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Wind leasing: an all or none proposition  

Author:  | Economics, Law, Ohio, U.S.

[Editor’s note: The doctrine of correlative rights limits use of a common groundwater source to a share in proportion to the landowner’s property above it. Many states apply the doctrine to oil and gas fields as well. Gene Thompson argues here that it should also be applied to the extraction of wind power.]

Producing energy for everyday use has been a necessity for a long time. Oil Exploration and Production companies (E&Ps) have been at it for over 150 years. Wind farm companies have been at it for around 20 years. There are some regulations and laws still in the making that will guide both industries as they become more sophisticated and thus more productive. However, as of today, there is at least one big difference in the way the that the two industries operate. Unlike the wind industry, the oil companies are mandated to follow the doctrine of correlative rights. The wind companies are not.

The process of building a large oil drilling unit is very different than building a wind farm. When the oil company begins, they must gather leases, analyze plat maps, and then determine the best chances of finding a group of adjoining properties with a high percentage of neighbors that want to be part of the drilling unit. Before production can begin, the unit will need to contain 100% leased land. If not, the E&P must either reshape, relocate the unit boundaries or attempt to negotiate with any remaining unleased landowners. Sometimes it doesn’t work out and the holdouts are left outside the production zone. Essentially, the E&P sand the government legislators have both come to realize that not everyone wants to participate in a large-scale unitized drilling unit. When 50 to 100 landowners are asked to come together and cooperate with the development of a unit, it is inevitable that some landowners will hold out for varying reasons. More money, environmental concerns, and loss of peaceable enjoyment of the land are a few of the reasons. However, there are some instances where unleased, yet essential, land can be force pooled. That is a process wherein a landowner is forced to accept their just and equitable share of production. Additionally, prior to any force pooling, the holdout will have many opportunities to lease with competitors. This drives competition and is a win for the landowner. Ultimately, the State and E&P reserve the option to utilize rules of capture (correlative rights) and force pooling to bring the unit to completion. All states recognize that capturing our natural resources is for the greater good and is essential. Our laws consider it unfair for one unwilling landowner to have control over natural resource production that will ultimately benefit our society. And so, the majority claims correlative rights. Conversely, 95% of wind farm owners have zero correlative rights. Additionally, wind farm residents have no force pooling rules.

With that in mind, it is important to note that If the residents of a proposed area of development are heavily divided on oil production, the towel gets thrown in early on and the oil company keeps looking for clusters of landowners that want to participate. Lands that are chosen for development must pass EPA surveys and observe established rules for the industry. As a unit nears completion, the correlative rights doctrine comes into play as a tool to guarantee the rights of the majority. Generally, when landowners become informed of their rights and the value of their resources, development gets much easier. Better informed people are more willing to sign leases and participate in the production of oil. That is yet another difference between wind and oil production. Although similar, both industries encumber large clusters of acreage to capture a resource. Unfairly, yet with the government’s blessing, the wind industry pays disproportionately to very few. The oil industry pays proportionately to all.

The success of energy development either succeeds or fails depending how the rules are applied. In Ohio, wind energy is getting tremendous opposition because the industry is held to an entirely different set of standards. Perhaps that has something to do with legislators that do not have enough experience to understand the old drilling rules (150 years in the making) versus the relatively new rules for wind (20 years in the making). It’s no secret that noncompensated landowners in wind farms feel cheated and bullied. The absence of correlative rights for wind farm members is extraordinary.

Comparing wind to oil, the rules for wind farms dictate that profit be paid only to turbine hosts, and the majority of landowners will receive not one nickel. The majority will never be able to sign a lease with a competitor. They will never have a “cash-generating turbine” on their land. The only sharing aspect for wind farm inclusion is that the majority will share equally the burden of any ill effects. Their right to capture is worthless and is totally lost. The noncompensated wind farm resident has no voice as the state conveys our tax dollars to the wind company for support along with the exclusive right to capture. Hence, thousands of acres become stranded from any future production as one company monopolizes the production zone with the blessing of ill-informed or misguided state regulators. Consider this: If every person that lies within the bounds of a wind farm wanted to build their own industrial turbine, they could not because of setback rules. In contrast, the government would never consider allowing an oil company an exclusive right to drill and to then pay only to the landowner that hosts the wellhead. The wind turbine host enjoys that exact scenario to their exclusive benefit. If legislators can see fit to ensure fairness to every landowner that is encumbered in an oil drilling unit, then why not have similar protective rules for the wind farms?

The rule for force pooling in the oil industry wasn’t created until 1965, after 100+ years of drilling. After years of abuse and inappropriate interpretation, public awareness worked to drive a change. Since we now live in the information age, it shouldn’t take us 100 years to wise up to the wind companies. Our legislators must be aware of the inconsistent rules for energy production. The rules for wind farms need to be updated to keep pace with the changes in technology and rapid development. If the wind industry and our government expect landowners to go green and buy into the turbine idea, then they both need to take a lesson from the rules set forth in the oil industry and then consider the upside of sharing the profit fairly.

Gene Thompson
Tiffin, Ohio

This material is the work of the author(s) indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

The copyright of this material resides with the author(s). As part of its noncommercial effort to present the environmental, social, scientific, and economic issues of large-scale wind power development to a global audience seeking such information, National Wind Watch endeavors to observe “fair use” as provided for in section 107 of U.S. Copyright Law and similar “fair dealing” provisions of the copyright laws of other nations. Send queries to query/wind-watch.org.

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