Posts Tagged ‘Rod McGuirk’

Lucrative leasing deals are possible for area residents. Negatives: Noise, pollution.

The opportunity won’t come to most Northeastern Pennsylvania landowners, but those offered a natural-gas well will face life-changing effects, both positive and negative.

“It’s going to transform Pennsylvania, there’s no doubt about it,” said Ken Balliet, a Penn State Cooperative Extension director well-versed in gas-lease issues. “This whole Marcellus shale play is highly speculative” for the gas companies, he said, because it’s not very well studied, but landowners who land lucrative deals will see it otherwise. “When you hand someone a check for half a million dollars, that’s not very speculative.”

Add to that well-siting and annual royalty payments, and suddenly the problem becomes trying to find tax havens for the profits.

The tradeoff, however, is an unexpected and sometimes unwelcome bustling of activity — trucks, noise and pollution. Many of the changes will come and go, but some – like a clear-cut well site or a noisy compression station – will remain for decades.

It’s a sacrifice Jerry Riaubia is willing to make on his 16 acres in Sweet Valley – if the right number is on the checks and they keep coming. “If I had an income for my family, it would be well worth it,” he said. “We could help the economy out if we had that money. It could save our economy.”

For many rural landowners, the offers are difficult to pass up. Reports of leases offered at $2,500 per acre are common as close as Wyoming County, and companies have increased production royalties from the state-mandated 12.5 percent to 18 percent as owners become more educated.

Even with just his 16 acres in a standard 600-acre drilling unit, and estimating modest gas extraction at 18 percent royalties on a single well, Riaubia stands to pocket around $117,000 over the well’s lifetime, according to www.pagaslease.com, a Web site run by landowners who were approached early on about leasing.

That’s only the profits from a single well, and far more than one can exist at a site. “We heard of one company had drilled 27 on one pad,” said Tom Murphy, a Penn State Cooperative Extension educator.

And as oil prices increase, so will natural gas prices, according to a 2005 report by the Schlumberger oil and gas company. “The price of gas is linked to oil and based on each fuel’s heating value,” the report notes. “As long as oil prices remain high, there is no reason for natural gas prices to go down. Although gas is abundant in much of the world, it is expensive and potentially dangerous to transport internationally.”

That financial windfall might be just a pipedream for Luzerne County residents, though.

Chesapeake Energy Corp., one of the largest leaseholders in the Marcellus play, isn’t leasing in the county, according to Matt Sheppard, the company’s director of corporate development. A single listing exists for Luzerne County on the gas lease Web site’s lease tracker. Signed in late May, the five-year offer was $1,500 per acre with 15 percent royalties.

While Riaubia said he hasn’t been approached by any companies, land groups in northern municipalities in the county, such as Franklin Township, have been negotiating. Rod McGuirk, who owns 56 acres in the township, said owners there have been offered $1,800 per acre. “They’re just preliminary offers, but we’re excited,” he said.

That excitement could quickly wane if problems crop up or owners are unprepared for the realities of drilling. Unlike other unconventional gas sources, shale wells produce consistently over three decades, so well sites are more or less permanent. Even after sites are reclaimed, some infrastructure is left behind.

Also, because gas is transported nationally through lines that are more compressed than regional distribution lines, noisy compression stations will need to be installed in what are otherwise bucolically quiet locales.

Then there’s the potential to unearth radioactive materials, acid-producing minerals and deplete water resources. In fact, after concerns arose about the amount of water necessary to drill a well, the state Department of Environmental Protection included an addendum to its drilling permit that addresses water usage and is specific to Marcellus shale.

Still, officials assure that regulatory agencies are keeping tabs on drillers. “There’s an awful lot of eyes watching the streams up there,” DEP spokesman Tom Rathbun said. “So these guys aren’t just going to be able to dump stuff. … If they start killing streams, a lot of people are going to find out quickly.”

And aside from that, he said, the financials force the industry to regulate itself. “The Marcellus shale is not really a business for fly-by-nighters,” he said. “You don’t throw $10 million away because you were cutting corners on an environmental regulation. Now that they know we’re watching … there’s too much money on the line for these guys to do stupid mistakes or to cut corners.”

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

Copyright: Times Leader

Expert says leases signed for $18,000 per acre in productive areas of Texas.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

TUNKHANNOCK – Around January, Cal Otten’s parents signed a lease at $125 per acre to allow natural-gas exploration on their Forkston Township property in Wyoming County. Had they waited until now, they probably could have received $2,500 per acre.

That’s what Otten was offered a week ago.

“I thought $125 was a lot, actually, at the time,” said Otten, who owns 140 acres near his parents’ property.

Do a little math and you’ll see Otten’s parents made about $34,375 on their 275 acres. Not a bad haul for anyone, much less a couple in their golden years.

Cal Otten is holding out, even though he stood to gain $350,000. He wants a higher stake in the royalties if gas is ever extracted from his land, which means, yes, companies are giving away money on the speculation that they might find gas.

But that speculation is grounded in science, testing and history. Experts believe the thick Marcellus Shale that stretches deep underground from Kentucky to New York, including parts of Luzerne County, has the potential to produce as much natural gas as similar shale deposits in northern Texas.

Kenneth L. Balliet, a forestry and business management educator with the Penn State Cooperative Extension, recently took a trip to Fort Worth to see the economic impacts of those deposits. He said leases are being signed for $18,000 per acre in areas where production has proven strong.

Though there are only about 20 wells in Pennsylvania so far, Balliet expects local production to eventually rival Texas’ Barnett Shale. He said a gas company confided it plans to spend $1 billion this year in leasing agreements in Pennsylvania.

The Marcellus deposit is probably about four times as big as the Texas shale, he said, and a Penn State geologist has estimated that if just a tenth of the gas is recovered, it could fulfill America’s natural gas demand for two years.

“We’re talking lots of changes going on in the communities in terms of jobs: welders, pipe fitters, mechanics, construction,” he said.

Rod McGuirk, a Franklin Township landowner, believes the rush hasn’t yet hit Luzerne County, but it’s coming.

“A lot’s going to happen in the next few months if this keeps going as it’s going. We’re just in the forefront of this,” he said.

He received an offer of $300 per acre on his 56 acres about eight months ago, but hasn’t received another one since. He’s used that time to attend information meetings around Towanda so that he’s savvier when the offers start increasing rapidly.

“We’re where they were eight or nine months ago,” he said. “We want to do this on our terms. We don’t want an environmental disaster in 10 years.”

He’s waiting for a certain offer on his land, but wants to cash in before companies start drilling too much.

“It’s a double-edged sword,” he said. “All they have to do is drill three dry wells, and you don’t get squat.”

Matthew Golden, a West Pittston lawyer who’s offered to negotiate for some Franklin Township landowners, said the trick is straddling the line between getting top dollar and retaining enough rights to protect the land.

“That’s the $10,000 question: When’s the right time to sign and at what price? There are more variables than just the price,” he said, such as lease length, royalties, retaining the right to approve where wells go and securing separate payments for pipeline rights of way.

He suggested landowners have a lawyer look over proposed contracts.

“The standard company lease without any changes to it is bad. It gives away basically all the rights. They can pretty much put a well wherever they want. They’re limited to the barebones the state will allow, which is a lot. Pennsylvania is a pretty pro-drilling state,” he said.

But if sited correctly, Balliet said, wells can be environmentally benign.

“It just takes a little bit of planning,” he said. “Does that mean nothing can happen? No, that’s not true. It can and sometimes it does.”

He recommended landowners get their groundwater tested for oil and gas contaminants now to create a benchmark. Then, they have “something to stand on” if there is a problem, he said.

In the end, landowners must choose a number to accept and make peace with the decision.

“You have to do it with the knowledge that three months from now, the price could be 10 percent of what it is now or 1,000 percent of what it is now,” Golden said.

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

Copyright: Times Leader