READ THE COMMENTS OF A READER WHO ATTENDED THIS SEMINAR - SEE REPLIES BELOW
Natural Gas Lease Exhibit & Seminar
Wed April 16, 2008
Interaction with General Public 5:00 PM to 7:00 PM
Understanding and Negotiating a Gas Lease 7:00 PM to 9:30 PM
Tunkhannock Area High School
120 West Tioga St
Tunkhannock, PA 18657
Open to the Public
Contact Penn State College of Agricultural Sciences 570-836-3196
The meeting was very crowded at 4:55 PM; I had to walk one half mile from the closest parking space. The location of the gas companies in a corridor made it impossible for me to get close enough to see the stuff on their tables or talk to the company people. The auditorium filled early as a result of the mob in the corridor. It was like Times Square on New Year’s Eve. The Penn State people started an “wing it” session about 6:00 PM to “entertain” the people who filled more than half the seats. By 6:45 PM it was announced that no one could remain standing, everyone must be in one of the 1000 seat or leave the auditorium. Full House; almost none of whom indicated, when asked, that they had already signed a lease.
The presentations were good. The presenters had done their homework and were good public speakers. An attorney, and his associate, from Williamsport spoke about the legal details of the leases with the authority of experience. There was an excellent presentation on the details of “land damage”, showing some actual drilling sites before, during and after. That was reassuring. He said that it was like building a house - there was a big mess with the preparation of the site and the construction, but when finished and the ground graded and grass planted, the house looked good. The pictures of a well site two years after the drilling showed a hay field with a well head, a collection tank and a “dehydration unit”. The speaker said there was no noise: “If you stood with your back almost up against the well head, you would not know it was there.” He said that he had spoken to the DEP man in charge of gas wells about the damage done to water wells by the gas well drilling. Of the thousands of wells the DEP man had examined the number of water wells affected was “in the single digits”. And, the damaged water wells were affected during the drilling of the gas wells, not after the gas wells were completed and producing. If your water well is within 1000 feet of the gas well site and your water is affected, the gas well is the presumed culprit and the gas company must provide a remedy according to state rules. He said that the Penn State Extension Service in your county will provide water sample bottles and test the water thoroughly for $50.00.
The message: “BEFORE SIGNING ANYTHING, UNDERSTAND EVERYTHING”
The lease is complicated. Understand the legal meaning of the words used and the rights are giving to the gas company. A given example: The lease uses the word “covenant” and not “condition” because the gas company can break a covenant without terminating the lease. Should they break a covenant you must give them notice of the breach and permit time for a remedy. If they were to not to comply with a “condition” the lease would be terminated automatically.
*** Find a lawyer who has taken the time to learn the details of the gas company leases. They have lawyers who are experienced experts. When you sign you are committed to the words, even if you do not understand what they mean. And you, and your heirs, may be bound by them for 40 years.
*** Go to the Penn State Extension lectures and any other meeting you can find. Read all you can find on The Web. Your neighbor probably knows less than you do about gas wells, so don’t sign just because s/he does.
More later - and there was a lot more.
Thank you for the information, please continue when you are ready.
Tunkhannock Penn State Extension Meeting - II
From my disjointed notes:
1. The speakers were Earle Robbins, Ken Balliet, Tom Murphy from Penn State Extension Service and Les Greevy, attorney from Williamsport. (http://naturalgaslease.pbwiki.com/)
2. The first gas well was dug in Fredonia, NY in 1821. It was 27 feet deep.
3. Natural gas is used in 80% of new electric generating plants.
4. The U.S. uses one third of all natural gas produced in the world.
5. There is a natural gas pipeline run by Dominion Transmission (http://www.dom.com/about/gas-transmission/index.jsp) that runs parallel to the New York - Pennsylvania border in the souther tier of New York that delivers natural gas to New England. It will be relatively inexpensive to connect to that distribution system from Susquehanna and Wayne Counties and make us prime drilling areas.
6. The Millennium Pipeline (http://www.millenniumpipeline.com/overview.htm) will connect Corning, NY to the New York City area. That will also be close to the northern tier counties of Pennsylvania.
7. Transportation costs for the natural gas from the Barnet Shale in Texas will make the natural gas from the Marcellus Shale in NEPA attractive.
8. A LARGE natural gas storage facility is being constructed in Tioga County. It was said that there are huge salt (NaCl) deposits there that will pumped out to make room to store 50 billion cubic feet of gas. Gas storage is for gas produced during the warm season when the natural gas demand is reduced. This allows the well to produce continuously and the pipelines from Texas to be full all year. During the Winter peak the gas sent to market is the current production supplemented by the stored gas.
9. The minimum royalty, by law, in Pennsylvania, is one eighth. The royalty is negotiable, and according to rumor currently about 15%. The Pennsylvania Game Commission got a 29% royalty when leasing some Game Lands.
10. There are presently 80,000 gas and oil wells in Pennsylvania.
11. The Marcellus Shale was laid down 365 million years ago. He compared this with 250 million years ago for the dinosaurs.
12. One of the speakers said that he’d been contacted by a reporter from a Scranton newspaper and asked, “Are you drilling for unleaded gas?”
13 There will be a related “Water Quality Meeting” on June 9 and 10 in Susquehanna and Wayne Counties. The data is not, yet, on their web site.
14. The Penn State Extension web site has a “royalty calculator” (http://naturalgaslease.pbwiki.com/Royalty+Calculator). This was used for informational purposes to give an idea of the money involved. Obviously, the assumptions are guesses. but assume
a. I have 50 acres
b. which is part of a 300 acre unit and
c. I get 12.5 % (one eighth) royalty.
My share of the gas is: 0.0208333
Assume further that
d. The price of gas is $7.50 per MCFE (which I assume is Million Cubic Feet Equivalent - there are a bunch of terms at http://www.stmaryland.com/ourcompany/FR-GlossaryMain.htm) and the daily production of the well is
e. 2.5 M MCFE (thousand MCFE). The the total value of the production per day is $18,750 which makes my royalty $391 per day or $142,578 annually.
The caution: these are guesses made by the lecturer to illustrate the process of calculation. Note: the current price is closer to $10 per MCFE - http://tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp.
15. Ken Balliet said we shoul focus on four items:
a. “Goals for our property” He cited one man who knew every tree on this 200 acre farm and loved to walk in the woods. Then, there is the man in New Jersey who has 100 acres that he has never seen. Clearly they have different goals. What is our peraonal goal?
b. “Financial Strength” Can we afford to turn down the current bonus and wait? Do I need that bolus of money to pay emergency expenses?
c. “Estate Plans” These wells could go on producing for 40 years. Many of us will not be here then.
d. “terms of lease” Much of the evening discussed this item, especially the lawyers.
Mr. Balliet suggested that we reflect of these four items and select a course of action that is best for us.
16. Mr. Balliet suggested that you NOT sign a lease
a. because your neighbor did.
b. because you are afraid that someone will drill under your property line.
c.if you do not understand the impact on you and your property
d. based on dollars alone.
More to follow. If you were there and I’ve got any of this wrong, please correct me, both for me and the other readers.
Tunkhannock Penn State Extension Meeting III
There was some discussion about the landman threat that if you don’t sign up they will be “draining all your gas from a well on your neighbor’s land.”
The analogy was made that gas is like deer. You don’t own the deer on your land, but can hunt one with permission of the Game Commission. With the gas under your property there is no “in place ownership”. Simply, you don’t own the gas under your land. He who brings it to the surface “owns” it. This is called the “Rule of Capture” or the “Law of Capture”. A landman threatened me that if I didn’t sign I could lose all my gas to a neighbor’s well.
Last night the “answer” was complicated, like all of this.
First the gas in the Marcellus Shale is not a big pool that will float to the nearest opening. It is not like a pool of liquid that will be sucked up by a single straw, with the gas from “miles away” flowing to the nearest well. The Marcellus Shale is a dense, black rock that has captured and holds the gas. The gas does not flow freely. There are some fractures in the shale, mostly running North-Northeast to South-Southwest, due to seismic activity through the ages. Some gas can flow through these naturally occurring cracks; but not enough to make a well pay. After a well is drilled it is “fracked”; fractured with water and sand pumped down into the well at high pressure. The releases gas and provides the small pathways for it to get to the well. the sand is to keep these small factures open when the water is removed. Fracking can be done either to a vertical well or to a horizontal well. Tom Murphy showed pictures of the tank trucks lined up at a well site to provide the water for fracking. There was a question about the chemicals in the fracking water. He thought that those stories related to oil wells, that gas wells used water. He said that the water was recaptured from the well and returned to the tankers where it must be taken to a water treatment plant before it can be released or discarded. It seems that DEP has rules about that.(Here is a site that give an description of on million gallons of water: http://ga.water.usgs.gov/edu/mgd.html
Mr. Murphy said that he has discussed fracking with the geologists at Penn State to get an idea of the distance from the well that is fracked. They said it was probably between fifty and 200 feet, but might go as far as 600 feet. Thus, beyond the maximum of 600 feet from the well, the well is gathering no gas. Assuming that a horizontal well is run 300 feet from your property, parallel to it, the Penn State geologists feel that the most encroachment onto your property would be 300 feet and very probably, less. That is why they will drill so many wells.
The next issue on the Bonus Price is the competition of the gas companies in your area. At this time there are many companies, but few are able to drill today, there just are not enought drilling rigs. The rigs available run 24/7 until they are done and move immediately to the next site. And, in Pennsylvania, the success or failures of the drilling are secret for five years. The gas companies pay a lot to drill the wells and are unwilling to share the expensive knowledge. Chesapeake said, at an earlier meeting, that they have three drilling rigs set to go full time in NEPA this summer.
That said, if the three wells in Gibson that Chesapeak said they would drill this Spring produce a lot of gas, then the prices in Gibson and Clifford for leases will go up. By the same token, if they drill three dry holes, leasing in Gibson and Clifford is likely over for this round.
If we assume there are producing wells, as each company gets a rig it will want to drill. The company needs a lease to do that and prices for unleased parcels will go up. This process will last years. The early leases on the Bartlett Shale were in the $50 per acre range and last week one went for $25,000 per acre now. Just a year ago it was $3000 per acre. The demand for gas has shot up and the remaining unleased acres gone down.
In summary: Decide to lease based on the factors of Mr Blalliet in a previous post. Sign when your balance of benefit vs costs is right, knowing that someone else will certainly make more up-front money. Or, if you wait the market may drop like a rock and you will never receive another offer.
Tough decision.