File #: 20120383    Version: 1
Type: Project
Title: Oil and Gas Lease
Mover: Mark A. Tisdel Seconder: Michael Webber
Result: Pass
Agenda note:
Minutes note:

Ed Anzek, Director of Planning and Economic Development, noted that approximately five or six weeks ago, the City was contacted by Jordan Management Company, LLC, regarding the possibility of obtaining a lease on mineral rights on City-owned properties.  He introduced Ben Brower, in attendance to represent Jordan Management.  He noted that this idea was not new to the City and stated that Mike Hartner, Director of Parks and Forestry, was also in attendance to provide some history on activities regarding oil and gas leases which Council approved in 2005 to pursue potential oil reserves under Borden, Allen and Nowicki Parks.


Mr. Brower gave the following presentation:


Oil and Gas in Michigan:


-  Ranks 17th out of 33 for Oil and 10th for Gas

-  52,000 Wells drilled since 1925

-  15,000 Oil Wells

-  13,000 Gas Wells

-  Drilled depths from a few hundred feet to 17,466 feet

-  Deepest Oil (10,515 feet) and Gas (11,635 feet) Wells

-  Largest gas storage capacity in the United States (6000 BCFG from 60 fields).

-  Produced over 1.3 billion barrels of oil and 6.9 trillion cubic feet of gas since 1925


He noted that Jordan Management operates approximately 450 wells in the state; most are gas wells.  Slides depicted how oil is located under ground, noting that seismic data is collected to identify a structural trap of source rock that could indicate the presence of an oil reservoir.  He commented that the State of Michigan Department of Environmental Quality (MDEQ) has jurisdiction on operations and explained that three different casings are required to isolate production and protect the aquifer.  He detailed how horizontal drilling is done, and noted that it is almost a sure thing in this area. 


Mr. Brower explained the various pollution prevention measures and secondary containment provisions that will be in place at the wellhead and production facilities.


He stated that revenues from oil and gas help purchase land and develop beaches, parks and walks through the Michigan Natural Resources Trust Fund.  A slide depicted royalty income received by the State of Michigan and Michigan State University from leases on lands.  He explained that the proposed lease will not allow surface development to occur unless it was approved at a later date.  He stated that the exploration process takes approximately three weeks to drill the well, after which the equipment is removed.  The lease provides for a payment of $150 per net acre.


President Hooper questioned how far horizontal drilling can be done.


Mr. Brower responded that horizontal drilling in Mason County was done at a distance of two miles.


President Hooper questioned what sites were under consideration.


Mr. Anzek displayed a map highlighting Nowicki Park, parkland on Tienken Road just west of Adams, just inside of the City of Rochester boundary near Dinosaur Hill Nature Preserve, and at the Van Hoosen Jones-Stoney Creek Cemetery.


Mr. Klomp questioned what the actual drilling structure would look like and whether surrounding residents would experience any disruption due to nuisance activities.


Mr. Brower responded that a drilling rig would be in place for three to four weeks.  If oil or gas is found, a small well head would be installed.  Production would be shipped via a pipeline.  He stated Jordan Management has not had any complaints or incidents and offered that the local Metroparks could be contacted.  He mentioned that while activities that include hydraulic fracking are of concern, Jordan Management has no intention of doing any fracking for its wells.


Mr. Kochenderfer questioned whether Jordan Management has had any incidents and if nearby homeowners would be able to tell what is taking place.


Mr. Brower responded that it has not had any incidents.  He pointed out that activities occur 5,000 to 6,000 feet below ground.


Mr. Tisdel questioned whether the Parks Charter Amendment would have any effect on the City's mineral rights.


John Staran, City Attorney, stated that the Parks Charter Amendment pertains to use of the park.  He noted that these activities are subterranean and there would be no restriction or interference with the surface use of the park.  He commented that If it does come to the point where there is a request for above-surface permanent facilities, a review of the Charter Amendment would be undertaken.


Mr. Tisdel questioned whether any wellhead would be protected by security fencing.


Mr. Brower responded that it would.  He stated that the company would work with the surface owner to determine what security fencing would be installed.


Mr. Tisdel questioned what impact a lease of mineral rights would have on private property valuation.


Mr. Anzek responded that it is difficult to pin down any valuation impact.  He stated that the City Assessor's thought is that if people are aware that they have mineral rights, they typically keep them insted of selling them with the property.


Mr. Staran stated that property tax revenues to the City would not change unless the sale of the properties were impacted.  He commented that any valuation changes would be speculative at this point.


Mr. Anzek noted that every property owner within that 160-acre tract would participate in any windfall of royalties. 


Mr. Rosen noted that Nowicki Park and the Tienken Road park have been identified as City-owned properties that Jordan Management wants to start the leasing process with and questioned whether drilling would occur on City park property.


Mr. Brower responded that Jordan Management would like to enter into an oil and gas lease with the City for those tracts.  He explained that this would not give the company rights to drill on City property but would give the company the right to pool those lands with properties next door.  He explained that the State has a requirement of a one-quarter mile unit.


Mr. Rosen questioned whether he should recuse himself from the discussion as he lives adjacent to the area of Nowicki Park.  He questioned whether every property is treated equally.


Mr. Brower responded that property owners are paid royalties in proportionate to the acreage owned.


Mr. Rosen questioned when a determination would be made on how large the leasehold area would be and commented that he did not believe the process was to the point where he should back away.


Mr. Staran commented that consideration would need to be given to whether Mr. Rosen's decision would potentially have a positive economic impact on his own situation.


Mr. Brower stated that as a homeowner, he would receive $100 to sign a lease.  With property of only one-third of an acre, royalty income could be likened to a "dinner-a-month".


Mr. Staran suggested that Mr. Rosen could wait until the next step before considering whether or not to recuse himself from the discussion.


President Hooper commented that there may not be a next step as Council will not approve the placement of a facility on City park property.


Mr. Staran stated that unless a Council member believes that his objectivity would be influenced by a decision, he would say that there is no conflict that automatically requires a Council member to recuse himself. 


President Hooper questioned whether the company's goal is to obtain leases on at least 81 of the 160 acres to define the area.


Mr. Brower responded that the company's goal is to obtain leases on all 160 acres; however, he noted that there are many owners in a subdivision.  He commented that property must be leased where the company wants to place any well.


Mr. Yalamanchi questioned whether the 160 acre tract of properties must be contiguous.


Mr. Brower responded that they must.  He stated that a tract is not limited to 160 acres and noted that it could contain 320 acres.


Mr. Yalamanchi questioned how many homeowners have signed to date.


Mr. Brower responded that not all have signed, but the company has obtained a number of leases.


Mr. Yalamanchi commented that he has received emails indicating disapproval.  He noted that there is an expectation that the Charter Amendment will prevail in preventing this from proceeding.  He stated that he is not willing to say yes unless all of the homeowners are supportive.  He recommended Council not proceed in granting approval until it sees the residents' response.


Mr. Webber requested that Mr. Brower review the lease process.


Mr. Brower explained that a letter is sent with a lease form that requests a non-development lease on a property owner's land, followed by a phone call and an appointment to discuss the lease.  The company would have to show the MDEQ that it at least attempted to lease the property.


Mr. Webber questioned what Council would have to lose in approving the request.


Mr. Hartner stated that he is staying close to the project to ensure that there are no impacts on park properties.  He commented that thus far, he does not see a downside to the request, as there appears to be no disruption to the aquifer or surface of the parkland.


Mr. Anzek noted that the City's Environmental Consultant, Tom Wackerman, ASTI Environmental, was consulted, and reported back that the MDEQ has many safety checks in place.


Mr. Webber questioned whether Jordan Management has ever gone through the process of obtaining leases and found that it cannot locate a place for a production facility.


Mr. Brower responded that while the company had to get creative in the past in locating a facility, it has never been unable to secure a location.


Mr. Rosen stated that while he is all in favor of finding new energy sources, Council should first obtain a formal Attorney's Opinion regarding the City's Charter and mineral rights to ensure that the mineral rights can be separated from the surface.  He commented that Council should find a way to determine that a majority or very high number of homeowners in the area are aware of and have the opportunity to give feedback to the City whether they believe this is a good idea.  He stated that Council should not vote on granting approval tonight.


Mr. Kochenderfer stated that he does not want to force this onto the residents.  He questioned whether a denial would stop the company from proceeding, noting that it is actually each individual property owner's decision.


Mr. Klomp concurred, stating that this is a property owner's decision.  He noted that $150 is not a large amount, and commented that it is a small gain for possible disruption.


Mr. Brower noted that not all properties are subdivision lots; some large parcels are included.


Mr. Klomp stated that this is a densely-populated area and mentioned a pipe breakage in the Kalamazoo River that required environmental cleanup.


Mr. Yalamanchi suggested that while he is not questioning the company's record, he would offer that the Homeowner's Associations should be consulted first.


Mr. Brower noted that it is individual homeowners, not the associations, that own the properties in question.


Mr. Anzek responded that the City has received multiple calls from residents questioning whether the correspondence they have received is legitimate.


Mayor Barnett stated that the Administration's role in these efforts is to educate the owners.  He pointed out that the City is not representing this company or vouching for them.  The City's efforts thus far have been to get its Environmental Consultant involved and obtain the City Attorney's view on whether this can be pursued.  He commented that the City does not have the ability to add steps to the process and noted that the company can do this with or without the City's approval.  He pointed out that the company cannot put a wellhead on City property.


Mr. Staran noted that there have been adjustments to the draft lease presented and suggested that any approval could include a caveat that the form of the agreement be subject to the City Attorney and Mayor's review. 


Mr. Rosen stated that he would not vote for approval until he sees the City Attorney's formal opinion.


President Hooper noted that a verbal opinion has been given.  He questioned references in the lease to exhibits which were not included in the documents.


Mr. Brower responded that one exhibit details legal descriptions of the subject properties and the other includes conditions to be incorporated such as no fracking or surface operations.


Mr. Staran noted that another condition of approval could include a caveat that if a property description changes or other properties are added, it must come back to Council for approval.


Discussion ensued regarding the subject properties.  It was noted that the property adjacent to Dinosaur Hill Nature Preserve is actually in the City of Rochester.


Mr. Staran suggested that Council could grant tentative approval with direction that a finalized form of the lease with property descriptions and conditions return to Council for final approval at its next meeting.

Action: Adopted by Resolution
Action text: A motion was made by Tisdel, seconded by Webber, that this matter be Adopted by Resolution. The motion carried by the following vote: