Posts Tagged ‘New Ventures’

EnCana is currently signing standard leases giving Luzerne County landowners $2,500-per-acre bonuses.

STEVE MOCARSKY smocarsky@timesleader.com

The value of land leases with natural gas drilling companies has been climbing in counties to the north, but whether that happens in Luzerne County will depend on the results of exploratory drilling scheduled to begin this summer.

Natural gas exploration companies are now offering leases in Susquehanna and Bradford counties with up-front per-acre bonuses in the $5,000 to $6,000 range and royalties as high as 20 percent, said Garry Taroli, an attorney with Rosenn Jenkins & Greenwald representing area landowners.

Late last month, natural gas producer Williams Companies bought drilling rights to 42,000 net acres in Susquehanna County from Alta Resources for $501 million, placing the lease value on that land at nearly $12,000 per acre.

So people like Edward Buda, who owns land in Fairmount Township on which the first natural gas well in Luzerne County will be drilled in July, might be feeling some lessor’s remorse, given that they agreed to comparatively paltry up-front bonuses for the first two years of the lease term.

When Buda, 75, of Ross Township and his late brother and sister-in-law were in negotiations with WhitMar Exploration Co. early last year, they, like many others, agreed to bonus payments of $12.50 per acre each year for the first two years of the lease. The bonus increases to $2,500 for the third year.

However, if drilling begins on or under a landowner’s property before an anniversary date of the lease, any bonus payments for subsequent years become null and void and the royalty provision of the lease kicks in. So, if the drilling that is to begin next month on Buda’s property is successful, he likely won’t ever see that $2,500-per-acre bonus but will receive much larger royalty payments.

Since Buda’s lease was negotiated, WhitMar sold most of the company’s interest in the leases to EnCana Oil & Gas (USA) Inc.

EnCana is currently signing standard leases giving Luzerne County landowners $2,500-per-acre bonuses – $1,000 the first year of the lease and $1,500 the second year, according to EnCana’s Group Lead for Land (New Ventures) Kit Akers.

Some landowners who signed the same type of deal with WhitMar as Buda believe they’ve been treated fairly.

Michael Giamber, 57, of Fairmount Township, lives about 2 miles from the Buda drill pad. While the Budas negotiated their lease on their own, Giamber joined a consortium of landowners who negotiated a deal with WhitMar in 2008 for bonuses of $12.50 per acre each year for the first two years of the lease, $2,500 per acre for the third year, and a 20-percent royalty on all gas produced.

“It was in the middle of a recession and leasing had pretty much stopped except in Dimock. We essentially partnered with WhitMar,” Giamber said.

In exchange for landowners accepting the initially small incremental bonus payment arrangement, WhitMar promised to do seismic testing of the leased land and partner with a company that would handle the drilling and secure permits for one to three exploratory wells in the county within two years.

“I signed on not because of the bonus, but because of the 20-percent royalty and because if they did not drill one to three wells after two years, we’d be free agents again,” able to renegotiate for better terms, Giamber said. “Because we were in a recession, what did we have to lose?”

“A lot of older people would rather more up-front money, and I can appreciate their position,” Giamber said.

Jeffrey Nepa, an attorney with Nepa & McGraw in Carbondale and Clifford, believes people who signed leases early for smaller bonuses were either “more desperate and needed money or were misinformed about what the extent of (drilling in the Marcellus Shale) was. Some people have had buyer’s remorse, so to speak, regretful that they signed and wanting to get out,” Nepa said.

Nepa said he’s seen bonus money increase, dip back down, “and now it’s creeping back up again. And it appears that landowners “who held out, so to speak, are the ones that are rewarded with the largest contracts. In the Barnett Shale (in Texas), I’ve heard of property owners getting in excess of $20,000 per acre, and they were the ones who held out.”

Gas companies normally drill in 640-acre blocks of land. So people with a larger tract of land are better off holding out for better lease terms, Nepa said.

On the other hand, those who signed leases earlier are now the ones who will see royalty payments kick in much sooner than anyone else, because they will be the first to have wells drilled, said Robert Schneider, 39, of Fleetville, Lackawanna County.

Schneider joined a landowner consortium that negotiated leases with a $2,100 bonus and an 18-percent royalty in 2008 with Exco Resources, and he’s glad he didn’t hold out for more.

“Two years have gone by and I have three years left. … There’s a risk if you wait,” Schneider said, speculating that implementation of more rigorous and costly government permitting requirements, the establishment of a severance tax or finding insufficient or no gas in his area are all reasons that companies might pull out and stop leasing.

EnCana’s Akers backed up what Giamber and Schneider had to say. “People who leased earlier put themselves in a position to most likely have their land drilled earlier,” she said.

And Akers said, if WhitMar had not been able to secure leases at relatively low cost to the company, exploration in Luzerne County might not have begun as soon as it has.

“Because these people leased early to WhitMar, WhitMar was able to build a large position of leases that allowed for horizontal drilling. That’s what got a company like EnCana interested in coming to Luzerne County. If we had not seen a consolidated lease position, it’s unlikely WhitMar would have gotten a company like EnCana to come in … It was possible that the $12.50 offer was the only offer those people would ever get,” she said.

Akers also believes that the reason landowners in Susquehanna and Bradford counties are being offered much higher bonuses is because hundreds of wells have been drilled there and natural gas extraction has proven successful.

“Luzerne County, on the other hand, is really on the frontier. There’s no way to know if shale within a geographic region will produce any gas or enough gas to make drilling profitable without actually drilling wells. There have been no wells drilled in Luzerne County, so that’s the reason why there’s a difference in lease prices between Luzerne County and other counties,” Akers said.

If wells on Buda’s land and a site in Lake Township don’t produce any gas or at least enough of it to make drilling there worthwhile, land lease values in Luzerne County could drop to zero, Akers said.

If the wells do produce significant amounts of gas, however, competition for drilling rights will definitely heat up, Akers said, and with it the price.

Steve Mocarsky, a Times Leader staff writer, may be reached at 970-7311.

Copyright: Times Leader