Posts Tagged ‘gas royalties’

Growing number of landowners hope to gain income by allowing gas drilling on their property.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

FAIRMOUNT TWP. – Scarring Michael Giamber’s 74-acre forested spread with gas wells and pipelines might seem like a nightmare to some, but that’s the fairytale ending for which he’s hoping.

Giamber is part of a growing number of landowners in Northeastern Pennsylvania who have leased their land for drilling in the Marcellus Shale, a gas-laden layer of rock about a mile underground that runs through the northern part of the state. They hope to collect not only lucrative bonuses paid upfront for signing a lease – one offered locally last week was $5,750 per acre – but long-term income from royalties on the gas pumped from their property and rent from hosting needed infrastructure.

Early estimates for some properties put earnings well into the millions of dollars over the life of their gas deposits.

Giamber isn’t necessarily expecting that, but he wants to give his property every chance to succeed. He signed a lease with Denver-based WhitMar Exploration Co., which has locked up more than 22,000 acres in, among other places, Fairmount, Ross, Lake, Lehman, Union, Hunlock, Huntington and Dallas townships. The company offers a relatively negligible sign-up bonus – $12.50 per acre – in exchange for 19.5-percent royalties, a short lease period and stipulations that require expedited permitting and drilling.

“As we all know, the real money is in the gas royalties, not the bonus money,” Giamber noted. “Getting a well with a 20-percent royalty is better than a high bonus and no well.”

Opponents of drilling, however, cite a slew of potential environmental indignities from overt destruction of bucolic rural lands to more insidious but less-proven threats, such as groundwater contamination, overuse of regional water supplies and geologic shifting that might cause earthquakes.

Giamber sees much of that as hypocritical moralizing, and he has but to look down his road for an example of it. Every time he drives from his yard to state Route 118, he passes what he calls a homemade scrap heap on a neighbor’s property that’s filled with abandoned cars, rusted appliances and other items long beyond their usefulness. “It blows my mind how they just abuse the land, and now we’re going to bring in some money, and they get all up in arms,” he said.

If people truly cared about the earth, he reasons, they’d be outraged by such overgrown trash piles. But it’s been there for years, and no one’s complained about it. There are no doubt more just like it, too, he says.

In fact, in that context, Giamber sees his use of the land as beneficial. At least it has a positive purpose – providing a cleaner alternative to oil and coal, creating jobs and providing wealth – instead of just being a place to throw trash.

That said, Giamber has reservations. A few months ago, he visited a well site in Susquehanna County, where he found natural gas bubbling from the watery area at the base of a wellhead. He was told by a WhitMar representative that another company had made a mistake that wouldn’t happen in their work. “We’re all trying to rationalize it right now, and not get upset about it.”

While not necessarily an issue, recent lease agreements as close as Wyoming County make his deal look “anemic,” Giamber acknowledges. Chesapeake Energy, one of the largest companies in the industry, announced last week an agreement with the Wyoming County Landowners group for a 5-year, 20-percent royalty lease with a $5,750 sign-on bonus.

A landowners’ group near Giamber, the South West Ross Township Property Group, says it’s in talks with an undisclosed company whose offer is in the same “ballpark,” according to Ken Long, a member of the group’s executive committee. Long would neither confirm nor deny that it’s Chesapeake.

Still, Giamber believes the math of his deal could work better. “The fat lady hasn’t sung yet,” he said in an e-mail. “Let’s say I get a well three years before my neighbor that signed with Chesapeake at $5,500 (per-acre bonus). I’m still ahead. The variables are many and the future too hard to predict. I am just happy that WhitMar is moving forward by drilling the first wells in Luzerne County.”

Copyright: Times Leader

Topics like reporting leasing income, transferring leases to beneficiaries to be covered.

The temptation to just sign could seem irresistible. With a few strokes of the pen, some people in the region are being offered the chance to completely change their lives with natural gas leases.

But first, they’re warned, make peace with the fact that the next person will get more. Check the maps, they’re told, check the deed, hire a lawyer, test the water. How much environmental damage is acceptable? How about hassles to daily life?

For those not involved, think Beverly Hillbillies, minus that improbable shot, and then exchange the endearing high jinks for hours of tedious title searching, legal work and stressful decisions with lifelong implications.

So who could blame anyone for simply signing and hiding behind the wads of cash? Well, their children, for one. Because with the great benefits of gas royalties come the great responsibilities of taxation and profit allocation, and, if they’re ignored, the great headaches of the judicial system and familial infighting.

“People are just seeing the (money) as a way to pay taxes … and not thinking about having to report it to the IRS and the tax implications that could have on them … or thinking about general financial planning or investing,” wrote Donna Skog Grey in an e-mail.

Grey, who works for the Penn State Cooperative Extension in Luzerne County, says the extension has been fielding questions on gas leases, environmental issues and lessee rights. What to do with the money, however, hasn’t come up often, she noted, which is why the extension is sponsoring workshops on what to do after the lease is signed but before the money rolls in.

One is planned for Lake-Lehman Junior/Senior High School on Aug. 25.

“There may be some strategies available to reduce the income tax,” said Dale Tice, an attorney with Greevy & Associates, a Williamsport law firm consulting on gas leases. “That’s something they would want to work out with their accountant or financial advisor prior to receiving the payment.”

The workshop will cover various topics, including how to report leasing income – the cash bonuses are just like regular income – transferring leases to beneficiaries and investment options.

“Certainly the cash-bonus payment is an issue,” Tice said. “It could push somebody up into a higher tax bracket. … You’re looking at a large potential tax hit, and without using the strategies that are available, you’ve got issues (in the event of) divorce, creditors.”

To add to confusion, there are health-care implications with elderly lessees who are currently eligible for Medicare or Medicaid, he said.

He noted some families are creating limited-liability companies to distribute the proceeds, and that family limited partnerships can make dividing up ownership of the lease similar to issuing stock.

“Really, the issue here is providing governance, keeping the parents in control of the resource while they’re alive, but at the same time providing for an orderly and easy shift of equity to the next generation,” Tice said. “I don’t think that you have to have it necessarily worked out before you receive your cash-bonus payment, but certainly there’s no disadvantage to thinking about these issues earlier rather than later.”

If you go

A natural gas-leasing workshop entitled “Managing Natural Gas Lease and Royalty Income” is scheduled for 7 p.m. to 9:30 p.m. Monday, Aug. 25 at the Lake-Lehman Junior/Senior High School. The cost is $10 per person. To make reservations, call the Penn State Cooperative Extension at 1-888-825-1701.

Rory Sweeney, a Times Leader staff writer, may be reached at 970-7418.

Copyright: Times Leader