Marcellus natural gas leases

[LenPA]

I am 72 years old and on my 2ond year of ownership with a L3901, (replacing a 73 year old 8N that I have used for 34 years). I live on 38a in North Central PA,we built the house we live in and turned the very secluded property into a miniature state park with a pond, campsite and miles of maintained walking (now recently riding (RTV 1120) trails. Natural gas companies (Chesapeake) are back in the area offering renewable 5yr. gas leases. Has anyone else in the area been contacted?

 

[Poohbear]

You will get cash up front for the lease rights and when & if they drill and sale any gas your share is normally 1/6th but that's divided amongst the unit based on several things. One of our leases has been leased ( depleted field) twice now and no new hole yet. It will require fracking to bring a new producing well in.
New thing is be sure and find out if your area has the potential of lithium extraction from the saltwater waste, worth way more than the oil/gas .

 

[TheOldHokie]

I am 72 years old and on my 2ond year of ownership with a L3901, (replacing a 73 year old 8N that I have used for 34 years). I live on 38a in North Central PA,we built the house we live in and turned the very secluded property into a miniature state park with a pond, campsite and miles of maintained walking (now recently riding (RTV 1120) trails. Natural gas companies (Chesapeake) are back in the area offering renewable 5yr. gas leases. Has anyone else in the area been contacted?

Not in your area but I have leases in WV.

First piece of advice: they all low ball and lie.

Second piece of advice: know the value of leases in your area before signing anything. If you can compete the lease among more than one company even better.

And finally: O&G leases are in perpetuity. The five year term is just the time they have from signing to start production. You get paid a signing bonus up front. In WV the going rate is about $5-6k per acre.

A typical lease includes an option for a second 5 year term should they not begin production in the first 5 years. To exercise that option they have to pay you the same signing bonus they paid at signing.. if that term lapses without production the lease ends.

Once production starts they hold the lease in perpetuity and you get royalties from the production. Make sure you understand the royalty terms. They will offer 12.5% (1/8) net. Hold out for something closer to 20% and push hard for gross. Make sure gross is clearly defined in the lease. Let an O&G attorney review it to make sure its air tight. If you sign a net lease or gross is poorly defined you risk lots of deductions for post-production costs.

And lastly: they are all liars and cheats and Chesapeake is top of that heap. EQT i a little higher on my list.

Dan

 

[Poohbear]

Forgot to mention. Research what your state defines as surface rights vs mineral rights. Here in Tx you can retain the mineral rights if you should want to sale the land or you can sale your mineral rights & retain the land. Make sure you don't SALE your mineral rights , it happens thru some slick tactics. As theoldhokie said they will tell you 10 different stories before they actually lie about it

 

[RCW]

I think all is good advice. Best is having a well versed attorney.

The in perpetuity clauses might be a concern if you have thoughts of sale/transfer of the property in the next few years.

 

[skeets]

We have gone through 3 different gas companies owning the gas rights, EQT has it now at 17%, the last company is/was under investigation for playing really fast and loose the all the deductions, and ours was set up to automatically renew every 5 or 7 years I dont remember

 

[TheOldHokie]

I think all is good advice. Best is having a well versed attorney.

The in perpetuity clauses might be a concern if you have thoughts of sale/transfer of the property in the next few years.

I am not an attorney and this is not the place to get or give legal advice but O&G leases are pretty standard.

As the owner (lessor) you give a development company (lessee) the exclusive right to develop and market your minerals in exchange for a share of the proceeds from the extraction and sale. The development company gets the lion's share (80%or more) and you get the scraps.

Once a company leases the rights to develop they have a fixed window in time to begin operations. In PA that is typically 5 years and most leases contain an option to extend that window for another 5 years. They will pay uou an upfront and substantial "bonus" just for signing with them and the same bonus if the need to renew.

If they do not act to begin production - e.g. start permitting and/or drilling in that initisl time window the lease is null and void, you keep the bonus, and you can re-lease with the same or another company on new and udually better terms. I have one interest that has been renewed and re-leased multiple times for almost 500K in bonus money and not a drop of oil or cubic foot of gas has been extracted. The current lessee (EQT) just exercised their option to etend last year and if they do not begin production by Dec 2026 it will lapse again. Almost money for nothing but there are no chcks for free.

Once production begins the lease becomes "held by production" and as long as the company continues to produce any amount of O&G and pay you dividends on the sale it remains in effect. It does not expire and you cannot cancel it without agreement from the lessee. I have one lease that was executed by my great grandfather in 1899. It paid $100 per year and is still current because the current lease holder (EQT) continues to operate one dinky little gas well that does not pay for itself. They do that just to retain their rights to future development. The good news is they only have vertical rights so they cannot unitize the propert for the horizontal drilling and fracking needed for Marcellus development and have to renegotiate if they decide to go that route. As a result some contentious correspondence has been exchanged. Meanwhile my rights as the current minersl owner are locked up by that decrepit old farmland well.. So be very careful about what rights you sign away. Get a lawyer experienced in mineral rights to advise you - the companies have an army of them and they are not your friends.

A mineral lease is an encumbrance on the property. You can sell the surface rights to the property and retain the mineral rights. The opposite is also true. I own (inherited) mineral rights to the old family farms but no surface rights.

If you own surface rights but not mineral rights you will be paid for any surface activities or access needed to extract someone else's minerals. That would be a separate surface access lease.

O&G companies will wave tens or even hundreds of thousands of dollars under your nose. When they do that they are looking to make millions in exchange and will take advantage of you given the slightest chance. I get letters and phone calls almost weekly from third parties trying to BUY my mineral interests that are already under lease. They all start the same way - they want to "help me out" with immediate cash....

If you are an O&G mineral rights owner get educated, get an experienced O&G lawyer, and get protected. The jackles are everywhere, they do not have your interests at heart, the leases and laws are complex, and they will take every advantage of you they can.

Dan

 

[mikester]

Don't forget to write in the option that they are responsible for bringing you city drinking water at 30GPM and 80psi after your well goes dry and the water stinky and bad.

 

[TheOldHokie]

Don't forget to write in the option that they are responsible for bringing you city drinking water at 30GPM and 80psi after your well goes dry and the water stinky and bad.

In much of the WV and eastern PA Marcellus field that's a non-issue. The coal companies (Consol in particular) did that years ago. They also honey combed the area with shsllow horizontal shafts that dried up all the wells and undermined surface structures causing damage and collapse. The little WV village were I was born is now owned in close to its entirety by Consol. The residents all gave up and left. Consol razed much of it and what little is left is a sad bedraggled ghost town. My grandmothers old house is one of the few remaining occupied homes. It will likely suffer the same fate when the gentleman that bought it from her 50 years ago departs this world.

My aunt and uncle just across the border in Greene Co PA lived for 5 years on water trailered in by Consol before the promised municipal supply came on line. They had no mineral interests, no leases, and no running water

If I sound a little bitter it's because I am. I have watched the mining and chemical industry rape my home state for the entirety of my 72 years. You can't stop them - they buy the politicians that write the laws and the judges that interperet them. EQT has worked hard to stack the WV Supreme Court in an attempt to reverse some of the recent laws and decisions thst favored landowners.

The most you can do as a land owner is vote for reform and extract as much as you possibly can when you deal with them. Since I can no longer vote in WV I will do my best on the extraction side.

Dan

 

[skeets]

Don't forget to write in the option that they are responsible for bringing you city drinking water at 30GPM and 80psi after your well goes dry and the water stinky and bad.

EQT had a company come out and test my well as soon as they took over the gas rights. The well while a low producer was OK even though they had horizonal drilled out was and fracked. What I did find interesting was they can use the same pad and drill several wells and the land owner gets paid for each of those wells as long as they are making gas.

 

[TheOldHokie]

EQT had a company come out and test my well as soon as they took over the gas rights. The well while a low producer was OK even though they had horizonal drilled out was and fracked. What I did find interesting was they can use the same pad and drill several wells and the land owner gets paid for each of those wells as long as they are making gas.

These wells are generally unitized - joined with leases for adjacent property owners to create a bigger unit - 1 square mile (640 acres) being the minimum unit size. The horizontals from a pad typically go through multiple different properties. The pad is usually located near the center of the unit and the hotizontals are drilled like spokes of a wheel.

Individual owners get a proportional share of the total production of the unit based on the number of their acres included in that unit. Production is reported for each horizotal shsft in the pad. As an mineral owner you have no way of knowing how much of that production is coming from your acres as opposed to a neighbor's.

Dan

 

[RCW]

Before New York pretty much eliminated gas exploration, some folks with wells on their property were allowed to use part of the gas produced in their homes, etc. Part of our county was quite active 15 years ago or so.

I don’t know if/how that affected their royalty agreement. Also don’t know what happens if the well is no longer producing commercially.

Is that common in other states? Sounds like some of you folks have long-term experience.


My employer is part of one unit, and sporadically gets small royalties from Minard Run. We’re a small part of the unit, with just 3 acres.

Well is on nearby property. I don’t think they regularly use it for production. Probably a function of market prices.

 

[TheOldHokie]

Before New York pretty much eliminated gas exploration, some folks with wells on their property were allowed to use part of the gas produced in their homes, etc. Part of our county was quite active 15 years ago or so.

I don’t know if/how that affected their royalty agreement. Also don’t know what happens if the well is no longer producing commercially.

Is that common in other states? Sounds like some of you folks have long-term experience.


My employer is part of one unit, and sporadically gets small royalties from Minard Run. We’re a small part of the unit, with just 3 acres.

Well is on nearby property. I don’t think they regularly use it for production. Probably a function of market prices.

The old vertical cosl bed methane well leases almost universally granted the landowner use of as much wellhead gas as they needed. That was easy to do- you tapped it at the wellhead.

That has pretty much dissapeared in modern horizontal well leases where acreage is pooled. The surface owner where the pad is located may and often does not have any ownership interest in the gas. Plus there were concerns about the profits lost in those agreements and the liability associated with supplying it.

If the well is not ptoducing- i.e not genersting royalties, the leases are no longer in force. A good lease will contain a shut-in clause that limits the ability of the producer to shut the well down while tryingvto hold the lease "by production". No production = no lease. The initial shut-in clauses proposed by the production company are very one-sided. Thats one of the reasons you need the advice of a good lawyer. Right to use a well for gas storage is another.

Dan

 

[RCW]

Thanks for the explanation Dan.

Again, it’s now a legacy issue here. To my knowledge, there’s no new oil or gas exploration in New York due to actions of our state government about 10 years ago.

Some heralded the State’s actions; others not so much…

Some of the instances I recall were vertical wells.

Minard Run purchased the assets (wells, transmission lines, etc.) of Nornew Energy years ago. I’ve dealt with them a few times through my work. They seem to be straightforward folks. I think they are from Pennsylvania.

 

[TheOldHokie]

Thanks for the explanation Dan.

Again, it’s now a legacy issue here. There’s no new oil or gas exploration in New York due to actions of our state government about 10 years ago.

Some of the instances I recall were vertical wells.

When I was a kid growing up in WV coal bed methane wells like the one below were everywhere. Grandad had one located about 200' from the farm house and in the summer it provided all the free gas they needed plus excess going to the gas company whichbgenerayed a check. In the winter the meter and the check ran the other way. Grandad used to service it himself each year. My uncles worked for Columbia Gas and ran routes in company trucks0 servicing thousands of them.

Those wells all petered out and the gas companies allowed their "worthless" leases to lapse. That's how I came to get involved when horizontal fracking of oil and gas made them very valuable again. Now these things are everywhere and I can understand New York's concerns. WV Is too poor to cut off that income stream..

 

[RCW]

As it could be deemed political, I’m not saying whether New York’s position is good or bad.

There’s parts of rural upstate that were/could have been lucrative. Environmental issues are another story, and for a period of time I was involved in those implications as part of my job.

That said, it’s no longer in the cards, so not worthy to instigate a debate from others with strong beliefs for/against.

Thanks again.