Posts Tagged ‘natural gas’

School districts that sign a lease will receive money per acre, royalty checks on a regular basis.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

There are school superintendents who would drool over the windfall Bill Bush received around January. But Bush, the superintendent at Elk Lake School District, is looking for an even bigger payday.

The district essentially made $127,500 for nothing when it signed a gas lease earlier this year for its 170 acres in Susquehanna County. The district received $750 per acre and royalties of 12.5 percent.

With lease offers hovering around $2,500 per acre in some areas, the deal doesn’t seem as equitable as it once did.

“We were excited at the time, but not now,” Bush said. “I think anybody who signed a lease prior to today probably wishes they had waited.”

Still, the district jumped on the offer, he said, because the company assured it would drill a well on district property, guaranteeing the district a handsome royalty check on a regular basis.

With a furor building over the potential of the natural gas reserves locked in a rock layer that stretches from New York to Virginia, the decision is one that many school districts in the area might have to soon consider. Bush said he believes Elk Lake is the first district to sign, but others aren’t far behind.

Tunkhannock Area School District recently agreed to join a group of Wyoming County landowners who are negotiating a gas lease. Dallas School District is also discussing lease options.Bush said Cabot Oil and Gas Corp. is planning to have a well online by the 2009-2010 school year. It’s unclear how much the district stands to gain from royalties, but surrounding areas “indicate strong reserves,” Bush said. “If we’re consistent with what the project is locally, it would certainly be beneficial to the district,” he said.

So far, Elk Lake is attempting to ignore its financial good fortune, Bush said. The money it already received went to the general fund and disappeared in the district’s almost $17 million annual budget. Instead of counting down the days until royalties start rolling in, people in the district are looking at them as an unexpected bonus if they come.

“I think everybody’s kind of reserving judgment to see how it comes out,” Bush said. “I think they’ve remained grounded.”

Bush has modest plans for the funds, such as building and grounds maintenance and upgrading technology.

Beyond the royalties it would receive from drilling, the district retained the rights to 200,000 cubic feet of gas each year, which it could use or sell at market price. At prices calculated by the federal Energy Information Administration, the district would make about $1,500 from its yearly allotment. The district is considering switching from its oil-fired heating system to a natural gas one, Bush said.

The district also reserved other land rights in about two dozen addendums to the lease.

“Environmental concerns were first and foremost,” Bush said, but safety and other issues were included.

Beyond the royalties, the district retained the rights to 200,000 cubic feet of gas each year, which it could use or sell at market price.

Copyright: Times Leader

MOST CONSUMERS HAVE heard the cautionary phrase, “caveat emptor,” or “let the buyer beware.”

Turns out, for Pennsylvania landowners who are mulling natural gas lease offers, the seller better be careful too.

Deals are being sealed throughout Northeastern Pennsylvania as a result of a natural gas rush. The flurry began months ago, in part, because a Penn State University researcher and colleague in New York suggested that there might be a treasure trove of natural gas trapped within a rock formation known as the Marcellus shale.

This formation – which extends over parts of Pennsylvania and three bordering states – might contain more than 500 trillion cubic feet of natural gas, much of it previously inaccessible. Using updated drilling technology, however, industry watchers speculate that at least 10 percent of it could be recovered. Taking into account projected fuel prices, that makes the Marcellus worth about $1 trillion.

Consequently, drilling company representatives and other dealmakers have fanned out across Northeastern Pennsylvania, knocking on doors and making what might, at first, seem to be lucrative offers. But property owners would be wise to wait and get the facts, not quickly jump at an apparent windfall.

Experts advise that landowners don’t sign companies’ standard agreements, which tend to favor the drilling operators. Instead, negotiate.

People who had been offered $15 per acre two years ago have, in some cases, reaped new offers of as much as $2,500 per acre, according to one report.

Other equally important issues should be examined in the lease agreements.

Among the questions to consider: What percentage of royalties will be paid to the landowner? How might potential environmental impacts be addressed? Does the contract provide provisions releasing the landowner from liabilities, including failure of the drilling company to follow applicable laws?

In short, draft the best possible deal before signing on the dotted line. This unforeseen opportunity shouldn’t leave you feeling cheated.

LEARN BEFORE LEASING

For information on natural gas leases, television viewers can tune into an hour-long, call-in program at 7 tonight on the Pennsylvania Cable Network. The program also will be available on the Web at http://wpsu.org/gasrush.

A workshop on understanding gas leases is set for 7 to 9:30 p.m. June 23 at Lake-Lehman High School. Fee: $15. To register, call the Penn State Cooperative Extension office in Luzerne County at 825-1701.

Separately, gas-leasing information is available at Web sites such as

www.naturalgas.extension.psu.edu and www.pagaslease.com.

Copyright: Times Leader

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

With lucrative natural-gas lease offers coming to Luzerne County, landowners are beginning to pool their land, resources and knowledge to score the best deals possible.

Gas companies are rushing to secure the rights to a layer of rock called Marcellus Shale. The shale is deep underground, perhaps as far as 8,000 feet, and stretches from upstate New York to Virginia. Though solid, the rock holds natural gas under intense pressure. The resource has been known for decades, but technology only recently improved enough to extract it economically.

One issue landowners might not be able to control is determining who owns the rock and gas.

“That’s a tough question. Eventually what’s going to happen is when push comes to shove … they’re going to do title searches” back about 150 years, said John Zucosky, who is part of a Franklin Township landowners’ group. His research, he said, produced evidence that gas and oil might not be included in the mineral rights. He said he hasn’t heard anything about anyone claiming to own the rights.

Many Franklin Township residents have attended meetings at which Matthew Golden, a West Pittston lawyer who’s worked in the gas industry, has outlined the leasing, drilling and clean-up processes. He pointed out companies will attempt to exploit landowners’ ignorance to get them to sign unfavorable leases.

“There’s a great disparity in knowledge between the companies’ land men and the landowners. This could open them (landowners) up to some risk,” Golden said.

Zucosky’s group, which is accepting new members, owns 1,500 contiguous acres in Franklin Township.

Zucosky said he got involved nearly a year ago when a Texas company offered to buy the mineral rights on his 100 acres for $300 per acre. Initially, he suspected it was akin to an e-mail scam, but some Internet researching convinced him the offer was genuine and that he could probably get a better one.

“I saw that contract. You have to be pretty naive to sign something like that,” he said. If the situation is as experts suggest, Zucosky said, “there’s a whole bunch of money involved.”

He’s already witnessing the rush. An offer of $2,000 per acre increased by $500 within a few days without any prodding from owners, he said.

The group is ironing out which issues it wants addressed in contracts. Then it will consider offers, and once an offer is accepted, will hire a lawyer to finalize the contract, Zucosky said.

“We’re trying to put a package together to address all the things we want … to try to get the most we could,” he said. “This is a once-in-a-lifetime thing, I think, so what the heck.”

online

For more information on gas leasing or to join a leasing group, go to www.pagaslease.com.

“I saw that contract. You have to be pretty naive to sign something like that.”

Landowner John Zucosky

On offer for his mineral rights
Rory Sweeney, a Times Leader staff writer, may be reached at 970-7418.

Copyright: Times Leader

By Tom Veneskytvenesky@timesleader.com
Sports Reporter

Private landowners aren’t the only group being eyed by natural gas companies as potential lease partners.

Companies are also targeting two of the largest landowners in the region – the Pennsylvania Game Commission and state Department of Conservation and Natural Resources, hoping to develop the vast gas deposits they suspect sit below the surface.

Officials with both agencies say interest in their property – which totals thousands of acres in the region — is extremely high. Royalties and payments that companies are willing to offer to lease the land are also high, but that doesn’t mean the agencies are ready to sign on the dotted line.

Both agencies control their own destinies on those properties where they own the surface and subsurface mineral rights. When some of the properties were purchased years ago, the seller held onto the mineral rights. But on those state game lands where the Pennsylvania Game Commission owns the gas rights, numerous drilling companies have contacted the agency about its property in the northeast. The attempts have been aggressive, according to Mike DiMatteo, a geologist with the Game Commission’s oil, gas and mineral recovery program.

“Some of them came in and drew a circle from Tioga County down to Centre and over to Wayne and Pike,” DiMatteo said. “They are interested in leasing large areas.”

And the Game Commission is interested in what they have to offer … with conditions.

DiMatteo said the presence of the Marcellus shale layer under the surface of Northeastern Pennsylvania is believed to hold significant deposits of natural gas. The companies want the gas, which is at a record high price, but they need the land to access the layer of shale thousands of feet below the surface.

State Department of Environmental Protection spokesman Mark Carmon said his office has issued less than a half dozen permits for gas drilling in the Northeast and most of the interest is in Susquehanna, Wayne and Wyoming counties.

Despite the high interest, the Game Commission has so far entered into one lease agreement in the Northeast (State Game Lands 123 in Bradford County). DiMatteo said two more agreements are in the works and they are looking at more.

He added it’s too early to tell how much revenue natural gas wells would generate for the agency because the process is in the exploratory stage.

Game Commission spokesman Jerry Feaser said the agency receives an average of $2 million to $3 million a year, up significantly from an annual average of $300,000 a couple years ago. Most of that revenue is generated from active wells in the southwest and north central parts of the state.

“There hasn’t been enough development in the Marcellus formation yet to know what a typical well will produce. The companies are pretty tight-lipped about what’s there, so it’s hard to put a dollar value on the potential reserve,” DiMatteo said.

Based on the agency’s experience with wells drilled on game lands in other areas, they know what to include in a lease to protect wildlife and habitat. The agency prefers companies utilize existing timber and maintenance roads to access their wells, and areas such as wetlands, unique habitats and places holding threatened or endangered species are avoided.

Before a lease is signed, the agency conducts a resource recovery questionnaire of the game lands to assess the pros and cons. Leases typically last for five years or as long as the well is producing.

“In some areas we find we can’t take a risk with the habitat, so we won’t have any activity there,” DiMatteo said.

When the well is taken out of production, it must be capped and the area and access road must be seeded as a wildlife food plot or used as forest cover.

Like the Game Commission, the DCNR is open to the prospect of natural gas drilling on its property – just not right now. According to Teddy Borawski, minerals section chief with the Bureau of Forestry, the agency isn’t entering into any lease agreements until it completes an internal study on the matter.

The agency has wells operating from past lease agreements, and when it determines which properties it wants to make available for additional leases they will be put out for bids.

“There’s a very large amount of interest in state forest and state park land in the northeast,” Borawski said.

State park lands are off limits to gas drilling because the practice would conflict with the recreational use of the property, he added.

Borawski said leases entered into with his agency carry the strongest environmental stipulations in the state. They include a stringent environmental review, an exceedance of DEP regulations, safeguards against surface and groundwater contamination and significant setbacks from streams.

State forest and state game lands are attractive to gas companies because it is more efficient to lease large, contiguous blocks of land. Stephen Rhoads, president of the Pennsylvania Oil and Gas Association, said drilling goes as deep as 8,000 feet and extends horizontally several thousand feet, which can cover a few acres. Companies also conduct seismic exploration before they drill, and a large area is needed for the research.

Rhoads criticized DCNR’s move to wait to enter into lease agreements, because it benefited financially from the practice in the past.

“The impact of oil and gas development on the surface is trivial. There is no chronic environmental impact,” he said. “There is a more significant impact to DCNR putting wind turbines on their ridge tops.”

While DCNCR continues to study the matter, DiMatteo said the Game Commission may be ready to seek more bids in the next few months. To wait for the price of gas to increase, he said, is too much of a risk because the Marcellus formation may prove not to be profitable once drilling commences.

“These wells could be a boom or a bust. We’re willing to listen and explore, but we’ll approach it with caution,” Feaser said.

Properties breakdown

Mike DiMatteo said most of the interest in gas drilling has been for Game Lands located in Bradford, Pike, Sullivan, Susquehanna, Wayne and Wyoming counties. Here is a breakdown of how much property the Game Commission owns in those counties:

Bradford County: 53,429 acres

Columbia County: 21,532 acres

Pike County: 24,467 acres

Sullivan County: 57,752 acres

Susquehanna County: 14,358 acres

Wayne County: 20,637 acres

Tom Venesky, a Times Leader outdoors writer, can be reached at 829-7230

Copyright: Times Leader

Energy resource below Appalachia in four states seen as possible boon.

GENARO C. ARMAS Associated Press Writer
STATE COLLEGE — More than a mile beneath an area of Appalachia covering parts of four states lies a mostly untapped reservoir of natural gas that could swell U.S. reserves.

Geologists and energy companies have known for decades about the gas in the Marcellus Shale, but only recently have figured out a possible – though expensive – way to extract it from the thick black rock about 6,000 feet underground.

Like prospectors mining for gold, energy executives must decide whether the prize is worth the huge investment.

“This is a very real prospect, very real,” said Stephen Rhoads, president of the Pennsylvania Oil and Gas Association. “This could be a very significant year for this.”

The shale holding the best prospects covers an area of 54,000 square miles, from upstate New York, across Pennsylvania into eastern Ohio and across most of West Virginia – a total area bigger than the state of Pennsylvania.

It could contain as much as 50 trillion cubic feet of recoverable natural gas, according to a recent study by researchers at Penn State University and the State University of New York at Fredonia.

The United States produces about 19 trillion cubic feet of gas a year, so the Marcellus field would be a boon if new drilling technology works, Penn State geoscientist Terry Engelder said.

“The value of this science could increment the net worth of U.S. energy resources by a trillion dollars, plus or minus billions,” he said.

The average consumer price for natural gas in the United States is forecast to rise 78 percent between the 2001-2002 and 2007-2008 winter heating seasons, which last from October to March. Prices will go from $7.45 to $13.32 per thousand cubic feet this season, according to the federal Energy Information Administration.

That translates into the average season bill nearly doubling during the same period from $465 to $884.

One of the main players in Pennsylvania, Range Resources Corp., of Fort Worth, Texas, has roughly 4,700 wells statewide – though it’s the results from five new horizontal wells in southwestern Pennsylvania that have company executives especially hopeful.

The company, in a December financial report, estimated that two horizontal wells are producing roughly 4.6 million cubic feet of gas per day. Tests on an additional three recently completed horizontal wells showed potential for a total of 12.7 million cubic feet of gas per day.

“We’re extremely encouraged. We see many viable parts of the Marcellus that will be commercial,” said Range Senior Vice President Rodney Waller.

Yet he cautioned it was still too early to determine how successful the venture could be because of limited data.

The upfront money may give some pause to prospectors. A typical well that drills straight down to a depth of about 2,000 to 3,000 feet costs roughly $800,000.

But in the Marcellus Shale, Range and other companies hope a different kind of drilling might yield better results – one in which a well is dug straight down to depths of about 6,000 feet or more, before making a right angle to drill horizontally into the shale. That kind of well could cost a company $3 million to build, not counting the cost of leasing the land, Engelder said.

So the multimillion-dollar question is whether that technology can consistently release the gas from the layer of rock hundreds of millions of years old.

Scientists had long thought the Marcellus served as a source perhaps for shallower wells dug by conventional drills. Previous attempts to extract gas conventionally from the Marcellus haven’t led to much success.

According to Engelder, a series of seams, or fractures, in the rock could hold the key.

Drilling horizontally into this matrix could help give the gas an outlet to escape, said Engelder, a principal owner in Appalachian Fracturing Systems Inc., a consulting firm to gas companies.

Homeowners are intrigued, too. About 80 people packed into a lecture hall at Penn State Wilkes-Barre for a gas drilling information seminar sponsored by the university’s cooperative extension.

People such as Carl Penedos, who owns 150 acres of Wyoming County, relayed stories of gas company representatives knocking on the doors of neighbors seeking to lease land. A couple of neighbors recently signed leases for $50 per acre per year, while others have been offered $500 per acre, he said.

The homebuilder said he was also concerned about the potential environmental impact of drilling.

Copyright: Times Leader

Experts say leases are in-depth and a lawyer’s assistance is recommended.

By Sheena Delazio sdelazio@timesleader.com
Staff Writer

LEHMAN TWP.— The Penn State Cooperative Extension of Luzerne County and the Luzerne Conservation District want landowners to know what they are getting into before they sign a natural gas lease for their property.

The two organizations will host “Understanding and Negotiating Natural Gas Leases,” as part of a two-day informational discussion. The first session, held on Monday, was attended by more than 70 local landowners.

“It’s a hot topic right now,” said Tanya Dierolf, a conservation coordinator for the conservation district. “The price per acre has increased at a phenomenal rate.”

Typically, leasing companies offer property owners one-eighth of the money made on gas or oil extracted from beneath their properties. Depending on the company, owners can receive hundreds of dollars up front.

“(On Monday) presenters talked about the impact it could have on the land (if someone signed a lease), and there is potential there to make money, but we’re trying to present the facts,” Dierolf said. “These (leases) are very technical, and we highly recommend (landowners) consult an attorney before they make a decision.”

For example, in June, the Pennsylvania Mineral Group based in Port Lavaca, Texas, made up to 700 offers in Luzerne County to purchase gas rights at $300 an acre. Offers were based on geological surveys that pinpoint locations that may contain natural gas or oil.

The Pennsylvania Mineral Group did not return phone calls.

“These lease agreements are so in depth that landowners don’t understand the legality,” said Donna Grey, a Penn State Cooperative Extension educator. “We’re trying to explain what the landowner can expect to occur on their property so they can have an understanding, both visual and written.”

For next week’s session, Penn State Extension educators will be on hand, as well as a geologist and attorney, to talk about understanding gas leases, negotiating a lease, the economic impact of signing a lease and development of the Marcellus shale within the Earth.

Grey said landowners who attend will be able to make better decisions regarding their land. “This could be a good thing or a bad thing (for the landowner),” she said.

“It’s really confusing, and landowners need to use a consultant or attorney to help them. They can negotiate (if they decide to sign). And if they aren’t comfortable, they don’t have to settle on one gas company,” Grey said. “There is more than one company. They are just like any other sales person, they are out there to sell their product.”

If you go…
What: Understanding and Negotiating Natural Gas Leases

When: 7 p.m. Monday

Where: Technology Center, Penn State Wilkes-Barre Campus, Lehman Township

To register: Call 570-825-1701 or 570-674-7991. There is a $15 registration fee per person.

Copyright: Times Leader