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Gas leasing: what landowners need to know

Farmers and landowners in southern tier New York and across much of Pennsylvania will be impacted by natural gas development — one way or another. While windfall checks are bringing smiles to the fortunate, the economic and environmental concerns are almost as deep as the 7,000-foot-deep Marcellus Shale gas formation.

That’s why American Agriculturist asked Cornell Cooperative Extension to host a gas leasing workshop at the New York Farm Show.

First topic of the morning will be “What every farmer needs to know.” It’ll be presented by Brett Chedzoy, Extension resource educator from Schuyler County. “While landowners are more savvy about gas leasing concerns, so many aren’t as up to speed on all the related issues,” says Chedzoy. “There’s a lot of both good and bad that comes with gas exploration.

“We’ve seen a lot of landowner coalition and Extension education programs, But until a land man comes knocking on the door, many still aren’t aware. It’s still easy to be taken advantage of,” he cautions.

In Schuyler County, for instance, a task force was put together to make recommendations to local government. “It’s been a huge help,” he says.

“And it resulted in better deals and better leverage for lease amounts and provisions. Landowner groups have more clout. And companies, not land men, are more willing to sit down at a table and talk terms.”

By December, the “going rate” for Marcellus Shale gas leases reached $5,500 per acre, cash up front, and 20% royalty on recovered natural gas.

Key Points

• Landowner coalitions have hugely helped leverage lease terms.

• Gas leases reached $5,500 an acre plus 20% royalty by late 2009.

• Feb 26 gas leasing workshops will have plenty of Q&A time.

Ain’t in Texas no more

Taming Marcellus Shale drillers may be one of the toughest fights, contends Jan Jarrett, PennFuture president. Drillers are coming to Pennsylvania and New York from around the world to tap one of the region’s most valuable natural resources.

“We’re trying to learn from the experience and mistakes elsewhere,” says Chedzoy, who’s also a landowner.

“This isn’t Texas, and it is a different ballgame. Storage and pipeline issues go way beyond getting a good price. They can conflict with farming operations, and come back to haunt farmers and landowners.”

Some (gas companies and drillers) are conscientious about protecting the environment, says Jarrett. “But many create tremendous risks to our land and water resources.

“We must make sure a portion of this new money will be invested in the land, water, wildlife and communities that’ll bear the brunt of this drilling. Otherwise, we’ll find our citizens holding the bag on damage done by drillers — an awful re-enactment of our experience with the coal industry.”

Both states have antiquated oil and gas regulations. And New York’s Department of Environmental Conservation doesn’t yet have the manpower to oversee the fast-developing industry. That’s why — to landowners’ chagrin — the Empire State slapped a moratorium on natural gas drilling.

“Problems have already popped up: contaminated wells, destroyed roads and forests, and streams left with dead or dying fish and vegetation,” contends Jarrett.

In three southwestern Pennsylvania counties, for instance, Atlas Resources was recently fined by the state’s Department of Environmental Protection for 13 violations.

Violations involved failures to control erosion and establish vegetative cover, plus discharging wastes, diesel fuel and production fluids into the ground. And there have been numerous other pollution events.

Issues, issues, issues

There are many subcontractor issues, land use issues and legal issues, notes Chedzoy. Pipelines can pose physical barriers. Gas leases can cause trouble with farm mortgages.

Lenders, for example, don’t want to mortgage property without free and clear title. Some leases give gas companies unrestricted access to surface and subsurface rights. Others can tie up property forever.

“In Broome County, leases were sold splitting surface and subsurface ownership. This has been ‘under the radar’ of local assessors.” Chedzoy adds.

Environmental groups have legitimate concerns. Whole communities have a vested interest.

That’s why local communities need time to make natural gas play out well in their communities, suggests Chedzoy. “When the Fortuna Energy trucks roll in, you can’t start negotiating terms.”

By March or April, Chedzoy predicts, gas drilling companies may be able to apply for drilling permits in New York State.

Answers to crucial gas leasing questions

missing image fileIn 2008 and 2009, American Agriculturist published a question-and-answer series on critical natural gas leasing issues. The answers were provided by two front-line experts: Lindsay Wickham is New York Farm Bureau’s local issues specialist, based in Watkins Glen, N.Y. Gary Heim is an ag law partner in Persun & Heim P.C., of Mechanicsburg, Pa.

The series is now available in booklet form for $5, to cover printing and mailing, from: American Agriculturist, 5227 Baltimore Pike, Littlestown, PA 17340.

missing image file

RADICALLY ALTERED: Natural gas drilling and yet-to-come pipelines will dramatically change the ecoscape of northern-tier Pennsylvania and southern-tier New York.

This article published in the February, 2010 edition of AMERICAN AGRICULTURIST.

All rights reserved. Copyright Farm Progress Cos. 2010.