Oil and gas leases can affect farmland owners’ purchase of development rights

One option for property owners: Preserving their land through a purchase of development rights program

If you own farmland in West Michigan, chances are you have been approached by an oil and gas company in the last few years to sign an oil and gas lease. Michigan State University Extension has been working hard to provide property owners information to help them determine if signing a lease is right for them.

In addition to evaluating the terms of the lease, property owners who would like to preserve their farmland through a Purchase of Development Rights (PDR) program are encouraged to talk with their local PDR program manager before signing an oil and gas lease.  

A Purchase of Development Rights (PDR) program compensates property owners who voluntarily apply to permanently preserve their farmland.  PDR programs are governed by state law and administered by a board appointed by a county or township elected body or a land conservation organization. Preserving farmland through a PDR program is usually a competitive process and can take several years to accomplish. If a property is selected for preservation through PDR, the property owner must agree to the terms of an agricultural conservation easement. PDR is not available statewide, only in areas with an active program. 

Purchase of Development Rights programs, including those supported by grant funding through the U.S. Department of Agriculture’s Farm and Ranchland Protection Program, must have a clear title with no exceptions before an agricultural conservation easement (aka PDR easement) can be recorded to preserve the property. If a current (not expired) oil and gas lease exists on the property to be preserved, the oil and gas company must be willing to sign a subordination agreement to the agricultural conservation easement.

This can be a challenge for many reasons, not limited to finding the proper person at the oil and gas company who can sign subordination agreements. Many times, the oil and gas company representative who works with property owners on oil and gas leases is not the person who signs subordination agreements. A Michigan representative for the USDA Farm and Ranchlands Protection Program said he has yet to see an oil and gas company sign and record a subordination agreement to an agricultural conservation easement in all the years he has been managing the program.

Another common challenge is that the oil and gas company would have to agree not to install extraction equipment on the farmland being preserved. Extraction equipment would have to be installed on non-preserved farmland. These are the terms of almost every agricultural conservation easement recorded because the primary goal of the easement is to protect the agricultural use of the land. The oil and gas company might not agree to this because this may limit the rights they have leased.

Stacy Byers, Purchase of Development Rights Program Manager for Ingham and Kent counties, said that the PDR program application form in both of these counties asks property owners if they own all of their mineral rights.

“If funding is tight, and usually it is, we probably won’t select a farm for preservation if the mineral rights are being leased. It takes too much staff time to secure subordination agreements,” Byers said.

            Michigan State University Extension has several oil and gas resources available.  Next month, MSU Extension will post an article for property owners who have already signed an oil and gas lease and still want to preserve their land.

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