby well. If you are not receiving a royalty check,
then your property may not be leased and may be available for a possible new
In general, oil and gas producers prefer to drill in proven areas to minimize
the risks of a dry hole from a wildcat well. A wildcat is a well
that is drilled more than one mile from any other well targeting the same oil
and gas formation. However, drilling too close to an existing strong well may prove unprofitable. The older well may have drained or depleted the oil and gas from a wide area surrounding it. Consequently, if there is a well near your property, the
oil and gas in your vicinity may be depleted by that well.
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How is the Location of a New Well Determined?
There are several considerations that come into play. First are spacing regulations
set forth in Section 1509 of the Ohio Revised Code and enforced by the Ohio
Department of Natural Resources, Division of Oil and Gas Resources Management.
Wells are very expensive, and in 1965, the State of Ohio established well spacing requirements
tied to the depth of the well to assure orderly and efficient development of
Ohios oil and gas resources.
The State of Ohio requires a minimum of 40-acres for a well drilled greater
than 4,000 deep. If the wells depth is between 2,000 and
4,000, Ohio requires at least 20 acres. Wells between 1,000 and 2,000 deep require 10 acres. The acreage block does not have to be
a square, circle or rectangle, but all of the acreage must be contiguous (touching).
Ohio also imposes setbacks of wells from properties that are not part of the
drilling unit. The wellhead location must be at least 300 from any property
line not leased and included in the drilling unit in areas of 20-acre spacing
and setback at least 500 in areas requiring 40-acre spacing.
Ohio also sets minimum distances between wells that target the same oil and
gas producing formation. If the wells are more than 4,000 deep, they
must be at least 1,000 apart. If they are between 2,000 and 4,000, wells
must be at least 600 apart.
Wells and tank batteries must be located at least 100 from any inhabited
dwelling and at least 50 from any road or railroad. However, new construction,
though perhaps imprudent, is allowed right next to (no setback from) existing
oil and gas wells and tank batteries.
Oil and gas companies have additional considerations once it has been determined
that compliance with state spacing requirements can be achieved. The first
is access to a natural gas pipeline. Dominion East Ohio Gas and Columbia Gas
operate the largest pipeline systems in northeastern Ohio. The wells
distance to the nearest pipeline is a factor in the well site decision.
The surface topography of the land has a strong influence on the location of
the well and tank battery. Wells cannot be drilled in ponds and streams, and
wetlands in general. The desire to minimize creek crossings and heavily wooded
areas also affects well site location decisions. Safe access to the well lease
road from public roads is also a consideration. These surface issues are
the primary reasons most oil and gas companies work with the landowner
to find the best possible well location to satisfy the interests of all parties.
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Why Would a Property Owner Sign an Oil and Gas Lease?
We like to think that property owners want to join GonzOil in reducing America’s dependence on foreign energy. But, there is another advantage. Landowners are paid a royalty on the oil and gas produced from the well that includes their acreage.
GonzOil and their partners pay 100% of the costs associated with the drilling and the operation of the well. Leasing your oil and gas rights will cost you nothing, but will pay royalties if we find oil and gas under your property. All risk of a dry hole is ours.
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Who Buys the Oil and Gas, and How Do I Get Paid?
Oil is sold at spot market prices to an oil buyer, typically an oil refinery.
Most of the oil produced from GonzOils wells is sold to American Refining Group (successor
company to Kendall Oil) or to Ergon Oil Purchasing
(the successor company to Quaker State Oil). Both companies are set up to refine Pennsylvania Grade
Oil. Due to its high paraffin and wax content, Penn Grade is ideal
for refining into motor oil and lubricants. After an oil load is picked up by the oil buyer,
it takes about four to six weeks for GonzOil to receive payment from the refinery, and then another
30 days to distribute the oil royalty to the landowners.
Natural Gas produced by the well is sold to a Gas Broker and transported through
the pipelines of one of the large gas utilities: Dominion East Ohio Gas or
Columbia Gas. Natural gas can be sold at a variable price or at a long-term
fixed price. GonzOil currently has both types of contracts in place. Many of
the gas brokers who buy gas from GonzOil are the same ones that offer to sell
you gas as a retail or commercial gas customer. Our goal is to maximize long-term revenue from the well, and we work hard to determine the best gas contract
depending on current market conditions. Because a transportation pipeline company
and a gas broker are involved in the gas purchasing, it takes about 60 days
for GonzOil to receive payment for gas produced from the well and another 30 days for
GonzOil to distribute the gas royalties to the landowners.
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How is My Land Used During the Drilling and Completion of the Well
The first step is an agreement between the owner of the land that will have
the well and tank battery on it and the oil and gas company as to the location
of all facilities. This enables a well plat location survey to be conducted.
This well plat is part of the Ohio drilling permit application.
When an Ohio drilling permit has been issued, it is valid for one year. The
permit has Special Permit Conditions determined by the Division
of Oil and Gas Resources Management based on the specific geology in the vicinity
and on experience gained from nearby wells. There are more extensive permitting
requirements for wells drilled in urban areas.
The next step is constructing a safe entranceway to get equipment off the public
roads and onto the drill site. The entranceway is extended by a lease road
back to the wellhead location. Depending on the size of the drilling rig used
to drill the well, the drill pad can range from .50 to 0.75 acres in size for a traditional.
Drilling normally takes four to seven days, 24 x 7, and then the drilling rig
leaves. A smaller service rig is used to complete the well by running the production
tubing in the wellbore and performing other steps necessary to place the well in production.
After completion, the well site is much smaller. The well head is in a fenced-in cage that ranges in size from 10 x 10 to 15 by 30 if
a pumping unit is required. The tank battery must be at least 50 from
the wellhead. Depending on the number of production tanks required, the fenced-in tank battery ranges from 20 x 30 to 28 x 50. A lease
road is maintained to the tank battery so that the oil buyers tank truck
and other equipment to service the well can gain access to the well at anytime of the year.
Natural gas is delivered to the gas utility by a gas sales line that runs from
the tank battery to the nearest utilitys transportation or distribution pipeline. The
pipeline is trenched in and buried below plow depth.
However, if your lease is a No Surface Trespass Oil and Gas Lease, then there
should be absolutely no use of your surface property, and the oil company should
not set foot on your land while the new well is being constructed on another
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What About Safety?
Safety is important. Unsafe is very costly. Safety must be maintained from
the time the initial entranceway is built until the well is plugged and abandoned
at the end of its life. Before drilling can begin, The Division of Oil and Gas Resources Management requires a site inspection, approval of proposed drilling
pit locations and identification signage to be placed in a highly visible place.
In urban areas, a copy of the Ohio Drilling Permit and Special Permit Conditions
are part of the posted safety signage.
During drilling, access to the well construction site is limited to those contractors
who are actively working on the well. Because the drilling is 24 x 7, there
are always safety-conscious people on location. When the drilling rig leaves,
all excavations are fenced in and a temporary gate may be placed to keep curious
strangers from gaining access to the property.
After the construction, the wellhead and tank battery are completely
fenced in. In urban areas, regulations require an 8 high fence around
both. A permanent locked entranceway gate may be required by the State or requested by the landowner. Several warning
signs (No Smoking; No Trespassing) are posted around
the well site. The name of the company that operates the well and a 24-hour emergency telephone number are included in the required signage.
In addition, the Ohio Department of Natural Resources requires a cash bond
of $15,000 to be on deposit in Columbus in the event there is a situation
that must be addressed, and the oil and gas operator is not complying with
Division of Oil and Gas Resources Management rules and regulations.
Finally, most oil and gas companies have general liability insurance policies
in place with at least $1,000,000.00 in liability coverage. GonzOil maintains
$3,000,000.00 in general liability insurance policies.
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Is My Water Supply at Risk?
Certainly not if you have a municipal water source and your water is piped in by a utility. GonzOil participates in
the Ohio Utility Protection Service (OUPS), and we Call Before We Dig to
avoid damaging any pre-existing water lines. If water is supplied from a water
well, we take stronger preventive measures. First, a water sample is taken
before any activities begin. This becomes the base line if, after drilling,
there is a need to re-test the water quality from the water well. The Ohio drilling
permit and Special Permit Conditions are developed with water safety a priority.
The Division of Oil and Gas Resources Management employs professional hydrologists
and geologists who determine the locations of the fresh water aquifers. Conditions
to safeguard these aquifers must be adhered to while drilling, and a State Oil
and Gas Inspector has the right to observe all critical phases of water protection.
Oil and gas are valuable, and no oil company wants those sources of income to
go anywhere except into the production tanks and pipelines that take them to
market. The State of Ohio requires that dikes be constructed around all tanks
that have the capacity to hold no less than 110% of the volume of the largest
tank. In addition, there are many safety regulators and automatic shut off
valves set in place to shut-in the well if operating conditions exceed the
In addition to protecting surface and shallow potable water, the Division of
Oil and Gas Resources Management requires an extensive cementing program to insure
that the oil and gas coming up and through the well does not escape the production
casing. Typically, the state drilling permit requires three separate cementing
operations. The first is setting the 11.875 conductor casing into bedrock
and cementing it in place. Depending on the amount of glacial till (overburden)
and the depth of solid bedrock, conductor casing runs from 30 to 350 deep.
Well operators are required to notify the local Oil and Gas Inspector when
the conductor casing is being cemented in place. After the cement hardens,
drilling resumes inside of the conductor casing until all potable water zones
have been drilled through. At this point in the process, 8.625 surface
casing is placed in the wellbore and cemented in place. Again, the local Oil and Gas Inspector
is notified when the surface cement job will take place. The third cementing
operation takes place when the well has been drilled to its total depth. At
this time, the 4.5 production casing is run in the well and cemented
in place. Again, the local Oil and Gas Inspector is given the opportunity to monitor the
cementing of the production casing. The purpose of the three cement jobs is
to force all production from the well to flow up and through the production casing and into
the tank battery.
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Once a Well is Placed into Production, What Kind of Traffic Can I Expect?
New wells take several weeks to work the bugs out of the operating cycle. Consequently,
the well is likely to be visited by a well tender almost every day until the
well settles into a smooth operating cycle. Typically, well tenders drive a
4x4 pickup truck and limit their work hours to daytime.
There are several larger trucks that need to service the well from time to
time. Our favorite is the oil tanker, usually a 30 straight truck, not
a semi. We hope it stops by every week! A smaller water truck also services
the well by removing brine from the well and taking it to a state-approved
injection well for reinjection into the ground. We hope this truck does not
come too often since this is a waste product, and we must pay to have it removed.
The largest piece of equipment to access the well after it has been completed
is a service rig. We hope to see a service rig less than once a year; however,
we never know when a mechanical problem downhole will require a service rig to be placed
over the wellbore. Finally, the State Oil and Gas Inspectors have the right
and responsibility to visit the well occasionally to monitor safety and compliance
issues. They usually drive a 4X4 SUV owned by the State of Ohio (i.e., you).
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What Happens at the End of a Wells Life
When a well is no longer profitable, it becomes a candidate for plugging.
Most Clinton Sandstone wells have a commercial life of 15 to 20 years. As a general
rule, wells are not allowed to sit idle for more than one year. When it comes
time to plug the well, all surface equipment is removed along with as much
production casing as possible (the portion not cemented in place). The well
is then filled with cement to prevent oil and gas from coming up the plugged
hole. This cementing operation can be from the top of the hole to the bottom
of the hole, or with State permission, a series of cement plugs across any
potable water zones. Buried pipelines are removed or filled with cement and
left in place, based on the property owners decision. Finally,
the surface location is re-graded as closely as possible to its pre-drilling
contours and reseeded. Typically, if another well is not drilled on the property
within a short period of time, the acreage around the well is no longer held
and the oil and gas lease expires.
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How Does an Oil and Gas Well Affect the Value of My Property?
A well can add value or reduce value. A well that is distributing nice royalty
checks to the landowner enhances property values. However, as the well ages
and production declines, this value is reduced unless offset by increasing
oil and gas prices. Unsightly wells and production equipment can depreciate
a propertys value. Consequently, it is important to lease your property
to an oil and gas company that takes pride in its facilities. The best way
to determine that is to see for yourself by visiting some of the well
operators' other wells, and it is always wise to ask for and follow up on a companys
If the property receives free gas from a well on the premises, that is a significant
improvement to the propertys value. In recent years, it has cost most
home owners thousands of dollars to heat their homes each season with gas from
Dominion East Ohio Gas or Columbia Gas or gas suppliers using their pipelines.
If the well on the property has been properly plugged and abandoned in compliance
with Ohio law, there should be almost no physical evidence that there ever
was a well on the property. And, the lease roads that may be left behind with
the landowners permission, can provide better access to parts of the
acreage that would not have been accessible had the well not been drilled.
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