between a rock and a hard place

[ryguyfi]

Marcellus Shale has put me in a pretty sticky situation over the past 2 weeks. I've been in contact with a few clients at work who have been approached about leasing their property for the mineral rights. They were given prices from $700-$1500 an acre and 15% royalties. The property they had ranged from 50 acres, to almost 230. The businessman side of myself says, lets do it. I can change these people's lives and it's a once in a lifetime opportunity to get a large lump sum. Have them pay off debt, retire earlier, etc. Something like this doesn't come around too often. Plus as a financial advisor, I can do quite well in helping them out financially, which in turn helps me out financially.

The fly fisherman in myself says that all of this will ruin the waterways and hurt the passion I have for fishing and the environment. I'm not on this site every day that I possible can for nothing. I crave the time to fish, and love the sport. Will all this drilling kill of a big portion of the resource?

I'm going to a debate/forum tonight which is being held at my church to educate myself a little bit more and see both sides of the fence. In my limited experience it seems inevitable. If someone contacted you to use your property for a few years and cut you a check for $300,000 would you pass it up? I honestly don't think I could. I think many people are in that position and it is very difficult to say no.


We'll find out how I solve this moral delima.


Ryan

 

[jayL]

The only advice I can offer is that you should look at it less as a fly fisherman, and more as a citizen of pennsylvania, and someone who is dependent on a clean environment to live and prosper. The implications go far beyond potentially affecting fishing.

I am not staunchly anti-drilling, but I try to look at it as something more than a threat to my hobbies.

Good luck.

 

[troutbert]

If the landowner really is being offered $300,000, he will take it, and nothing you can say will change that.

So, the best advice you can offer is to inform them how they can influence the drilling in ways that best protect their land and the waters flowing from and through those lands.

If the landowner makes it very clear to the companies that they expect the land and water to be protected, they can influence how the companies do the work on that land. After all the companies want access to drill there, so the landowner has some power to negotiate, not just on the financial terms, but on terms of how the work will be conducted, the siting of the well and access roads and pipelines, erosion and sedimentation control, etc.

And the landowner can tell the companies in advance that they will be monitoring things the whole time, and then they should do that. And if they see bad practices they should call the companies and get it taken care of. Or even call DEP if they don't get satisfaction from the companies.

And the landowners you advise can join together with other landowners, from a group and work together to plan how to best protect land and water through all this.

Also, some of the gas companies have a much better reputation and operating record than others. So, if they have a choice, they can choose one of the better companies.

 

[Slate_Drake_9]

Ryan,

Just an FYI more than anything, as I'm against extracting the gas from the Marcellus Shale until we have scientific proof of a lot of important stuff, but my personal opinion aside.

The state leased land in NC PA for around $4000/acre and some private land owners are getting similar numbers I've been told. They were buying gas leases from folks in this area several years ago when this was all under the raidar for well under $100/acre, sometimes under $10/acre because people didn't know any better at that point.

Also, at a seminar I attended either earlier this year or late last year (can't remember, but there was snow on the ground) some experts discussed the national average royalities were around 22%. You have to know too, that the end product of natural gas to market from this region is the cheapest to produce for these companies due to how close we are to the major market areas and the fact that transporting the gas to market is the most expensive part of natrual gas production. So, they're making even more money on their investments than in areas in the rest of the country that they're giving 22% royalities.

Sounds like your clients are getting low balled by someone and could make a lot more money if they're armed with the right info.

PS. Their is a law on the books in PA, according to the folks at this seminar I'm talking about, that makes it illegal for one seller of mineral rights to tell another seller of mineral rights what price they got for their mineral rights. PA is one of only a few states with this law on the books.

 

[jjsjigs]

Riguyfi,

Your kinda getting screwed on the per acre value. Up here in BradCo we are getting $5,750 an acre + 20% royalties (from Chesapeake Oil and Gas). I can back that acre price up with paperwork to prove it... if you need it.

People just want the quick buck and do not think long term of the factors of spills, poor air quality, etc.

But they are going to lease just to grab the cash so you might as well get the best price per acre and a higher % on the royalties.

If you would like to see my lease documentation with the $5,750 per acre and 20% royalties just PM me with your mailing addy and I'll send you a copy.

 

[ryguyfi]

It might be different for the general area and the amount of oil that they can extract. I am probably meeting with one of my clients and her attourney, who is helping with the negotiations, in the next few weeks. That's the best advice I can give someone right now. Have a professional be with you, even if he charges a fee, to help with the negotiations. I've also heard of people getting $75 an acre years ago when no one knew any better. I want to make sure my client's are getting a fair price for the area, but also make sure that if they do choose that route, that they can protect the environment as best as they can. I'm anxious to see what they say in the forum tonight.

 

[Selfinflictedfunk]

Hi Ryan,
Also look into how long these well's produce gas. I heard of drilling companies telling land owners the real money is in royalties and that a well can last 20+ years....which is BS to an extent....some wells may last that long but..... Some of these well's don't produce for a 1/4 of the projected time so the money is no where near what the land owner expected. Just an FYI and something else to complicate the issue/situation.

 

[Brownout]

You should forecast what type of situation your clients will be in if they don't get enough money from their extraction to move out of their home, but their water and air is polluted from compressors, pipes, processing, trucks, and drilling. That's a real rock and a hard place, especially if they have children. How much does it cost to treat chronic lung, kidney, and liver conditions? Most people assume they'd be immediately enriched enough to pick up and move when the area becomes highly toxic-that's not always the case.

 

[ryguyfi]

Is it really that bad brownout? I mean once it's drilled out, there's not much of a polution problem. Just some dust and truck traffic. I understand the issue with the water table, and them having a lot of waste water from the drilling that they end up dumping in West Virginia. I think when people make counter the issue with things like that, it's a bit out there for me. So no one should live on a dirt road, because it could kill their children. I'm sorry, but just can't take what you said into consideration now.

 

[Brownout]

Towns in Texas, The Barnett Shale, have extreme air pollution from venting of gas, drilling of gas, metering stations, and compressors. When it is drilled, until a gas line is hooked to a well, it is flared, and all this gas needs to be processed and distributed. It is not just drilling and then it's done. There is a lot of air pollution from this process and it is now documented in Texas. It is fact, not hyperbole or conspiracy.

 

[franklin]

Somewhere I was reading an article about a bill being worked in Pa that would force holdouts to sell their mineral rights to the gas companies if their neighbors were selling. The idea was to keep holdouts from running up the prices. Maybe someone on the forum has more information. While the issue brings up a lot of property rights debates it would be wise as an investment adviser to know whats happening. I'm guessing if that goes through the first couple owners could drive up the initial offer a bit but the holdouts will get the going rate (at best).

If anyone researches this please post details.

 

[vcregular]

Franklin. The idea is called 'forced pooling.' Here is a link about it. Basically the bill would give gas camopanies the ability to take your gas from under your house, even if you never signed a lease. Sounds like a real win win situation for property owners. :-(

Ryguy...if your clients sign, just get them the most money they can get. These gas companies are laughing at what they are locking up land for here in Pa. Pennies really for them. I mean when you don't have much, a little sounds like a lot. Well, most landowners are getting less than a little for what these companies intend to profit.

 

[bikerfish]

franklin wrote
"Somewhere I was reading an article about a bill being worked in Pa that would force holdouts to sell their mineral rights to the gas companies if their neighbors were selling. The idea was to keep holdouts from running up the prices. Maybe someone on the forum has more information. While the issue brings up a lot of property rights debates it would be wise as an investment adviser to know whats happening. I'm guessing if that goes through the first couple owners could drive up the initial offer a bit but the holdouts will get the going rate (at best).

sounds like the gas companies are really in with legislators. running up prices is BS. they are greedy and want it ALL!!!! your rights are at risk here.
I have nothing against drilling for gas if it's done right and all the precautions are taken. If it were me, I would talk to as many folks who have had drilling done as I could and then weight the risk/benefits.
money isn't everything, we can live without natural gas, we can't live without water.

 

[ryguyfi]

Our local representative Jim Marshall put on the forum last night. He had a rep from Chesapeake (mining company), a director of government affairs talk about the drilling procedures, a masters professor from the university of pittsburgh talk about the environmental issues, an attourney about the legal issues of homeowners, a director of the national association of royalty owners and a rep from penn state's cooperative extension about the job potential.


I learned a few things to say the least, on both ends of the fence. First off, if they do pass the law to pool, your portion of the minerals will be held in an escrow account, so they "technically" aren't just stealing it. For it to be mined most effectively, they are doing horizontal drilling so they have 1 mine for every 640 acres, instead of around 16 vertical drills.

The #1 thing I learned (which I knew before) was to get a lawyer. The typical lease from most companies is around 2 pages. The lawyer there adds an addendum of around 5-6 pages with specific details of the land owners rights. I will try to partner up with a local lawyer so that I can refer my clients to them for the legal advise they need.

The big deal with the money isn't the bonus you get for the $per acre, but the royalties. They approximated some people with arond 100 acres can net over $2mil in the lifetime of the well. Just crazy numbers to change your family history.

One of the big environmental issues is the waste water. They have a few million gallons of water needed for each drill. The waste water that is extracted has many harmful additives in it. They are currently taking that waste water and putting it in sewage treatment plants, which aren't able to usually handle that much extra waste. It then gets put back into the river system, and then back into the drinking water. That is the major environmental concern. The drilling company claimed that they are trying to treat the water and reuse anywhere from 80-100% of it in the near future.

The amount of jobs this will creat is astonishing. From truck drivers, to monitors of the wells, to landscape companies to fix the land and make sure the water grading doesn't cause problems, etc.

I look forward to helping people who want to take advantage of this, but feel semi-educated on the process now to know the pro's and con's. I'll continue to study on it and will update any new findings I have.


Ryan

 

[ryguyfi]

I also left before the questioning was over and if I did ask a question this is what it would have been.

They say that the burning of natural gas is much cleaner than diesel/gas in our vehicles. The technology is out there and being used sparringly for fleet vehicles to be run on natural gas. What would the overall polution level be if there was a change over from burning natural gas, and the polution it causes to extract, compared to using diesel/gasoline and the exaust it causes. Is it a fair tradeoff or is one worse than the other?


BTW, they say the the marcellus shale could self support the US as the sole energy souce for anywhere from 25 to 100 years.

 

[Tups]

ryguyfi: Thanks for sharing what you have recently learned.

I was wondering, did anyone at the forum address the question of exactly where the gas being drilled now in PA is going? Where is the market? Are the companies selling it locally or shipping it overseas?

 

[Gone4Day]

ryguyfi,
Good for you for taking the time to learn about it and consider both sides. Natural gas will primarily displaces coal in electricity generation. Its use as a transportation fuel will be limited. Far and away reducing coal consumption does the most from an environmental standpoint. Half the CO2, no acid rain or ash. And only about 1% the footprint of coal extraction. At current natural gas prices, it is actually no longer economical to mine eastern coal for electricity. Many mines are operating at a loss right now.

 

[Gone4Day]

Tups,
Currently all the gas is used in the eastern corridor of the US - the largest natural gas market in the world. There are competing plans afoot to build some pipelines to ship the liquids to refineries in either Canada, Chicago or Texas. The Texas one is the funniest. The want to take an existing pipeline, and reverse the flow!

Last year the US imported about 48% of the natural gas it burned. PA was even worse, importing 75%. But those number are going down, especially in PA.

 

[celia19O5]

Well I think this is the time for you to challenge yourself. There is so much hardship in life and we have to learn to deal with them gradually. Hope you will overcome this situation soon
Be optimistic !!!

 

[ryguyfi]

They didn't specifically talk about where it was going. It's still in the infant stages in PA. They did talk about it being reinvested into PA and reducing the "trasportation fee" on homes in PA with natural gas. You look most other places in the country and their fees are much higher. I'm pretty sure alot of it right now is staying here with us.



They estimated approx 10,000 jobs a year will be created for the next 3 years from the production of marcellus shale. Talk about the second coming of the steel industry in PA.