Saline Township couple relinquishes mineral rights after battling oil company

Armbruster’s country home on 20 acres of property off Braun Road has been her pride and joy for the past 30 years while she has lived there with her husband, Mike Armbruster, 62.  

As an increasing number of oil wells have been drilled in Saline and Lodi townships by the Gaylord-based company, the pump jacks and the natural gas flares that accompany oil production have become a new crop in farmers’ fields. Some are hidden far behind stands of trees; others are clearly visible from the road.

Though her neighbors agreed to sign leases with Paxton — which resulted in an oil well directly across the street from Armbruster’s house — Armbruster remained staunch in her position to reject the company’s request for the rights to her own property.

That was until this summer, when the company took steps under state law to get access to the oil on her property without her consent.

Compulsory pooling

Though it was a heartbreaking decision, Armbruster said she felt she had no choice: Paxton was moving forward with a state hearing that could put her property against her will into the drilling unit.

In Armbruster’s case, the oil well was not slated for her property but her land was within the designated 80-acre drilling unit.

Her property was the last outstanding piece of the puzzle for Paxton to complete its 80-acre drilling unit for a new oil well, said Greg Vadnais Jr., land leasing agent for Paxton. The three other landowners in the unit had already signed lease agreements, Vadnais said, noting he’s been trying to contact the family for three years.

The Armbrusters’ property accounts for a significant portion of the drilling unit, Vadnais said.

A drilling unit is a designated tract of land around an oil well that’s legally bound by land-lease agreements an oil company must obtain before drilling. It was designed to give all property owners immediately adjacent to the well their fair share of the proceeds from the sale of the oil – as oil formations don’t follow man-made boundary lines.

Compulsory pooling was initially created by the state to prevent too many oil wells from being drilled, as competition was fierce among neighbors in Michigan’s early oil boom to profit from wells on their property.

Compulsory pooling also protects a property owner from having oil and gas drained from the underground portion of his or her property without being compensated for it.

“There are people who have signed a lease that want their minerals developed,” saidJennifer Faragan, permit coordinator and geologist for the Michigan Department of Environmental Quality’s Office of Oil, Gas, and Minerals. “(Compulsory pooling) is there to make sure the minerals are developed … and to protect the rights of the people not signing the lease.”

However, the process effectively combines the mineral rights of a property owner who refuses to lease his or her land with the other complying property owners in the drilling unit — as was potentially the case with Armbruster.

“We figured no means no, if it’s your property,” Armbruster said. “As it turns out, in the long run, this was what got us — when Paxton got their attorneys involved … you’re involved in this hearing, and you’re like, ‘What is this?’”

The compulsory pooling process, in Armbruster’s case, was initiated by Paxton with the DEQ.

Armbruster said she didn’t know the process had even started until she received a letter from the DEQ stating that the first hearing regarding her property had been adjourned from the proceeding because Paxton forgot to list her as a party in the case.

In unfamiliar territory and with her property at stake, Armbruster sought a lawyer and postponed the hearing. Public notice of upcoming hearings is posted only on this DEQ website.

Compulsory pooling hearings are conducted by the DEQ and presided over, typically, by the assistant supervisor of wells, Hal Fitch. After hearing testimony from the oil company, geologists and parties identified in the case, Fitch and his staff members discuss the issue and then later issue orders.

“The decision would be at a later date,” said Susan Maul, hearing coordinator for the DEQ. “We’d get the transcript afterwards and collect any exhibits, and then we’d sit down afterwards and discuss it. … Fitch is the decision-maker, though he takes into consideration staff opinion.”

Should a party be pooled into the drilling unit, he or she is considered a “working interest owner” and receives one-eighth of the royalty from the oil well’s production, Faragan said. Private contract negotiations typically result in one-eighth of the royalties for property owners as well, Faragan said.

However, there are costs that would be levied on the compulsory pooled party — including an option to pay an estimated share of the drilling costs up front, or to allow a penalty to be taken out of the royalty for the risks associated with drilling, Faragan said.

Rather than leave the fate of her property rights up to the state to negotiate, Armbruster was able to negotiate a non-developmental land lease agreement with Paxton with the guidance of a lawyer. The lease states that Paxton cannot use any part of Armbruster’s land.

Armbruster said it wasn’t what she and her husband wanted — but she felt she had no other choice.

“We felt helpless,” Armbruster said. “We felt that was the only way we could protect this property.”

Changing landscape

Armbruster said she’s watched her rural Braun Road community change as oil wells have been drilled.

With horse pastures, a hay field, a garden and woods on her own property, Armbruster said she enjoyed the farm smells and activities nearby. Cow manure doesn’t bother her, she said, and the rumble of tractors and farm equipment was a comforting sound.

The addition of drilling rigs — 24-7 operations for about a month to install a new oil well across the street — and the associated large trucks carrying gravel for new roads — have turned her agricultural haven into an industrial site, Armbruster said.

A flare installed at the oil well across the street to burn off natural gas that can’t be captured from the well has also proved to be the biggest nuisance, she said. The smell of gas burning wafts into her home if the wind is blowing from the southwest —causing her to shut her windows and stay indoors.

“It’s farmland and their property and they were allowed to do whatever they wanted to it,” Armbruster said of her neighbors. “And we were very good friends with them so I didn’t say anything … I didn’t complain and once the flare started I still didn’t want to complain — but we’ve been suffering and other neighbors too — and it’s like, what can you do? It’s there; it’s there legally.”

In addition to the gases being released through the flare, Armbruster said she’s concerned for the future safety of her water well in her front yard should drilling activities or spills from crude oil transportation contaminate it.

An opposition group to Paxton’s activities sprung up in 2011. Lodi Township resident Mitch Rohde, founder of the NoPaxton group, said his team continues to receive calls and emails from landowners about ongoing oil and gas operations in Saline and Lodi townships.

“These citizens do not appreciate the toxic gases that they are exposed to from nearby wells and flares, and they do not appreciate the uncertainty in their drinking water,” Rohde said. “Many folks in this area are adamant that they do not want development near them but are discouraged because Michigan law (and the MDEQ) serves mainly the interests of the oil companies and doesn’t provide sufficient protections for homeowners. Paxton Resources in particular have most certainly not improved their image by intimidating homeowners into signing leases using legal ‘compulsory pooling’ actions.”

Paxton officials have stated the smell from the flares is minimal, and that the flares are necessary to burn off the natural gas because there’s no pipeline infrastructure in place to extract it from the well.

The company also contends that ground water aquifers are far above the oil formations in the areas that they’re drilling — putting the water supply at low risk for contamination.

Production

Paxton’s oil play into the Trenton-Black River formation, of which Saline and Lodi townships are a part, has skyrocketed this year as eight permits for new wells have been filed with the state since January.

In 2012, state records show Paxton netted 123,568 barrels of crude oil from eight Saline Township wells — pushing it into the top 10 oil-producing regions in the state, according to Michigan Oil and Gas News. The company still has eight producing oil wells in Washtenaw County.

Paxton Resources production of crude oil, in barrels, by year from its Washtenaw County wells based on information from the Michigan Department of Environmental Quality’s Oil and Gas Database.

Paxton has been drilling its wells about 3,000 feet down into the Trenton-Black River formation and then drilling horizontally or directionally to tap into pockets of oil previously inaccessible. 

The company stated a year ago at public meetings that it was not employing the controversial practice of hydraulic fracturing to obtain its oil, and to date has not applied for a permit to do such work.

The prospects in the Saline and Lodi township areas have meant Paxton is concentrating most of its operations here, and has rented out a house in the area to serve as a base. The company has contracts with 20 to 30 companies for different aspects of the drilling work and typically employs about 40 to 50 people directly, Paxton officials said.

For Armbruster, the oil business that’s entered into her rural neighborhood came at an inopportune time.

Armbruster has been consumed with medical appointments for the past six months to fight a cancer diagnosis that came in December. Right as her radiation treatments began, she received a notice from the state regarding the compulsory pooling process.

“I did this with cancer: I researched everything so I knew what to expect what to ask, I even got a second opinion. I went from that fight, that struggle — all that research all that turmoil and finally reaching the right surgeon, the right hospital — got through that surgery and the healing and all that process and then this started,” Armbruster said. “I can fight cancer with radiation and all the surgeries, but I can’t seem to fight the oil companies or the state to leave us alone.”

Video: A Paxton oil well in the drilling stage at the corner of Goodrich and Arkona roads in Saline Township.

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