energy Archives - Dawda PLC

Congress Extends Wind Energy Tax Credit

Editor — Wed, 30 Dec 2020 06:27:42 +0000

Late Wednesday night, President Obama signed a bill that, among other things, extended wind energy tax credits for one year. The Wind Energy Production Tax Credit (“PTC”) and other related tax credits will continue to apply to current projects and those commenced in 2013. Wind energy projects comprised approximately 45% of all new electrical generating capacity in 2012. This compares with about 30% for natural gas. The threat of the expiration of these credits caused uncertainty in the market place and stymied new projects. This is good news for the wind industry which has suffered from the political instability in Washington, D.C., as well as unstable market forces.

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When It Comes to Mineral Rights, “No” May Not Mean “No”

Editor — Tue, 29 Dec 2020 18:12:45 +0000

Can a property owner be forced to allow the removal of oil and gas from below the property? In Michigan, the answer could be “yes”, regardless of whether the owner consents to it or not. While this result seems against logic and the ability to freely determine what to do with ones’ mineral rights, Michigan law allows the State to impose an involuntary pooling of mineral rights.

Through the process of compulsory pooling, oil and gas interests in a given area can be pooled into one drilling unit, regardless of whether a property owner agrees. Part 615 of the Natural Resources and Environmental Protection Act designates the Director of the Michigan Department of Environmental Quality as the “Supervisor of Wells” and provides the legal authority of the Supervisor of Wells pool properties to form drilling units for private developers.

The concept of compulsory pooling was originally, among other purposes, intended to protect property owners from having oil and gas drained from the underground portion of their property without being compensated for it. However, it is also used by the MDEQ to combine the mineral rights of a property owner who refuses to lease their land with other property owners in a drilling unit. It is typically applied to a situation where surrounding property owners have signed leases and there are a few holdouts who refuse.

As a result of this Michigan law, property owners who do not consent to sign an oil or gas lease may nevertheless be compelled to allow a private developer to remove oil and gas from beneath the property. Also, compulsory pooling may allow the controversial process of “fracking”, regardless of the property owner’s desires. Although the property owner will be compensated; usually, receiving 1/8th of the royalty from the well’s production, the idea of compulsory pooling seems contrary to long held common notions of private property rights.

Property owners are, therefore, in a conundrum: whether it is better to negotiate a lease with a mineral rights developer or whether to risk the potential for compulsory pooling. Although property owners can participate in a hearing before the MDEQ and provide input, the Supervisor of Wells has the power to establish a formula for sharing costs and revenues and takes the negotiation of any particular lease out of the hands of a property owner who refuses to sign a lease. The terms of a compulsory pooling order could be different from what was originally offered in a mineral lease.

Recently, this issue arose in a case in Saline Township, Michigan. The property owner was surprised when it turned out that regardless of an adamant refusal to sign oil and gas leases, the oil and gas developer initiated a compulsory pooling process to do just that without the property owner’s consent.

Property owners who are approached by oil and gas developers should be aware of compulsory pooling and the potential ramifications of refusing to sign oil and gas leases under Michigan law, especially when they are the last holdout. While saying “no” to a oil and gas company may be within the rights of a landowner, “no” may not always mean “no” when one considers the concept of compulsory pooling in Michigan.

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The United States of Energy (Part 2): Concerns in Michigan and the Great Lakes

Editor — Tue, 29 Dec 2020 13:38:45 +0000

In a prior post we highlighted the recent energy boom in the U.S. Like elsewhere, the increased attention to energy production has been felt here in Michigan but on a smaller scale. Earlier in 2013, Encana (a Canadian company) announced that it was considering developing at least 500 new wells in the state. Current economics, however, create some doubt as to whether gas production in Michigan will increase more than current levels.

Michigan residents are paying close attention to gas and pipeline transport issues in the region because of our water resources.

What is the main issue in Michigan? Two words – groundwater withdrawal. Many Michigan rivers and streams are fed by groundwater. With fracking pads using up to 20 million gallons of water, the concern is fracking near waterbodies will result in reducing water levels to a point that fishing and boating will be adversely impacted. Recently, because of local opposition to oil and gas leases along the “Holy Waters” section of the AuSable River, the DNR designated those leases as non-production leases. In addition, the sensitivity of this issue for Michigan residents has prompted the MDEQ to re-evaluate its fracking rules.

Michigan residents are also concerned about oil transport through the Great Lakes region. Companies like Enbridge are building or expanding pipelines in Michigan to handle the increased production of oil elsewhere. There are also plans to build an oil shipping port in Superior Wisconsin so that up to 35,000 barrels (about 1.4 million gallons) of oil from Alberta’s tar sands can be shipped to refineries around the Great Lakes.

As many recall, in 2010 one of Enbridge’s oil pipelines near Marshall, Michigan ruptured spilling over one million gallons (about 24,000 barrels) of diluted bitumen (“dilbit”) oil into the Kalamazoo River – a spill that Enbridge is still cleaning up. While Michigan residents understand the need for oil, they are not interested in a repeat of the Enbridge spill – especially one that would involve one of the Great Lakes.

Although water is abundant around the Great Lakes, it is used by many for recreational purposes in addition to industrial/commercial uses. As a result, there is significant interest and demands for it to be managed so that it can be enjoyed by the greatest number of people.

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