First, Thank you to Thompson and Taxpayerpayingattention for the work of collecting and writing the minutes and agenda on this blog for all to see. If you, the reader missed them, they are available here A Very Good Suggestion Received Regarding Our County Commissioners Meetings under the Comments. In the future, I will try to remember to put up an entry for the agenda and minutes.
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The largest search requests on this site continue to be about gas leasing, gas wells, etc. Does anyone have any updates to share. If so, please just note yes, without details, under the Comments for this entry and a new entry will be added for them. Thank you!
The following comments come from notes of the talk by Les Greevy, the Williamsport lawyer, at the April Penn State meeting in Tunkhannock and from various discussions with my neighbors (some signed and some have not) and searching the Internet for months. The items are not all that should be considered, especially since only you can evaluate your personal and financial situation. I hope that these comments are all correct and prove the point: “Do Not Sign a Gas Lease Casually”.
The gas lease is complicated. It looks easy because there are only two numbers: The number of years and the price per acre. What else is there to know?
A gas well into the Marcellus Shale that turns horizontal will cost the drilling company three million dollars. That company wants all the advantages possible. Any means of reducing the costs of drilling, and constructing a pipeline to the location where the gas can be sold, will be taken. As will any means of enlarging the profit. Rumor says that a “good well” will produce about $40,000.00 a day worth of gas the first year (if prices remain the same). Where there is so much money involved, you can be sure that the gas company will try for every advantage in the lease conditions that 145 years of experience offers. You will do well to invest some hours yourself, before you sign. And discuss your understanding and options with a good lawyer.
“The number of years” is the first number. That will almost certainly be a meaningless number (unless no gas is found in Susquehanna county in the next five years). It describes the “primary term” of the lease - theoretically the period during which the gas company will search for and actually drill for gas. If they do not, then the lease is terminated. BUT, even if they do not drill on your property, they can extend your lease into the “secondary period” by including your property in a “unit” or a “pool” that is producing. It is critical to understand the terms “pooling” and “unitizatiion” and their impact at the end of the primary period. There are several comments on this blog that attempt to explain.
What “minerals” are you leasing access to? Since the gas companies are after gas, it probably is good practice to limit the lease to gas from the Marcellus Shale. Future technology might make other layers economically interesting and it would be nice if they had to come back to you to negotiate an additional price for those.
While the DEP has a lot to say about the drilling affecting your domestic well water, some mention of the repair of damages should be included in your lease. Who pays? What do you do until it is fixed? How do you take a shower? Water for the livestock? Note: there is a Penn State meeting on Water Testing on 23 July at 7:00 PM in Montrose. Reservations are required and the previous session “sold out” early.
How much money will you make from the well? The easy answer is one eighth or 15% or whatever number is on the lease. One eighth of what? Where is it measured? To whom is the gas company selling it to establish the value? State law says that the landowner must receive at least one eighth of the gas coming out of a well on his/her land, but the law is silent about “pooling” and “units”. Most of us would be unable to use that much gas anyway. So the gas company sells it and pays you one eighth. Does it sell the gas to a subsidiary for less than the current “market value”? The company must report the output of each well to the Commonwealth, but the Commonwealth must keep the information secret for five years. A good attorney can help you clarify the means of calculating your royalty and provide the access to the information you need for the calculations.
Suppose you, and your attorney, think the gas company is not living up to the terms of the lease? The “standard” lease says that you go to arbitration, but does not say which state that occurs. Suppose the arbitration hearing is in Texas? Again your lawyer can help craft some words that make resolving differences easier for you. The gas company has lots of lawyers who specialize in these things, you should have at least one. Do you understand the difference in your rights when comparing arbitration and a jury trial? Again, there are some comments on this blog.
The “up front” lease payment might pay you for anything they do to your property. Some leases have words that cause the gas company to make an additional payment when an actual well is drilled, perhaps $15,000.
Sometimes when the well gets tired, the pressure at the well head is too low to send it to the purchaser. A compressor is installed at the well head that uses the gas coming from the well to compress the rest. Does the gas going to power the gas turbine engine of the compressor include your gas? And are you ready for a gas turbine engine running all the time producing noise and exhaust fumes? Some words in the lease help you have a say in such a compressor and whether you should be compensated separately for listening to it.
The gas from the well goes through a pipe to the buyer – probably the company with the nearest gas pipeline . Gas companies are now drilling close to the existing pipelines because it will cost less to move the gas to market. One such pipeline goes through Lenox, right by the intersection of routes106 and 92. To bury a pipeline the “right of way” may be 50 feet wide, defoliated and trenched. Does your lease give you any say about the path through your property for such a pipe? And, worse, if your neighbor has a well and the shortest path to the buyer is through your property, do you have any say in it?
Once the well is established and producing, the gas company will send people to empty the water tank that collects the water coming up with the gas, read the meter, and check to see that everything is OK. This person is on your property which is rural and you are alone. Does your lease say anything about the credentials of the inspector or when he might inspect?
How much will the lease affect your ability to sell your house? That has been discussed by comments on this blog, but no one is sure yet.
The lease you sign is a commodity. It can be bought, sold or traded. The nice man or woman with whom you established a relationship, and answered all your questions, before signing may never be seen again. I was told that many of the leases have changed hands two or three times already in the recorder’s office in Montrose. Is there anything in your lease to assure you that the new owner can assume the obligations of the lease? Suppose he goes bankrupt in the middle of drilling – who pays to clean up the mess?
If the gas company decides to put a well where you have a nice stand of hardwood. Who decides the value of the trees that are cut down? And loss of future value if they had matured?
If the gas line goes through your corn field, will you be able to plow the ground over the pipeline when they are done?
It is possible to arrange for some gas for your personal use, such as to heat your house. It would be nice if the detailed terms and conditions are already decided and on paper before you sign. The gas you use may be valued differently than the gas they sell and you might have to pay for the pipeline and decompression apparatus.
How much notice of their intent to drill on your property will you receive? You might wish to alter your planting or harvest or just move the stock to another pasture. Many leases have no notice provision and you only know when the dozers arrive.
Clean and Green is a persistent, unresolved issue. Many landowners have most of their land in C&G, those who have at least the minimum acres. It is clear that each county interprets C&G independently – i.e. whether to continue the well site in C&G (the gas company’s choice, which they are trying to establish in Harrisburg for the whole state) or remove the 5 acre well site, or remove all you land which is now commercial. A comment in this blog recently says that Commissioner Warren will discuss Susquehanna County’s position at the next Commissioner’s Meeting on 9 July in Montrose. Many leases have some provision for the gas company to reimburse you for any additional taxes you have to pay, including the roll back from C&G. Your state and federal governments tax those reimbursements as “ordinary income”.
Most important: The lease is a contract between you and a gas company (or landman). Each party expects to gain from the arrangement, so you may not get everything you ask for. Since the gas company had been writing leases for 145 years, it is reasonable to expect that they know more about the details then you can learn in just a year. Get good, expert help. Ask questions. Think it through.
There is probably not a urgency to sign (unless you really need the money now). The Bartlett Shale in Texas has been producing for years and there are still some acres that have not been leased ( a recent deal was for over $20,000 per acre). If the story that there can be one well for each forty acres is accurate, it will be a long time before Susquehanna County has been drained. The companies can only drill depending upon the availability of drilling rigs and casing pipe; both of which are said to be in short supply.
Go to the Penn State and DEP meetings, join a local group of land owners, study the material on the Internet. Reflect on your financial position and the use of your land. Then decide.