Since there is so much information available from so many sources, this writer figures it’s about time to review what we have learned so far. This is a small overview and is not meant to be all inclusive. The reader can fill in the gaps if they desire.
One of the first things we should have learned is that Common Sense was the first casualty. Some could call it greed on the part of the landowners who were only looking for a check, “Free Money” so they thought. When you get a few landowners together for almost any purpose, invariably, the discussion turns to gas leases, gas wells, and the like. Invariably, the subject of price per acre for a gas lease comes up, then the boys (and girls) start comparing notes.
Unfortunately, too many folks were too concerned with how much they got as “up front” lease money. They don’t look at the fact that although they have received the entire amount of money, the actual price to lease per acre is determined by taking the amount paid, dividing it by the number of acres and then divide it by the number of years they signed the property up. It really doesn’t look quite so good when you divide $750 per acre by 5 or 7 or 10 years does it? Many property owners signed up for a whole lot less.
Of course the most important financial part of the lease is what percentage the royalty would be AND just as important what determined the footprint (both as to outline and size) of a production unit.
The former part of the question is partially answered by the Commonwealth of Pennsylvania who states that 1/8 (12.5%) is minimum. Yes, there are some who signed for less than that. In other places, the royalty is up to as much as 25%. The second part of the question has never been answered by any landman either completely, honestly or correctly, other than to say they don’t know. Well someone knows, but they aren’t telling a prospect when they have them sign a lease.
Oh yes, many landowners have agreed with the clause that there is a one time option for the gas company to have a second term for the same amount of money as the first term. Here’s something to think about: If a dollar is worth less today then it was worth say 10 years ago, how much less will it be worth 5 to 10 years from today!
Other terms of the lease are absolutely confusing to the average reader. The more savvy landowners consulted their attorneys who suggested various changes and addendums. Although this was somewhat of a help, our local boys and girls in the law community are over their heads in this matter. There are very few attorneys who are really competent to address the contents of a lease within a couple of hundred miles of our fair county.
Anyway, for whatever reason, you signed the lease for whatever terms you negotiated. Now you have a check. What to do, what to do.
If you read the local papers, you have probably noticed they currently have a number of ads to (a) lease your land - best prices paid and (b) are you faced with the decision of what to do with all that cash you have just received from the generous gas lease you just signed.
Now, after talking with your neighbors and reading the paper, you feel both used and confused. Used, in that since you have signed, the price per acre has gone up significantly (its a long way from $25 per acre to the current $2,500). Confused in that you are torn between buying a new vehicle and puting the money in the bank. Maybe the first thing is to see a financial advisor, banker or accountant. Remember, the first thing is that your Uncle Sam needs his cut. Unfortunately, there are more than a few who have ignored that litle fact. They are in for a rude awakening next April 15th.
This is more than long enough for Part 1. Part 2 will be along shortly.
One last thought here. Several acquaintances of, as well as this writer, have spoken with different people in the Oil and Gas Management department as well as the Water Quality people at DEP. One thing is absolutely apparent. Your friendly landman running around here offering you the “last opportunity to lease your land at the absolute most any company will pay” is NOT well regarded by folks who know at DEP. One person characterized them as being somewhere below used car salesmen.
How nice. This lays the groundwork to completely mistrust the gas companies who are now going to in some cases drill on land you have leased to them.
Pleasant dreams?