Auction of oil, gas leases near lakes prompts dissent

A state decision to auction off leases on oil and natural gas rights associated with lakefront parcels in southeast Michigan is being lamented by some Oakland County residents and municipal officials.

The state Department of Natural Resources (DNR) offered state-owned oil and gas lease rights associated with 108,164 acres in 23 counties at an auction held on Tuesday, May 8. It was the first such auction where oil and gas rights associated with state-owned land adjacent to southeast Michigan lakes were offered for lease.

State oil and gas lease auctions routinely occur twice a year, once in the spring and once in the fall. The leases last five years.

According to DNR Spokesperson Ed Golder, the mineral and gas rights associated with 91,000 acres of state land were leased at last week’s auction, bringing in a total of $4.125 million.

The average bid per acre was $39.90.

“Historically, this was a pretty middling auction,” said Golder. “It wasn’t the smallest. It wasn’t the largest. The largest was in May 2010. It raised $178 million, and on average the bid was $1,500 per acre.”

According to Golder, most of the auction proceeds go to the Natural Resources Trust Fund (NRTF), which under a constitutional provision can only be used to purchase and develop land for public recreational use. However, if the NRTF is at its cap of $500 million, then the auction proceeds go into the Parks Endowment Fund, which is money used for park maintenance. A small amount also goes to the care of the state fishery and wildlife habitat.

Oral bids can be submitted by individuals of legal age, or by a partnership, a corporation, or other legal entity qualified to do business in Michigan.

According to Julie Manson with the state Department of Environmental Quality (DEQ), typically bidders are representatives from the oil and gas industry.

However, leasing the mineral rights of a specific parcel doesn’t by itself grant permission to drill a well. According to the DNR, if a lessee chooses to pursue development of the oil and gas rights, separate written permissions — including a drilling permit from the DEQ — must be obtained prior to drilling.

Furthermore, when oil and gas rights are leased, that doesn’t automatically mean a well will be drilled. The drilling of a well doesn’t always tap into commercial amounts of oil or gas.

“The DEQ’s Office of Oil, Gas and Minerals regulates the drilling and completion of oil and gas wells. The DEQ enforces a comprehensive set of regulations designed to protect Michigan’s resources from potential negative impacts from drilling and completing wells,” Golder said.

These potential negative impacts have caused concern in some quarters. There were even protesters at the auction held in Lansing last Tuesday.

“Some were led out of the room — they had registered as bidders — for causing disturbances during the auction. And one was even arrested,” Golder said.

The protesters aren’t the only ones with concerns. Citizens of West Bloomfield Township have also expressed reservations about the idea of mineral rights being leased in their area, according to Clerk Cathy Shaughnessy, who has drafted a resolution for township board consideration in order to try to prevent any drilling for oil or gas in the township.

“The state of Michigan (leased) the mineral rights for about 37 acreage parcels in West Bloomfield,” Shaughnessy said. “There were quite a few parcels that were listed near Cass Lake — either under or near the lake. And they were nominated (for the auction) by an individual in Traverse City who is involved with a company that is involved with oil and gas. While the law doesn’t allow us to forbid it, we are hoping that by passing a resolution saying we oppose any oil or natural gas drilling in the township that we can prevent it from happening.”

In Oakland County, the mineral and gas rights associated with all 18,347 acres up for auction last week were leased. Go to http://tinyurl.com/72dshnc to view a map of the parcels that were available for leasing at last week’s auction.

The proceeds gained from Oakland County tallied up to $616,514, with the average bid per acre at $33.60.

According to Golder, all the land leased in Oakland County is classified as “non-developmental.”

“This means the surface of the land cannot be disturbed,” he said. “There can be no drill head or apparatuses on that land.”

However, that doesn’t mean that the oil or gas resources underneath the surface can’t be accessed by drilling horizontally or directionally with the drill head in another location.

“People could buy the property next door to the acreage leased and go in horizontally,” Golder said. “They could also use the (non-development) land to put together a drilling unit. They need at least an acre of land to create a drilling unit. And while the unit cannot be on the non-development land, that land could be included to make a space large enough to satisfy the 1 acre requirement.”

The West Bloomfield resolution also opposes “any and all directional drilling originating in another community and terminating under” the township.

“You can horizontally drill from about a mile and half away,” Shaughnessy said. “So, someone could be drilling in Waterford and then underground drill horizontally for a mile and a half to Cass Lake. I’m hoping the board accepts and passes the resolution.”

The resolution went before the board at a meeting held on Monday, May 14.