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The Suburbanite
  • New-found wealth gives landowners new lease on life

  • Oil and gas drillers have spent millions upon millions of dollars in Ohio to lease mineral rights from landowners, making overnight millionaires of people like Larry Jenkins and Ron Carlton. But big payouts weren’t a sure thing. They took research, working with neighbors and experienced legal help. For every landowne...
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  • Larry Jenkins was around age 6 the year his Christmas wish caused his mother to cry.
    “I want new windows in my bedroom,” he told her. Given the wind-blown snow that collected on the floor during winter, it wasn’t an extravagant request.
    Two windows were all his folks, Ballard and Sharon Jenkins, could afford that year. The next year they replaced a couple more, and so on.
    “That’s just how we grew up,” Jenkins said, recalling the story in his office a few paces from the old farmhouse on Route 9, just north of Carrollton.
    He’s 42 now, with more hair on his chin than his head, and the thick shoulders of the small-college wrestler he used to be, but his childhood memories are never far away on the farm.
    This place is more than 300 acres and a barn, Jenkins said.
    It’s sorrow and joy and life and death and sacrifice. It’s day after long day of milking cows and harvesting grain. It’s dad flipping a quarter to decide which bill to pay. It’s an older brother dying in a tractor accident. It’s being able to vacation at the Pro Football Hall of Fame because your uncle won free tickets on the radio. It’s riding three-wheelers and killing your first deer.
    “There’s nothing like this right here,” Jenkins said. “There’s just nothing.”
    And his family almost lost it.
    Three years ago the farm was scheduled for auction. The dairy equipment was outdated. Jenkins’ father was ill. Larry Jenkins was working a sales job, and trying to be a farmer at the same time. They couldn’t go on.
    Then energy companies came to Carroll County looking to tap gas and oil trapped in shale deep below the surface.
    Jenkins’ family leased their mineral rights to Rex Energy, and a million-dollar check later, the farm is paid off, his father is retired and Jenkins is sitting in a new shop building big enough to hold a John Deere combine and a semi-truck, with space left over for his younger brother and a friend to work on a neighbor’s tractor.
    “It’s made all the difference in the world,” Jenkins said.
    Oil and gas drillers have spent millions upon millions of dollars in Ohio to lease mineral rights from landowners, making overnight millionaires of people like Jenkins.
    But getting a big payout wasn’t a sure thing. It required research, working with neighbors and experienced legal help to negotiate leases. For every landowner who signed a big deal, there is another whose land was leased for as little as $5 an acre.  
    TOUGH GROUND
    The Carroll County Chamber of Commerce sign on state Route 43, just inside the county line says, “Agriculture, Carroll County’s Largest Industry,” but coaxing a living from the earth here has never been easy.
    Page 2 of 5 - The topsoil is thin. Large tractors have trouble navigating the soft hills and shallow valleys that fold the land like a rumpled quilt. Most of the fields are used for growing hay and pasturing dairy cows, the latter a marginal enterprise in the best of times.
    “This is not the greatest ground to farm, but it’s our ground,” Jenkins said. “And we love this down here.”
    Of more value are the mineral rights beneath those fields and pastures. Nearly all of the land here and in surrounding counties has been leased by drilling companies. The price hit $5,800 an acre in Carroll County, a mark that was surpassed when leases in Guernsey and Harrison counties topped $6,000 an acre, said William G. Williams, a Jackson Township attorney who has represented landowners and drillers for 30 years.
    A decade ago, no one would have dreamed of such numbers. The going rate for oil and gas rights was as low as $5 to $10 an acre. If a company drilled a well, maybe you’d get free gas.
    “In Carroll County, everybody assumed you could sign an oil lease and it would pay your taxes,” said Ron Carlton, a now-retired tree farmer. “And that’s about all it was good for.”
    LAND RUSH
    Four years ago, the dynamic changed. Drilling company landmen with southern drawls and out-of-state plates swarmed the county recorder’s office and began knocking on doors with sweeter deals: $30, $50, even $100 an acre.
    “It was a feeding frenzy,” Carlton said.
    The bidding war continued, and the price ballooned: $400, $500, $600, $700 an acre. A signature was all it took to get more money than most people had ever seen in their lives.
    Carlton said one of his neighbors held 400 acres and declared he was selling when the price hit $1,000 an acre.
    “He was afraid it was going to disappear,” Carlton said. “He saw that carrot that he had never been able to get even close to.”
    But the rising prices prompted others to wonder why their land was suddenly so valuable.
    Jenkins said a landman in those early days offered his father $100 an acre — four times what the company had ever signed for. But it didn’t sit well when his dad learned a neighbor had been offered twice that amount.
    “You know how to do that Internet and all that kind of stuff,” Jenkins recalled his father telling him. “Why don’t you figure out what’s going on?”
    Jenkins did. He read all he could find. On work trips to Louisiana and Texas, he visited the Haynesville and Eagle Ford drilling regions, driving up to farms like his own and seeking advice.
    Take your time, get a gas and oil lawyer, do your own lease, protect your water, those landowners told him.
    Page 3 of 5 - In the meantime, Jenkins put together a business plan for his dad, selling the dairy cows to buy time until the lease money came through.
    LANDOWNERS UNITE
    Jenkins also started talking to his neighbors. Banding together, they formed SURE, a landowner group with 12,000 acres. The group piggybacked on the work of ALOV, an earlier coalition started by Carlton and other landowners.
    Coupled with advice from experienced attorneys, such as Williams, landowner groups gave property owners the leverage to negotiate better leases. The per-acre payment and the royalty percentage were not the only concerns.
    At worst, some landmen told lies to close deals.
    “They signed a lot of leases out of people’s fear,” Carlton said.
    At best, the initial leases they offered were one-sided and filled with legalese that gave drillers “carte blanche to do anything they wanted,” he said.
    “You’ve got something in fine print this long,” Carlton said, holding his thumb and forefinger about five inches apart. “And its one sentence? If you want to go to sleep, that’s what you read.”
    STRIKING IT RICH
    It took a year and a half for Jenkins and the SURE group to put together a lease and sign for $3,500 an acre and 20 percent gross royalty.
    The deal might have been better had they waited longer, but the group had started to lose cohesion, Jenkins said.
    Most of the farmers he knows used the windfall to pay off loans, something they usually couldn’t afford to do without an auction carving their land into lots, as Jenkins’ family nearly did.
    “And the guys around here, all the old farmers, they all look 10 years younger,” Jenkins said.
    In addition to paying off their farm, and buying more land, Jenkins and his family built a $250,000 shop building and bought a 1985 Peterbilt semi with a chrome basset hound on the hood and frosty green fenders, to haul grain. They also picked up some Harley-Davidson motorcycles.
    “It’s like the best of both worlds,” he said. “You got the money from selling the farm but you didn’t have to sell the farm.”
    The lease payments have provided an initial shot of cash, but royalties hold the prospect of years of wealth and a legacy for future generations.
    Carlton said he hopes everything will be drilled and harvested in a way that protects the water and the land.
    In 1952, his father planted the first trees on a hundred acres of land. When Carlton, 64, and a brother retired last year, Carlton Tree Farm held 1,500 acres. They leased two-thirds of that for $5,800 an acre. Additional holdings were included in other deals.
    “This is just sort of like icing on top of the icing on top of the icing of the cake,” Carlton said.
    Page 4 of 5 - He was already a millionaire from earlier coal leases and the farm’s nursery stock, and the money would have been nice to have when he was younger, but his habits haven’t changed much, he said. He still wears his Carlton Tree Farm ball cap, hooded sweatshirt and jeans.
    “You spend your whole life saving money, being frugal, living beneath your means and just because a whole bunch of money falls into your lap doesn’t change me over night,” Carlton said. “I still go to a restaurant and say, ‘I can’t pay $30 for a steak.’ I can’t enjoy it if I do. I can’t go and pay $50 for a pair of jeans. What the hell do I want a $50 pair of jeans for? I can’t change my stripes that easily. The only thing that I tried to talk myself into is, if I have to fly somewhere, couldn’t I fly first class.”
    LEFT OUT
    Not everyone has caught the wave, even those who thought they had protected themselves with leases.
    Ray Grindstaff, 63, another Carroll County resident, is one of 200 landowners represented by the Tzangas, Plakas, Mannos law firm in Canton who are suing over leases they signed with Anschutz Exploration.
    Grindstaff leased his almost 20 acres for $5 an acre back in 2008, but he and other property owners say the landmen promised, and lease language guaranteed, that if a better deal came along, the company would match the offer or release them from their agreements.
    Chesapeake Energy later purchased the Anschutz leases, and contends there is no escape clause.
    Federal and state judges have reached different interpretations of the lease language, and the case is pending with the Youngstown-based 7th District Court of Appeals.
    Grindstaff said he has an offer for $5,000 an acre and 20 percent gross royalty, but maintains the case is about fairness more than money.
    “I don’t feel that they’re even honoring the contract,” he said. “Because the very instrument that they used to entice people to sign ... now, they’re trying to use that instrument against us.”
    No matter how the courts ultimately rule, cases such as Grindstaff’s illustrate what could be ahead for other lease signers.
    The vast majority of drillers are honest, but some aren’t, said Williams, the attorney.
    Enforcing lease terms can mean taking a very large company to court, and sometimes it’s not the driller with whom a property owner originally signed.
    “If you’re right, it’s still going to cost you a lot of energy and a lot of money,” admitted Jenkins, who has nothing bad to say about Rex Energy.
    From the shop building, he pointed east, past the grain silo, to where Rex plans to start drilling on the farm in August. He will lose five acres of field for the well pad, but Jenkins said he couldn’t grow enough corn on that parcel in his lifetime, or that of his children, to equal what the well will pay.
    Page 5 of 5 - “You don’t get million dollar checks without sacrificing something,” he said.
    Reach Shane at 330-580-8338 or shane.hoover@cantonrep.com
    On Twitter: @shooverREP