Variety of leasing options available to mineral owners
Mineral rights owners who want to lease their property to gas and oil drillers have a variety of options available to them.
In a gas lease, the gas acquisition company is essentially purchasing 87.5% of your minerals, even though it is called a lease.ﾠ State law says the minimum royalty on a lease for the mineral owner is 12.5% or 1/8. In Texas, Pennsylvania and New York residents have negotiated higher royalty rates. If a mineral owner can lease directly to the oil and gas company, fewer middle men are involved allowing the original mineral owner to negotiate a higher royalty percentage.ﾠ
Acquisition, lease and land service companies are all middle men.
Depending on the amount of recoverable gas in the Marcellus Shale under Pocahontas County, royalty offers could be higher in the future as companies actually move into the area.ﾠ Once a lease is signedﾠ with a negotiated rate, the rate stays with the lease througout its life. If two or more parties own a land equally, all signatures are required to lease the minerals. Once gas is produced, the lease remains in effect untilﾠ production stops.ﾠ
This lease can, and often will, last decades.
Unless a mineral owner signs a lease directly with a drilling company or gas company that includes a non-assignment clause, that lease can be passed to multiple companies during its life.ﾠ A non-assignment clause guarantees that a lease cannot be assigned or sold to another company.ﾠ In the long run, it may be important for the surface owner to know who has control of what lies underneath his/her land. ﾠ
To be sure, a mineral owner can wait until drilling companies are present and then lease directly to them.
In Pennsylvania, it is clear that some companies have better drilling practices than others. ﾠ
"In May and June, routine DEP inspections uncovered violations at Marcellus Shale drilling operations including poorly constructed water impoundments, inadequate erosion and sediment controls, improper waste and fluid disposal and unregistered and unapproved water withdrawals from streams. The violations threatened the state's water resources," according to theﾠ Harrisburg, Pennsylvania, August 22, 2008 /PRNewswire-USNewswire via COMTEX/
According to Oak Hall, of Red Oak Realty, until recently Magnum Land Services has been the only significant lessee in Pocahontas County.
Sandy Majors works for Magnum Land Services LICﾠout of Traverse City, Michigan. ﾠ
She is currently stationed at Snowshoe with other representatives of her company.
Magnum Land Services LLC is here to obtain oil and gas leases from local land owners for Belmont Oakes Energy LLC.ﾠ
The owner of Belmont Oakes cannot be named, but lives in Dallas, Texas, according to Majors.ﾠ There is no information on the internet about Belmont Oakes, but Majors believes it has been around for many years.ﾠ She noted that often energy companies are very secretive about their history and identity because of competition in the market. ﾠShe said that even though it may seem surprising to not have information available on the internet, her company just hasn't taken the time to put up a website.
Majors said acquiring leases lets her company come in and explore to see how much natural gasﾠ isﾠin the area.ﾠ They have a standard lease written by her company, which may be modified with addendums for surface use: where to locate the well, where to put the right-of-ways, or how far away from a house.ﾠ
She said they drill one well per 640 acres. This number comes from U.S. land surveying, identifying a section as an area nominally one mile square, containing 640 acres. This is not a WV state well spacing guideline.ﾠﾠ She said some examples of surface protections include not burying waste, no land application, no water use and hauling waste away, to name a few.
Belmont Oakes has two options either to rent or to leaseﾠ oil and gas.ﾠ In either option, the company has the same control over the minerals.ﾠ The difference is that with renting the landowner gets a certain dollar amount per year and with leasing the landowner is paid money for five years up front.ﾠ Once gas is produced, the contract is then in effect until the well stops producing.ﾠ
But potential is there for the lease to be extended indefinitely.
Majors said she has had a very positive experience with people in Pocahontas County and this is one of the most beautiful places she has ever been.ﾠ
"Everyone needs to make up their own minds.ﾠ Do what's right for them.ﾠ Don't be pressured. This is something that affects you for the rest of your life," she said.
Hall stated there are now at least two other companies in the area and one of those cannot be named, either.ﾠ
He said he thinks having another company active in the area will bring more competition, which may be good for mineral holders and potential lessees.
"It is hard to realize the value of an asset when there is only one person buying," Hall said.
Red Oak Realty has been assembling parties interested in listing their minerals as one would collect property listings.ﾠ Clients sign a listing agreement similar to the way they could list their property. Hallﾒs company puts an individual's acreage on a bidder's packet then distributes this packet to multiple companies.ﾠ If a client chooses to lease minerals, Red Oak Realty receives six percent of the lease signing bonus from the company.ﾠ A client is in a listing agreement to market his/her minerals and is under no obligation to take any offer.ﾠ
Hall said it is their job to get people an offer they are happy about.
He believes that if he can get his clients a substantial offer, people will make their own decisions in their own time. Hall said he is available to help his clients understand the pros and cons of drilling on the current use of the land.ﾠ
Red Oak Reality calls this group of listed mineral tracts a land pool. ﾠMineral tracts are listed separately, but can be reviewed in one place. Each mineral owner will create their own lease with the company they choose.ﾠ
Being part of a pool does not mean everyone in the pool signs the same lease.
"For pool members, we can offer lease language but can't offer legal advice.ﾠ We can pass along possible addendums ﾖ good terms/bad terms.ﾠ Legal advice is the attorney's job," Hall said.
Red Oak Reality has a member only website for listed mineral owners.ﾠ It has links to different articles about drilling in the Marcellus Shale.ﾠ It also contains lease addendums, surface use restrictions, environmental protections, etc.ﾠ The site may also include environmental alerts.ﾠ
Hall said he wants landowners to become as educated as possible, and know the full picture, beyond the royalties, of the pros and cons of drilling for gas. He is continuing to research and compile information for the members.
In the future, Hall hopes to attract many more companies to the area so that clients will benefit from competition.ﾠ Due to the current size of his poolﾗ10,000 acres in Pocahontas Countyﾗa new company is showing interest in the area.
The county has approximately 150,000 acres of privately owned land.
Hall has done a large amount of research, including a visit to a drilling site in Washington County, Pennsylvania.ﾠ He has photographs of the well site and waste pit during the drilling process.ﾠ His biggest concerns are during active drilling:ﾠ the noise, the smell of the petrochemicals in the pond from 200 feet away and the chemicals that may spill out around the pond during drilling. The drilling goes on continuously for weeks with lights and noise 24 hours a day.
He recommends three things that surface owners can include in leases to protect property.
ﾕFracking fluids be hauled outside Pocahontas County.
ﾕInstallation of a silt fence and grass planting around waste pits.
ﾕWaste pit liners should be removed from drilling site, not buried on the landownerﾒs property.
He said it may be a while before we see any drilling in the Marcellus Shale in Pocahontas County. It is all speculation at this point, he continued. He recommends that mineral owners educate themselves and notes that there is plenty of time to make an informed decision.
Hall said he believes that more information will lead to a better deal.
Even if a landowner decides not to lease minerals, he/she can still petition the Oil and Gas Conservation Committee for royalties if a neighbor leases.ﾠ One horizontal deep well can drain around 100 acres.
This means that if a well is close to a neighboring property line, it can take gas from under both properties. If a geologist says that the well is close enough, the mineral holder who has not leased their land can petition for royalties for his/her gas.