(Part III in three-part series.)
SALEM, Ohio — With everything in life, there are good experiences and bad experiences. The Marcellus Shale boom in Ohio, Pennsylvania and West Virginia is no exception.
One family in Evans City, Pa. has had a positive experience with Marcellus Shale drilling on their property. So positive, in fact, he has developed a deer hunting paradise by working with the driller on his property and the Pennsylvania Game Commission.
The good
Landowner Ed Gaw leased his 125 acres for $10 an acre in 2006.
In October 2008, Phillips Exploration Inc. began the drilling process. Gaw said there was a six-month period between the well drilling and the fracking process. He ended with a well 3,200 feet deep on his property.
Today, the reclamation of the property is finished and the wells are operating.
“Reclamation at one of these sites can be anything you want it to be,” said Gaw. He added it can even be better than before the drilling because of the low compaction grading on the property, which helped out with hydrology.
He has planted 150 spruce trees and 30 fruit trees on the property, as well as ground cover of clover and chicory, and designed it to be a deer habitat.
Gaw said while Phillips Exploration did not pay for most of what he has done, he does say that they helped with some costs and were more than willing to help reclaim the property how he wanted it.
“It was a partnership between Phillips and me,” Gaw said. “Marcellus Shale is a blessing, but also an act of patience.”
The bad
However another property owner has not had such a positive experience. A farmer and his wife in Pennsylvania thought they were doing everything right by contacting an attorney. Then they found out not everyone can be trusted.
They contend the attorney told them they could get 14 1/2 percent royalties, 2 percent more than they would have under the Pennsylvania law.
The couple asked that their name not be used while they pursue legal action against the attorney.
After signing the lease, however, they learned the attorney will gain 20 percent of the additional 2 1/2 percent.
Enhancement fee. Atty. Chris Baronzzi, of the Harrington, Hoppe and Mitchell law firm, said in these leasing situations, an enhancement fee typically means the royalty is paid, but the landowner has given authorization to deduct some things such as an attorney’s fee from it.
Read fine print
If landowners don’t understand something in a lease, whether the attorney’s language or the driller’s, always ask for clarification, and remember that all parts of a gas lease are negotiable.
For example, Baronzzi added, he has found that gas companies sometimes add a provision to deduct production costs from royalties.
If production costs are to be part of the lease, he recommends landowners consider adding that it be all taken from all gross receipts of production at the well head and not after processing and marketing.
Negotiation
Baronzzi said the best advice to anyone considering signing a gas lease is to consult an attorney.
“Leases require negotiation. Remember the gas company is drafting it, meaning it is designed to benefit them. You want a balance, which may require some give and take,” he said.
Other concerns raised by some landowners have centered around reimbursement fee provisions in Marcellus Shale gas leases if they drill for gas and nothing is found.
Still other leases include provisions if drillers find nothing, the hole can be used as a disposal facility for brine water.
Baronzzi has not viewed any leases that call for the landowner to pay back the cost of drilling.
Brine disposal
However, landowners should be paid for their land to be used as a disposal facility as well.
“The drillers can’t just let the hole sit forever,” Baronzzi said.
He added that the state of Ohio has required for drillers to report daily logs to the Ohio Department of Natural Resources.
In Pennsylvania, if a hole is drilled, the law states that the driller must do something with the site within nine months unless an extension is granted.
Who owns minerals?
Before a landowner signs anything, he should also know if he really owns the mineral rights to his property.
Some real estate is sold without the mineral rights and if the landowner goes ahead and signs a gas lease, giving a warranty of the property, problems can arise.
“You are stuck with the damages and costs, if you don’t own the mineral rights,” Baronzzi said.
The landowner could be responsible for any damages the mineral rights owner loses.
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I would suggest owners request steel pits so that none of the mud, water, or frac liquids are left on the property. Otherwise they will just leave the pits buried on the property further diminishing its value. Most companies have them and use them if requested with the increase in urban drilling.