Use Caution When Signing a Gas Lease

With little evidence so far of how Ohio wells in the Marcellus Shale formation will produce, leases vary greatly, says OSU specialist.

Published on: Feb 18, 2011

Eastern Ohio landowners interested in leasing their land for natural-gas drilling into the rich resources of the Marcellus Shale need to be aware that such leases can carry some financial risk if they're not cautious. And, potential risks to the environment could be serious.

The Marcellus Shale formation encompasses about 95,000 square miles from New York to West Virginia, swinging through the southeastern corner of Ohio. The ancient formation, lying 8,000 to 15,000 feet below the surface, is estimated to be capable of producing more than 363 trillion cubic feet of clean-burning natural gas -- more than 15 times the natural gas used in the United States each year. The Utica formation, which lies beneath the Marcellus and reaches into parts of central Ohio, appears to have similar reserves.

These rich resources are fueling a "gas rush" in areas where drilling is taking place, but the rise of the new industry has also raised concerns about the possibility of contamination or depletion of groundwater reserves.

The drilling technology necessary to fracture the shale and release the gas requires millions of gallons of water, sand and chemicals, some hazardous, to be injected into the wells, which sometimes extend horizontally for a mile underground from the well hole on the surface. Potential problems with the disposal and treatment of the liquid waste that results from these drilling practices has also raised questions.

As with any type of drilling arrangement, landowners who are approached with leasing agreements to allow companies to tap into the Marcellus or Utica shale reserves should take steps to protect themselves, says Clif Little, an educator for Ohio State University Extension based in eastern Ohio.

"Some people jump at the initial offer," Little says. "I've heard of contracts offering as little as $10 an acre up to some offering $2,000 an acre. It's not surprising to see variations early in the process -- we don't have a lot of evidence yet on how well Ohio wells will produce. As we get that evidence, offers may change."

Right now, the stakes are huge. With the possibility of rental payments, sign-up bonuses and royalties, some landowners could see income of hundreds of thousands of dollars or more.

Little recommends that any landowner considering leasing land for drilling should work with an attorney before signing anything. Most landowners are approached with a "standard" oil and gas lease contract that is most likely written in the company's interests. Many of the terms are negotiable and can be revised to be more in the landowner's interests, he said.