I called the NMMOC this weekend to collect a bit more information about what is going to be happening at this week’s series of outreach and the Main meeting in Hillman.
While it was not completely clear to me what this all means to drilling in Michigan there are a slew of new proposed "rules" to deal with horizontal drilling. This is very new and it seems to new rules are being studied to make sure we understand the ramifications of these new rules to properly account for them in contracts.
An individual intending to lease needs to study this very carefully. It seems that this set of rules provides further definition of the language utilized in contracts. The NMMOC is already noticing potential [unintended?] snares. A casual reader or even a fairly competent thorough study could miss those snares.
It is important for all to remember that it is how some court in the future in Michigan or elsewhere might rule as to the intent of these definitions. It seems that no matter how much effort is applied to clarify rules new loopholes arise.
The NMMOC has as one of its goals, striving to tighten contract language to avoid possible snares. I won’t get into specifics here but right in first few pages one notices that the definitions would likely allow a well site to be utilized indefinitely without further payment if it is no longer producing hydrocarbons. How it does this may not be immediately obvious to all.
A similar snare caught mineral owners in Ohio off guard over the last few years. An excellent well written contract could minimize and possibly eliminate this snare. But as one studies this document one wonders what other loopholes are wedged into these definitions that we aren’t seeing. It is the nature of our government that industries have a great deal of input into the crafting of new laws and rules. It is possible that even a well intended representative might vote to create loopholes without realizing that consequence.
I am not in a position to comment further. I will need to read this very carefully and study the new changes one by one for several months and seek advice.
Check out http://www.michigan.gov/documents/deq/DRAFT_Hydraulic_Fracturing_Rules_438152_7.pdf