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So, why have these landmen been so successful at getting landowners to sign a lease for your property which ultimately may only benefit the gas company?
We have learned that some of their tactics include FEAR: “If you don’t lease your property to us, and we lease the property next door, we will suck the gas out from under your land”. We have also learned from various sources in the state that due to the fact that the gas is NOT in some giant dome below us waiting to be drawn out with a straw, it is trapped in rock which has to be fractured to allow the gas to flow. According to published reports, fracturing can only affect an area a few hundred feet from the well itself. Don’t forget though that because there is horizontal drilling, this can extend as much as 5,000 feet from the point of the well head. Finally, we have learned that the gas is owned by who brings it to the surface, not on whose land it is under.
Another tactic appeals to the greed in all of us. “Your land may never be driled on but you may still get money IF you are included in a production unit. This could almost be really believeable and great IF we absolutely knew where and how large the production units are or will be. This is one of the best kept industrial secrets in the gas industry today. Oh yes, the landman will tell you that the production unit is anywhere between 40 and 640 acres. Unless there has been a well drilled on or near your property, you don’t know how the production unit is laid out.
Of course the landman never tells you about the possibility of having an injection well on your property, which, by DEP employees own admission are a great concern to them.
More later. Does anyone have any stories of encounters with landmen and how things were explained they would like to share? Or, do they only talk about and really push the money and waffle about everything else? That was my experience. What was yours?
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What’s the great mystery? The landman, being but a salesman, is successful in getting people to sign leases because he/she is offering money, plain and simple. When he offers enough people sell. So to say these leases “only benefit the gas company” is absolutely inaccurate. The benefit flows both ways, though it may not be as much benefit as the landowner now in retrospect realizes he could have obtained. It’s the free market, folks - stop the whining. No one is forcing you to sign.
The elements of fear, greed and salemen withholding information is present in most every commercial setting to some extent. Does the used car salesman point out the rust spots - or are you expected to look for them yourself? Doesn’t the stockbroker play on one’s greed when recommending a stock purchase? And doesn’t the realtor appeal to fear when he/she proclaims “this one won’t last long at this price”?
Why is the marketplace of gas leasing any different? If your complaint is in reality motivated by the huge profits the energy companies are making then blame your congressman or senator who’s voted against drilling in ANWR, the Rockies or the continental shelf for decades. Lack of foresight is what’s brought us to this energy crisis…the companies are only doing exactly what individual landowners are trying to do: maximize their financial benefit under existing market circumstances.
Acting as though we’re not responsible for the decisions we make is most unbecoming. Cut it out, you’re sounding like politicians.
There is only one problem with your logic. If these landmen were operating within the scope of the Law, that would be one thing. However, the legality of these landmen operating as independent contractors, not employees or officers has been called into question by several in the Law community (outside Susquehanna County, thank you).
Currently, the matter is being investigated by the Bureau of Professional and Occupational Affairs, according to one reader who has filed a written complaint about unlicensed activity. The purpose of the complaint according to this individual is NOT to get a job writing leases, rather it is to make sure the landowner is being treated in a reasonably honest and ethical way.
I direct your attention to the appropriate sections of the Pennsylvania Code:
http://www.pacode.com/secure/data/049/chapter35/subchapBtoc.html
What don’t we understand here folks? If you lease, or attempt to lease for another for a fee or other valuable consideration, you need to be licensed. These landmen are not licensed to sell (or lease for that matter) real estate in Pennsylvania. Period
Argument 1: This is your last chance, the gas companies already have enough land to last them many years. The prices will go down. This is as high as it gets.
Argument 2: All your neighbors have signed up.
Argument 3: Your neighbor’s well will get all your gas.
Argument 4: It’s a LOT of money.
Argument 5: It’s just a standard lease.
Argument 6: We have to put everything back the way we found it when we are finished.
Argument 7: This gas will reduce America’s dependence on foreign oil.
“Just A Bumpkin” is correct in a way - a classic case of caveat emptor. I think that increasing awaremess of the side effects is a good thing. At the beginning there were few sources of information. And there was the county history - the gas and oil leases of the 60’s, when the landowners received payments and nothing happened, including the reporting of “lease termination” memoranda to the county recorder of deeds. Ignorance made it easy for the salesman!
Another thing is the planned use of the land. If the landowner plans to grow rocks and trees on his 300 acres and live in the house for the rest of his life, the large lump sum and the promise of royalties can be a very good thing. The lease payment may permit a landowner to remain on his land; otherwise he might have to sell off a piece of it. Clearly one feels cheated having accepted $50 per acre, but adults must take responsibility for their agreements.
If, on the other hand, there are plans to sell the land and homestead in the not to distant future, signing a lease will make that more difficult.
“Concerned Taxpayer” is correct too. There ARE laws. And we expect the Commonwealth to PROTECT us from huge rich companies with dozens of permanent lawyers. There is an appearance of neglect of law and neglect of oversight. There is no stated position from our representatives in state or local government, no warning to residents. Only the District Attorney has counseled caution. There are no stated positions from our state employees who are paid to protect us. Penn State Extension is the only visible presence, and that rarely in Susquehanna County. In a land with no zoning laws, meaning no local control over the land use; the Commonwealth must protect a landowner from the dangerous acts of his neighbors. A Commonwealth that prohibits digging in a “wetland” area on our property, must protect our water wells, streams and air. The nearer DEP gas and oil office is in Meadville, 314 miles from Montrose. The Oil and Gas Technical Advisory Board of the DEP cancelled both meetings scheduled in 2006 and the last meeting minutes published are for 17 November 2005. Who, exactly is watching the $4,000,000 well drilling operations? Have any shortcuts been taken? How many DEP people are watching?
Why is it that no one at DEP knows what the gas companies use to frac the wells? Is it dangerous for us to know? Is this “Protection”?
Got to love the arguments! And the responses are:
1. Funny, it hasn’t happened anywhere else. Why are prices still rising in Texas who has an inferior shale to the Marcellus? And if they do, why are you (landman) here? Isn’t this the same thing you said six months ago at $250 per acre?
2. Who cares unless you are sheep. If you neighbors all jumped off the Freedom Bridge in Clarks Summit, would that be the right thing to do?
3. Because it is a shale, not a large dome, that is not possible, except in very small quantities.
4. If it is currently a lot of money, why are prices of UNLEASED property going up in the market. A reader shared with this writer a new listing of about 10 acres in Springville, now offered at $210,000. That’s $20,000 per acre with no lease. Let’s see if anyone bites, but the owner of that property “gets it”.
5. An absolute lie. Unless the landowner signs what is presented to him/her, there is no standard lease, it is only standard for the company presenting it. Leases are different between companies.
6. Does that include the fracing fluid, complete with chemicals that may or may not show up on the MSDS sheet?
7. It may reduce America’s dependence on foreign oil, but at what cost to the areas which host the wells? Years of torn up roads and landscape and a good probablilty of contaminated water just to mention two items. AND what benefit to the locals here. I will bet you more than lunch that in the end, there will be very few dwellings in our rural county which will have the use (even at market prices) to heat our homes. That would require tremendous infrastructure that no business who has to consider a bottom line would undertake. Too bad. Maybe it is something these groups could have included in their negotiations, at least for their own areas.
Great comments, Thompson. Keep ‘em coming.
Maybe it’s time for us locals to start calling DEP to put pressure on them to PROTECT our interests here. If anyone wants contact information, post it here.
Now I get it. If the truth be known the realtors are upset NOT because the gas landmen aren’t licensed - an arguable legal position to begin with - but because the influx of gas company money will save many remaining family farms from being broken up and sold off as 10 acre recreational hideaways to folks from southern PA or NJ. In other words, the realtors’ steady supply of readily saleable land has dried up! Look in the paper - have you seen any large parcels of land for sale lately? No, all houses on small town lots, or parcels being sold (though not advertised that way) as without gas rights. There’s some actionable misleading for you, by the way.
“And what benefit to the locals here”? he asks. Just do the math - or look at your own math in a previous musing - many millions of dollars pumped into the local economy already and many more millions to come - and you don’t see any benefit?!? Remember Economics 101?
And tell us if you would how the leasing business would be any different if the landmen were licensed as you contend they should be? Other than the obvious: that the gas companies, rather than waiting for the landmen to become licensed, might just hire the realtors to do the leasing, under the same terms and with the same result, except with the money going into a different pocket!
The red herring of water contamination keeps being raised, certainly a legitimate concern. BUT… has anyone checked into the incidence of such contamination from gas drilling in the many western PA counties where drilling has been going on for decades? Fayette County, for example, I have read has some 4,000 operating wells - are they all living on bottled water out there, or growing third ears from the use of well water? And what has been the long term economic effect there of the gas company infrastructure investment? Has their economy and general standard of living gone up because of gas wells? I don’t know the answers, but before someone starts throwing these fears and issues out there with negative insinuation they should get the answers and share them with us.
All too often we look a gift horse in the mouth, right after years of whining and moaning about the lack of a viable local economy. Step back and see the positives from the natural gas boom instead of harping on the perceived negatives.
As an investor, or an end user of real estate, would you want to be subjected to the terms of a lease that was agreed to by someone else? I do not believe the informed buyer would. Certainly, if a mortgage is involved, that will create issues with value as well as marketability.
As an investor or an end user of real estate, if I didn’t like the terms that came with the real estate I was considering purchasing, I’d invest elsewhere!! Just as I do when choosing a stock…if I don’t like the share price, the dividends being paid, or the corporate governance of the Board of Directors, I invest elsewhere. Was that so hard? It’s called the FREE market for a reason!
Exactly. This is why you will almost certainly see a downturn in real estate sales in this part of the state. This is why I would bet that leased properties (with or without the lease included in the sale) will almost certainly sell for less in the short and mid term than those which are leased.
It’s only a problem for those who are leased who want to sell their property to those who want to buy without a lease. Let the free market rule. Let’s see how the local banks, attorneys, contractors, etc. like how this free market plays out.
Don’t worry about the realtors. Most of them will survive. Your lack of concern for these small businessmen is a shame. As a lot of other small businesses in the county have done, they have helped to support this area for years.
However, let’s have some concern for those who have leased their land for some small amount and who will have to wait years for their lessee to drill, if ever. Let’s hope it doesn’t hurt too many of those who NEED to sell after they have blown their lease money on a new truck or something similar.
When they need to sell, which will probably be in the next year or so, who is going to want their land? Are you going invest in land which has been leased for $25 per acre with a 12.5% royalty and the possibility of an injection well rather than a production well. I doubt it.
To continue, if a person wants to buy a leased parcel, they need to know exactly what terms they will be subjected to. It will be interesting to see if the sellers, realtors or attorneys will gloss over the terms of the lease. I bet there will be more than a few who will say something like, “It’s just a standard gas lease, don’t worry”. I predict that behavior will be the basis for numerous suits, sort of like the fellow who isn’t honest on the sellers disclosure.
Let’s consider the longer term implications of what is going on here, rather than a bush league equivalent of a government stimulus program with strings attached and tied together in a Gordian Knot.
Lets see how well these properties sell - and who is buying them - AND for what price. It’s easy to be smug now, but wait until some of the less than astute owners face the consequences of how they invested their gas lease check.
Money only buys choices, nothing more, nothing less. Choose wisely.
justabumpkin said, “The red herring of water contamination keeps being raised, certainly a legitimate concern. BUT… ”
The rumor is strong that three water wells were contaminated by the well drilled on Rt 92 in Lenox on Ordie Price’s land. It is said that “it was just iron in the water” and “it was fixed by adding a filter to the water.”
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I guess the uncertainty in the value of the land is my problem. I have a “house in the woods” and had a pretty good idea of its value. Now I don’t.. Before it was rural, on a dirt road, with deer and turkeys and bear. The loudest external noise is the airplanes 5 or 6 miles up going somewhere important that I don’t want to visit again. Neither my neighbors nor I have a lot of money, but it doesn’t seem to matter here as much as it did in the city.
Money will change us. It always does. Especially BIG money. Think of the anticipation of a con man when he considers a farmer with a $500,000 check!
It is possible that the check will be invested and be used by the farmer as a retirement fund. Or, that he’ll treat his wife to something special they have never been able to aford and put the rest in the bank. The land is a farmer’s pension. He must sell some to realize the cash to live in retirement. A gas lease can be simply another means to the same end - sell under the land, rather than the land itself.
The future will be different than we thought. Some of us think it will be better, some not. It will affect us differently. The simple lesson from the Penn State guy was: “Before you sign anything, understand everything.” It isn’t possible to “understand everything”, but one should do the best he can. The future is always murky.
It’s unclear to me why some are convinced the free market does not work when it comes to Susquehanna County real estate. Of course it does. To wit:
Yes, you probably will see a downturn in real estate sales in the short term, as people become convinced their acreage is the next Dallas-Ft. Worth Airport. But prices will come down as it dawns on folks that the entire county is not going to be a vast forest of drilling rigs. For those to whom selling their land is a problem, the problem will ease once their asking price falls into line with reality.
What we need to understand now is that buying Susq. Co. real estate is more of a cash flow investment than it ever was. Prices will settle to a level consistent with the perceived future stream of income from royalties, just like any other investment. And so, to Concerned Taxpayer’s question: “Are you going to invest in land that has been leased for $25 per acre and a 12.5% royalty and the possibility of an injection well rather than a production well?” I’d answer “Maybe, depends on the price.” Because if the price offers a potential rate of return high enough, given the risks involved, then that CD at 3% won’t look so good and the money will move.
Will people get caught in the vise and some end up losing? Of course…the free market, for all its macroeconomic equality, has no conscience for specific cases. Some will win and some will lose. I sincerely hope the losers are not local people and especially the ones who can least afford it, but some of that is probably inevitable. And I also hope they aren’t the realtors, because for the most part they have been a stabilizing force in the local economy as well as contributing members of the communities in which they live. But the ones who survive will be the ones who best adjust to the new landscape and grasp future opportunities presented instead of whining about the loss of the good old days.
As to buying land under lease, the leases will be public record and absolutely should be carefully studied before buying land bound by them. But the land buying public will educate themselves and in time become fair judges of what leases are good and which are to be avoided. Look how much we’ve all learned about gas leasing in just the last year. Where real estate professionals can best serve their clientele in the future is by becoming expert at making good/bad judgments on leases and the location of the best investment potential.
The water contamination issue should be of major concern to us all. But we need FACTS, not rumors. I still think the best way to assess the risk is to look at the experience in western PA counties where drilling has been going on for a long time. Certainly there must be some readers/posters out there who know people in Fayette County and can supply some FACTS about water quality issues. For example, we’ve all seen the well water testing clause in the local gas leases. Have there been any instances in Fayette County or elsewhere where the gas company has been shown to have fouled the water by drilling and has not satisfactorily addressed the problem? DEP records would be a good source for this info, as would the Fayette County Prothonotary’s Office.