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Published March 08, 2011, 10:52 AM

Farmer’s lease (less) deal emblematic of oil/farm issue

ROSS, N.D. — When Curt Trulson purchased a 160-acre tract of land, three miles west and two miles south of Stanley in the mid-1990s, he was thinking about farming — not oil. It was a “split estate,” meaning mineral rights were “reserved” by the owner in the bidding price.

By: Mikkel Pates, Agweek

ROSS, N.D. — When Curt Trulson purchased a 160-acre tract of land, three miles west and two miles south of Stanley in the mid-1990s, he was thinking about farming — not oil. It was a “split estate,” meaning mineral rights were “reserved” by the owner in the bidding price.

Times have changed.

Today, there are 168 oil drilling rigs operating in the state. There are more than 5,200 producing wells. One of those wells is on his 160 acres.

Since 2007, Trulson has been dealing with an oil company that has put a well site on his tract. The oil company chose his quarter-section out of eight quarters in putting a 1,280 “spacing unit” — 1 mile wide by 2 miles long. Initially, they said it would be six acres, but that’s been reduced to about five. After early disputes over leasing compensation, the well simply went ahead and no lease compensation has been made.

“They don’t get back to me,” Trulson says.

He is among the farmers backing legislation that would give landowners more rights in negotiation. Right now, the only solution surface owners have is they have two years to litigate, against companies that have attorneys “a mile deep.” He’s a member of the Northwest Landowners Association, which has members stretching from Ward, Burke, Mountrail, McKenzie, Williams, Divide and Dunn counties.

Among other things, the group is backing HB1241, which requires payments for damageand disruption to be paid as a lump sum. Agricultural production and income loss payments would be made annually. The bill passed the House 94-0 and was introduced in the Senate Feb. 22.

The group also is in favor of HB1462, which tasks the North Dakota Department of Agriculture with helping settle disputes between surface owners and mineral owners through its Ag Mediation service. The service would name to North Dakota Mediation Service, and its resolutions would be nonbinding.

Trulson thinks laws designed for vertical leasing are inappropriate with horizontal drilling, which go straight down and then to the well site two miles away.

He says the oil companies somehow think that if they offer twice the agricultural value of land to surface owners, they should be happy. But if you put a well site, you may have lost value on surrounding property, for generations.

“Landowners are saying this isn’t right,” Trulson says. “The money isn’t worth it. We’re getting tired of being told, ‘We’ll do as we damn well please.’ The surface owners are getting tired of these bullying approaches.”

Farms before oil

Trulson, 58, grew up 25 miles southeast of Stanley, N.D. Trulson’s grandfather moved to North Dakota in the 1910s.

Curt loved farming, but looked at a career to make bigger money in other professions on the West Coast. He went to the University of North Dakota in Grand Forks, where he obtained his degrees in business administration and accounting. His high school sweetheart, Lesley Meiers from Ross, went to North Dakota State University in Fargo and became a registered nurse.

Fresh out of college, the young couple didn’t think North Dakota was a Mecca for opportunity in their professions, so in 1974 they headed toward the West Coast. Fate stepped in.

“My dad, Leonard, had a few medical problems, so we stopped at Ross to help with the harvest,” Trulson says. “We never left.”

It was the go-go 1970s, when Russian purchases sent wheat prices screaming to the stratosphere, and farming suddenly appeared to have a future. “I thought, this’ll work,” Curt recalls. Things started moving quickly. Wade was born in 1976. In 1977, the Trulsons started farming at their current location, where the Meiers had headquartered.

It’s been an interesting career, filled with layers of activities.

There were the dry 1980s. Curt was one to wrestle with policy over Canadian grain imports in the 1980s and 1990s. He was also the president of the North Dakota Grain Growers in 1998 to ’99 and national boards of the National Association of Wheat Growers. He served on the board of Dakota Growers Pasta Co. through its entire history. In 1998, he helped start West Dakota Feed and Seed in Ross, which cleans, bags and ships peas and lentils to the world.

Today, Wade, 34, is a partner with his parents farm several thousand acres — mostly raising spring wheat, durum wheat, field peas, flax and canola. Their daughter, Haley, is a partner in a cow-calf operation that is about 200 cows, depending on the year.

Some of their land is owned, some rented. They have about seven landlords. The biggest holdings are landlords from out of state. Some are widows or children of people who had farmed it once. Others are grandchildren.

Township dilemma

Curt still is involved in his community as a Ross Township officer, which also deals with the oil boom. The township’s annual budget runs about $15,000 a year, with includes 30 miles of road in the township. One issue is that U.S. Highway 2 runs through the township, so oil rig traffic goes through the township from both the north and south.

“We not only get our township’s oil traffic, but everybody else’s,” he says. “One of the crossroads comes 20 miles from another major highway.”

The townships don’t get any direct oil money, but must apply for reimbursement from the county, which gets oil and gas funds from the state. Meanwhile, it’s the surface owners that pay real estate taxes.

“If we want money back from damage on the roads, we have to list the roads that have been impacted. If we tell them we need $20,000 in road repairs, we might get $10,000 back. That’s typically paid a year after the damage has been done, so we have to go in and borrow money to maintain roads and move snow.

“As a supervisor of a township, I’ve got to sign a note at the bank to keep our township going. That’s not right.”

And then there’s that 160 acres.

In 2007, Trulson got a letter from an oil company, Hess Corp. Or, more precisely, he got a boilerplate letter representing “Hess” from Baha Petroleum Consulting of Williston, N.D., the agent the oil company hires to handle its leases.

“You get what they call their ‘20-day notice,’” Trulson says.

It tells a surface owner the company intends to go on your property and commence exploration.

Standard ‘20-day notice’

A Baha representative visited Trulson’s farm to look at the site. He said the company wanted a five-acre site. They offered about $1,200 an acre, or about $6,000. The “lease” is a one-time payment for as long as the well is in existence and producing, which could be decades.

“For me, and my children, it’s forever,” Trulson says. “They put that at twice what the ‘agricultural value’ of the land was at the time. That may have been true, but the land wasn’t for sale. We did negotiate up, a little higher than that. I think the last offer came in at $10,000.”

Still, Trulson told them he still didn’t want to lease. He was looking at the long-term costs.

He knew from experience that oil activity means a lot of dust, a tremendous amount of truck traffic.

“There’s safety issues that go along with it — us, trying to farm with all of their equipment and trucks around here. I just didn’t really want to lease the land; I wanted to farm it.”

Trulson made a counteroffer. He’d sign off on the deal if the oil company would agree to give him just 1 percent of the value of the oil that the well would produce.

“I said, ‘If you drill a hole, and it’s not economical, you can reclaim the land and there’s no cost to you.’ They said we won’t entertain a single percent — never have, never will, and we’re not going to start here.”

In spring 2008, the company started moving equipment onto the site — “construction equipment, leveling the site,” Trulson says. Trulson noticed this and got in touch with the Baha agent.

“I said ‘You’re trespassing,’” Trulson says. “They said, ‘No, we have the rights to do this.’”

“I said, ‘Maybe we should get the sheriff out here,’” he says. “They said, ‘We’ll have our attorneys there, and we’ll be moving dirt in a short time.’”

They built the well site anyway and set up a drilling rig.

“They didn’t care what I thought,” Trulson says. “They said a mineral leaser has the right to explore their minerals.”

Drastic measures

Trulson says he tried to get Baha to the table and talk to him, but there were no calls. He says he had a separate dispute with Hess because the company had gone across his crops at another site and denied him compensation. They said they only owed the landlord.

So one late afternoon in October 2009, Trulson one afternoon drilled some, pipe — he drilled a 5-inch oil field pipe for the ends, cut a hole and slipped 2M,-inch pipe through it to make a gate. He welded it shut.

“I took their no trespassing sign down and put up my own, my own redneck thing with a piece of plywood,” he recalls.

The next day the ‘gauger’ went to look at things. I got a call from the Baha guy, saying ‘you don’t know about somebody welding a gate on the Becker well?”

“I said, I sure do,” Trulson says. “The guy asks, ‘What’s going on here?’”

“I said, ‘What’s going on here is that you owe me money and you won’t continue lease negotiations. The thing that bothers me that you’ve never released my liability. I’m sick and tired of that,” Trulson says. “The guy says, ‘No, in the leases, it says we won’t hold the surface owner liable.’

“I said, ‘I don’t have a lease. I don’t have anything where Hess says they’ve released me. To me, you’re trespassing.’ I thought, I’ll stand on that until the cows come home. They never gave me proof that says I’m not liable.”

Trulson left the gate up for about 40 hours, but he thinks the company didn’t start pumping for several days after it was open.

The Baha fellow told him that Hess wouldn’t be “very happy” about losing production on the well while the gate was in place.

“I told them, ‘My idea isn’t to stop your production. My idea is to get your damn attention. If that’s what it takes to get your attention, what’s wrong here?’”

Since then, one of the Baha representatives has talked about buying it — not leasing it — but the amount is only a little more than the lease price. Trulson doesn’t want to do that.

There was a vague discussion of other “options,” but none have come forward.

Juggernaut rolls on

Trulson says he gets calls from oil companies and representatives twice or three times a week.

The call might be from an oil company or a company that owns saltwater disposal services, and works for the oil companies. Often they want to let him know that they need to put a pipeline across some rental land. Trulson sits with them and asks what the plan is.

“They have to notify us because they have to put saltwater disposal within a quarter-mile of where they plan to put a drilling rig, so they have to notify you. And if you have water wells within one mile, they have to get a sample of the water well as a base (level reading) so that if — down the road — I think they’ve affected my well, they have something to base it on.”

Eventually, the issue gets down to what the pipeline people are paying.

“I tell them I’d prefer you to be somewhere else than where you’d like to locate. The reasons why include safety and dust issues — maybe we want to develop some of this property for housing. We had a small tract like that along Highway 2. It’s not desirable to have that tract and a well close.”

Trulson says the oil company representatives tend to listen politely, but then say, ‘No, we’d like to be here because the geology is better to drill from here to here, but in most cases, I think it’s just more convenient for them to be along a particular road, so they don’t have to worry about getting to the well site and checking on their well.

“It’s convenient for them, not convenient for me. It’s convenient for them.”

Standing their ground

The company must go to the North Dakota Industrial Commission and disclose why their spacing, production and costs might be.

In the 1,280-acre spacing — eight quarter-sections — only the one is owned by Trulson, or 160 acres. The location of the first well, can have a significant influence on where subsequent wells go in that area, to maximize the length of their “lateral” pipes for collecting oil. A common configuration these days is to put a single well in the middle of the center a square mile, with three laterals in the mile.

“In the larger spacing, they’ll admit it, they’re trying to tie up minerals twice as fast. They don’t want to go back and release that ground,” Trulson says.

Once a well is drilled anywhere in the two square-mile area, they don’t have to release the lease. Most of the original leases were at $40 to $50 an acre, but if they must be re-leased, it could be $500 to $1,500 an acre.

Trulson thinks that if laws aren’t passed to help surface owners, something bad could happen.

A typical well runs $6 million to $7 million to drill. Meanwhile, the company is offering only $8,000 for a five-acre parcel that is “the most important piece — access to drill.” He says it isn’t fair,

He says land values are higher than what the oil companies think it is, partly because of the underlying value for agriculture. Land values have increased in the nonoil areas of the state, on ag value alone.

“I think that what’s going to happen — and it’s almost come to that — is that somebody’s going to stand their ground, and say. ‘This is my property. You don’t have a right to it,’” Trulson says. “This land, people are tied to it emotionally because of the sweat and tears that have gone into it across the years.”

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