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Officials: Do your homework

Local landowners learn about gas leasing pros, cons

April 30, 2008
By SCOTT JOHNSON — sjohnson@lockhaven.com
DUNNSTOWN — Do your homework and know what you’re signing.

That was the message to property owners who are being pursued by a blizzard of “landmen,” speculators, brokers and energy companies all trying to lease large blocks of land, hoping to cash in on natural gas buried in marcellus shale, mostly in the northern and western parts of Pennsylvania.

About 90 area landowners filled the Dunnstown Fire Hall last night for the first of a two-part series from the Penn State Cooperative Extension to inform people of what’s involved in the mostly five-year leases to energy companies.

Some officials have compared the flood of those trying to extract the natural gas to the California Gold Rush of the 1800s as Pennsylvania is seen as a “Keystone State” to drill and distribute the fuel to New York state and New England in an age of seemingly never-ending rises in crude oil prices.

The competition has been so intense recently that lease prices in some parts of the state have grown from as little as $20 an acre to nearly $2,000 or $3,000 an acre. An informal survey of attendees at last night’s meeting shows the average price for five-year leases of land as around $1,500 an acre in Clinton County. In addition, landowners share in royalties of gas produced on their land, from a state minimum of 12.5 percent, going up to nearly 30 percent for some state-owned lands in other sections of the state.

The typical royalty, according to Williamsport attorney Lester Greevy, fluctuates between 15 and 18 percent. However, the presenters at last night’s two-and-a-half-hour program told property owners they should remain steadfast and get the largest amount they can from the energy companies, while protecting their land for future use.

“We want to help landowners make good financial and good ownership decisions,” said Northumberland County Cooperative Extension Director Ken Balliet.

He said over 15,000 drilling permits have been approved in the state since 2002 for over 650,000 acres, fetching more than $100 million for landowners.

The reason for the increased drilling — and pursuing of landowners for more land — stems from computer imaging that shows large amounts of marcellus shale, he said.

“They’ve long known there is natural gas in Pennsylvania, but they didn’t know how to access it profitably until now,” Balliet said.

The shale, he said, is normally buried between 7,000 and 12,000 feet below the surface. However, the cost to dig an average well is near $1 million.

Tom Murphy, Penn State Cooperative Extension educator from Lycoming County, explained to the gathering the companies must first find that a title to a prospective drilling site is clear. They then have to negotiate a lease with the landowners, obtain a permit from the state Department of Environmental Protection, notify landowners in and around 1,000 feet of the drilling unit, test the watershed for quality and quantity, and explore other issues such as quality of the roads leading to the prospective site.

The availability of water on site is one of the major concerns, he said, because the process requires between 800,000 and 3,000,000 gallons of water to “frac” the shale to allow it to produce the natural gas.

“They have to drill it, ‘frac’ it, release the gas and flare it off to determine quality and quantity,” Murphy said, noting the flaring process runs continuously from a couple of days to a month.

If the well is of high enough quality, the company will then have to dig a line to bring the gas to a main line, which brings along another issue such as right-of-ways for the line and what is to be done with the timber that has to be cut down in the process.

Further, Murphy told the crowd the landowner must also be concerned about how the company will restore the ground after the well becomes unproductive.

Tioga County Cooperative Extension Director Earle Robbins urged property owners to get all the information.

“Do your homework and know what you’re signing,” he said. “Before signing anything, understand everything. Each of the clauses (in a lease) means something.”

Robbins also recommended nearby landowners join a group — either formally or informally — and possibly hire a consultant before signing any leases. That, he said, could help with not only their finances, but with the condition of the land afterward.

“You don’t want a company coming in and destroying your property,” Robbins said. “Protect what you have. There are some more important things than money.”

He estimated there will be hundreds of wells dug in the central Pennsylvania region in the near future.

From a legal standpoint, Greevy emphasized, “You have one chance to get it right. Let’s get it right.”

He pointed to some specifics regarding the legal ramifications of leasing lands to energy companies, most notably not agreeing to an extension, at the company’s option, after the five-year lease runs out. That extension, Greevy said, is normally buried in the contract and is usually “very unfavorable” for the landowner.

Once a lease is signed and approved, the landowner will typically see the payment in a lump sum in 60 to 90 days, he said, with some residual payments over the remaining four years of a typical lease.

Greevy also reminded the crowd that contracts typically include a provision that the landowners either have use of gas from their land to heat their houses or receive a payment in lieu of that service. In addition, he said there is usually a “well sitting fee” of between $15,000 and $20,000 to help pay for any damages to the property or nearby properties.

“If you go in there with the idea of working as a partner with the companies ... you can both make money and not mess up the property,” he said.

The second part of the series will be held May 7 from 7 to 9:30 p.m. at the Dunnstown Fire Hall. It will include some of the factors landowners need to know before signing a lease, what energy companies want the public to know and a regulatory perspective from the DEP. More information about gas leases can be found at www.naturalgaslease.pbwiki.com.

Article Photos

Tom Murphy, Penn State Cooperative Extension educator from Lycoming County, holds a piece of shale at last night’s workshop.
SCOTT JOHNSON/THE EXPRESS

Fact Box

IFYOUGO
WHAT: Property owners meeting on gas leasing
WHEN: 7 to 9:30 p.m. Wednesday, May 7
WHERE: Dunnstown Fire Hall

 
 
 

 

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