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By JOSEPH B. WHITE The Wall Street Journal

First it was ethanol made from corn. Then ethanol made from twigs and stems and trash. Then, the future was going to belong to hydrogen. Now, the alternative fuel flavor of the month in Washington is natural gas.

You may know this already, thanks to vigorous public-relations campaigns mounted to promote natural gas as a vehicle fuel by energy billionaire T. Boone Pickens and allies such as Chesapeake Energy Chairman and Chief Executive Officer Aubrey McClendon. Mr. Pickens touts natural gas as a fuel for cars as part of his broad “Pickens Plan” to reduce America’s dependence on foreign oil.

Mr. Pickens, in a television ad, summarizes his case for using natural gas as a vehicle fuel in nine words: “It’s cleaner. It’s cheaper. It’s abundant. And it’s ours.”

Nothing is ever that simple in the energy business. A lot of natural gas isn’t “ours.” It belongs to the same companies that currently supply us with oil, or to big gas utilities such as Ch esapeake. But Mr. Pickens is correct when he says that natural gas is abundant in the U.S. Recent advances in drilling technology have made it possible to exploit gas reserves that weren’t economical to tap before, such as the Marcellus Shale in the Appalachian region of the Northeastern U.S.

The macro problem that Mr. Pickens and gas industry executives need to solve is what to do with all that new gas – assuming it becomes available as forecast. Already, natural-gas prices have slumped about 40 percent since May. Grabbing some of petroleum’s more than 90 percent share of the U.S. vehicle fuels market is a smart strategy for the gas industry.

The question for consumers who don’t own shares in natural-gas companies is whether a compressed-gas fueled vehicle is a better deal than some other green technology, or the status quo.

The only natural gas car on the U.S. market right now is a Honda Civic GX. Honda Motor Co. let me borrow one for a few days to road t est the NGV (natural-gas vehicle) lifestyle.

Driving the Civic GX isn’t different than driving a standard, petrol-fueled car. My white test car had an automatic transmission and the usual bells and whistles. The adventure of driving a natural-gas fueled Civic only starts when the fuel gauge gets close to empty – and that happens fairly quickly because the car’s range is only 200 to 220 miles between fill-ups.

At this point, you’ll need an Internet connection to help you find a public natural-gas vehicle refueling station in your metro area. If you are fortunate will you find one in your ZIP code, because there are only about 1,100 natural-gas refueling stations in the U.S. The closest one to my house was about 18 miles away at a depot owned by the City of Ann Arbor.

The unmanned refueling station had an imposing looking pump with two hoses that dispensed compressed gas at different pressures. The Civic’s manual explained that I should use the one marked 360 0 pounds per square inch. Behind the Civic GX’s fuel door is a nozzle fitting. After a couple of tries, I got the fitting from the high-pressure hose properly locked on, and threw a lever on the pump to “On” to start the flow.

I realize it was irrational and techno-phobic to worry that I would somehow overfill the compressed gas tank on board the car and turn my Civic into an explosive device. Let’s say that I was nervous enough that I had done something wrong that when the pump shut off automatically, I was relieved, even though the system had only refilled the tank to the half-full mark. Mr. Pickens could add another element to his plan: It will create jobs for filling station attendants who can help nervous natural-gas newbies.

On the positive side, my natural gas was about half the price of the equivalent quantity of gasoline – $1.94 a gallon.

The Honda Civic GX illustrates almost perfectly the chicken-and-egg problems besetting efforts to wean personal transportation in the U.S. away from petroleum fuels.

Because there aren’t many natural-gas refueling stations, Honda only builds a couple of thousand natural-gas Civics a year, and other car makers are reluctant to push the technology to consumers. Because there are so few natural-gas vehicles, outside of commercial or government fleets, fuel retailers don’t have much incentive to sink $500,000 to $750,000 into a natural-gas refilling station capable of handling cars as rapidly as a conventional gas station can, says Richard Kolodziej, president of NGV America, a Washington advocacy group that represents about 100 natural-gas companies and other enterprises with a stake in promoting natural gas as a motor fuel.

Because there is little demand for natural-gas vehicles, the ones that are available come with a hefty price premium, in part because their fuel tanks aren’t molded plastic, but are instead heavily engineered, high-pressure tanks. A Civic GX lists for ab out $24,590, compared to about $17,760 for the mid-range Civic LX on which it is based. Tax credits can offset as much as $4,000 of that price. And in some states, natural-gas cars can use high-occupancy vehicle express lanes – a major perk for time-pressed commuters.

The Civic GX achieves about 24 miles to the gallon in the city and 36 on the highway, when its consumption is converted to gasoline equivalent miles per gallon, Honda says. The Environmental Protection Agency estimates the GX’s annual fuel costs at $884 a year, compared to $1,987 a year for a petroleum-fueled Civic. That indicates a payback, after the tax credit, of about 2½ years on the premium over the standard car.

One problem with the natural-gas Civic, Mr. Kolodziej concedes, is that it doesn’t look any different than a normal car. It doesn’t advertise the owner’s green cred the way a Prius does. “Where’s the sex in that?” He asks. “The sex comes in when you fill up for $10.”

Mr. Kolodzie j says he refuels his Civic GX using a Phill home-fueling system. This costs about $5,000 and allows a natural-gas vehicle owner to refuel overnight with gas from the lines running into the house. (A $1,000 tax credit is available for the Phill system.) But the hardware in Mr. Kolodziej’s garage isn’t all that’s different. He also says he doesn’t care that the vehicle has a limited range and takes hours to refill using the home refueling device.

“I go to work. I go to the store,” he says. “That’s what 99 percent of people do. Americans want to be able to drive to California tomorrow. They won’t.”

Mr. Kolodziej would say that. But he’s right. A switch to natural-gas cars would require a change of attitudes and expectations both by consumers and car makers. More of us would need to accept owning a car that can do one job – commuting and running errands in fewer than 200 miles a day. It’s the same fundamental proposition behind plug-in hybrids such as the Chevrolet Volt or plug-in Prius.

The big hurdle for natural-gas vehicles is that somebody will need to invest substantial sums in a consumer refueling infrastructure. The gas industry was hoping that somebody would be Uncle Sam. Unfortunately, Congress just found out last week it may have to spend $700 billion salvaging the global financial system. That could put big federal subsidies for natural-gas cars – and a lot of other worthy ideas – on the back burner.

___

Send comments about Eyes on the Road to joseph.white@wsj.com.

Copyright 2008 The Associated Press.

Posted At: Times Leader

HARRISBURG, Pa. (AP) _ Five out-of-state companies are the high bidders for the right to drill for natural gas on more than 74,000 acres in Pennsylvania’s state forests.

The high bidders were among 17 companies that competed for the drilling rights over a potentially lucrative natural-gas formation known the Marcellus Shale. The 18 tracts that were put out to bid by the state forestry agency are located in Tioga and Lycoming counties in north-central Pennsylvania.

All together, the high bids total about $190 million.

Three of the companies are from Texas and two are from New York.

Copyright 2008 The Associated Press.

Posted at: Times Leader

Property owners hear about some of the financial complications involved with gas drilling agreements.

Although planning for what to do with gas-lease profits is a problem most people wouldn’t mind having, landowners likely aren’t eager to add paperwork to the already document-laden gas-leasing process.

Experts, however, say protecting the wealth is the same as accumulating it in the first place.

“I’ve seen some horror stories, and if it means going to an attorney and paying a few dollars, it’s worth it,” said Ronald Honeywell, a trust officer with Luzerne Bank who spoke at a seminar on the financial implications of gas leases on Monday evening at Lake-Lehman Junior-Senior High School.

Past seminars on leasing have packed the school’s auditorium, but Monday’s seminar on taxes and investing attracted perhaps 50 people. Presenters admitted that financial topics aren’t often looked forward to but are important nonetheless.

Of particular interest were leasing’s tax implications, such as drilling’s effect on county Clean and Green tax abatement programs. Michelle O’Brien, an attorney with Rosenn, Jenkins & Greenwald in Wilkes-Barre, said drilling would roll back seven years of abatements.

“It’s only fair that the oil company pays that price because they’re the ones kicking you out of Clean and Green,” she said.

However, she pointed out that the company’s payment would likely be a reimbursement, meaning the landowner should be prepared to pay the penalty.

“It sounds like a simple concept, but the money could be a lot of money,” she said, perhaps up to $100,000.

O’Brien also pointed out leases allow landowners to retain control over the location of pipelines and other infrastructure because the property’s marketability could drop depending on where such things are placed.

Even with legal exemption clauses, landowners should retain liability insurance, she said, to cover situations not directly caused by the drilling processes, such as all-terrain vehicles crashes or youths getting hurt on the equipment.

Robert Lawrence, a certified public accountant, explained that the royalties and sign-on bonuses are passive income, similar to rental income, which means they can push landowners into higher tax brackets and impact Social Security or Medicare payments. He suggested that people receiving royalties discuss paying installments on the estimated taxes.

Passing the wealth along creates its own pitfalls, noted Lee Piatt, also with Rosenn, Jenkins & Greenwald. Financial planning and distribution of the proceeds through family corporations or other outlets can avoid some of that, he said.

While it can cause headaches, the increased tax burden can also make some investments more enticing, said Arthur Daube, an investment adviser with Park Avenue Securities. Though their return is low, municipal bonds are tax-free by law, he said, so they can act as havens for profits.

O’Brien also pointed out leases allow landowners to retain control over the location of pipelines and other infrastructure.

Copyright: Times Leader

Gas-drilling leases negotiated in Wyoming County, not coming as quickly here.

TUNKHANNOCK – While Wyoming County landowners are heavily involved in the regional natural-gas boom, almost all Luzerne County landowners are out of luck, at least for now.

“It’s not always fun. There’s going to be some angst, there’s going to be some anxiety,” said Jack Sordoni, who heads Wilkes-Barre-based Homeland Energy Ventures LLC.

Energy companies and geologists have estimated for decades that billions of dollars of natural gas is locked in a layer of rock called Marcellus Shale that runs about a mile underground from upstate New York down to Virginia, including the northern tier of Pennsylvania. Only recently have technological advances and higher energy prices made extracting the gas financially feasible.

Speaking during a meeting Wednesday evening at the Tunkhannock Area High School, the Harveys Lake native said oil companies aren’t yet interested in crossing the county border. He said his family’s land in Wyoming County has been leased, but companies have refused to consider contiguous land across the county line.

However, Chris Robinson, who is brokering leases in Wyoming County for nearly $3,000 per acre and 17 percent royalties, said he’s already leased the western edge of Fairmount Township in northwestern Luzerne County.

Sordoni added that Dallas, Lake and Franklin townships are areas “Chris and I are hearing (about) repeatedly” and are “still very much prospective and in play.”

Luzerne County landowners anxiously awaiting a lease offer probably won’t have to wait long for an answer. Robinson, who’s from Allegheny County, said he planned to continue negotiating leases in the area until the gas companies are no longer interested.

“I don’t think it’s going to take that long. It’s measured in months at most,” he said.

The wait might, however, offer local landowners examples to consider. Unlike other land groups, the Wyoming landowners rolled all their concerns into the lease instead of adding addendums.

“The difference is this is our lease. This is about us,” said Chip Lions, a member of the group who’s now doing lease work.

The meeting was sponsored by Stone House Wealth Management LLC, a Montrose-based financial planning firm that’s advising landowners and selling them investment portfolios. The company, which started the www.nepagas.com Web site, got involved a while ago “because we saw where this was going to go,” said John Burke, an investment adviser with the company.

The good news, Robinson said, is that he can get leases for any property within the companies’ interested regions, no matter the size.

“I can’t tell you how many I’ve signed for 1 acre or less,” he said.

Additionally, he said that while some gas companies might honestly stop leasing, other companies new to the area desperately want in on the drilling rights. And, he said, they can check for clear land titles within five days, contrary to the three months they tell most land groups.

For landowners concerned about environmental problems, he said state agencies are good at watching drillers, noting his own enforcement experiences.

He warned, however, to not go it alone.

“The mass of ground gets people the best deal, period,” he said. “People who break away, you may be penalized and you may be penalizing your neighbors.”

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

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

In addition to anticipated jobs and profits from natural-gas drilling, water usage should increase as regional operations get under way.

That could mean more income for water haulers and sanitary authorities.

Drilling companies have been ramping up activities because an underground rock layer known as Marcellus Shale is expected to contain billions of dollars in natural gas deposits.

Each well-drilling operation could require up to 1 million gallons of water. While the water can be reused, it eventually must be disposed of at a treatment facility.

The Wyoming Valley Sanitary Authority hasn’t accepted any well-drilling wastewater, but it is interested.

“If it’s not hazardous to our plant, and if DEP approves us as a disposal site, we would consider it,” executive director Fred DeSanto said.

The state Department of Environmental Protection recently sent a letter to sanitary authorities advising them that wastewater from the drilling can be harmful to certain treatment systems and cause them to violate their discharge permits. The water must be tested and approved by DEP.

Such contracts could be lucrative, but have potential problems. WVSA, the major wastewater treatment facility in Luzerne County, charges 3.5 cents per gallon for treatment of up to 2 million gallons and 3 cents for quantities beyond that.

That could help offset the estimated $6 million in upgrades the authority said it needs to meet Chesapeake Bay watershed agreement discharge standards.

That quick influx, however, creates a problem.

Sandy Bartosiewicz, WVSA’s financial and budget officer, said the authority has never been in a situation where it accepted “that amount of volume at one time.”

It will also have an impact on wastewater haulers.

“The volume of the material is significant,” said Chris Ravenscroft, president of Honesdale-based Koberlein Environmental Services. “I don’t think there’s any one company out there that has the capacity for the volume. … So I think there’s a large volume of work that will be generated.”

He said his company is actively seeking energy companies that are looking for haulers and treatment facilities. Gas companies are investigating drilling possibilities through the Marcellus region, which stretches from upstate New York through northern and western Pennsylvania, including the upper fringe of Luzerne County, and down into Virginia. Several wells have been drilled in this region, according to DEP spokesman Mark Carmon.

Cabot Oil & Gas Co. announced recently a well in Susquehanna County became its first to generate income.

Copyright: Times Leader

Offer extended to interested landowners in Ross and Fairmount townships.

ROSS TWP. – For a limited time, landowners looking for a natural-gas drilling lease have a commitment-free offer to get a low-cost lease negotiator.

The Columbia County Landowners Coalition has a secured a consultant from Texas to negotiate a deal, but he’s starting soon and only doing it once.

The consultant, who has experience with fossil-fuel wells in the Midwest, is charging $1 per acre and expects to begin negotiations at $2,900 per acre for sign-on bonuses and extraction royalties of 18.75 percent, the executive committee of the Southwest Ross Township Property Group announced at a meeting on Tuesday evening.

Those figures exceed the usual for contracts inked in this region.

The Ross group, led by the committee of eight volunteers actively researching the situation, has been holding meetings to explain issues regarding gas leases and sign up landowners within its borders. It’s focusing on a roughly 10,000-acre region and hopes to amass a no-commitment membership of at least 4,000 acres within there.

The Columbia County offer is extended to interested landowners in the vicinity, including the Ross Township group and one in Fairmount Township. Landowners can sign up at the coalition’s Web site, but they must act soon.

According to the Ross group, the coalition expects to begin negotiating in a matter of weeks and hopes to have a contract to sign by the fall. And the consultant, who is doing a favor for a friend, plans to return to retirement after completing the deal.

If it sounds too good to be true, the suspicion might be warranted. The Ross committee acknowledged that the timetable is more rushed than they’d prefer, but they argue that there’s no commitment and people can opt out if they dislike the negotiated deal.

According to the committee, the Columbia County group is moving quickly because sign-on bonuses are considered regular income, and the group fears the changing political climate next year will mean tax increases for upper tax brackets.

What’s next?

The Southwest Ross Township Property Group is holding its next informational meeting at 7 p.m. July 29 at the Sweet Valley fire hall on Main Road.

Copyright: Times Leader

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

Gas leasing! When I first wrote about this in May last year, lease prices were “up to several hundred dollars an acre.” When I did an update in December, prices “as high as $800” were said to be offered. Now $2,500 an acre is thought to be a reasonable price. Who knows how high it may go? Statewide, speculation about the most promising part of the Marcellus Shale is being directed solidly toward northeastern Pennsylvania.

The issues I mentioned in my first article are still valid concerns: clearing of trees and vegetation at the drilling site and for access roads; noise, lights, and vehicle and human traffic during the drilling process; and the risk of water supply interruption or contamination. Several water-related issues have come into higher prominence since then: the source and disposal of the water used in drilling and hydraulic fracturing (“fracking”) a gas well, and the removal and disposal of solid and liquid wastes from the well site.

Representatives of land trusts from around the state, including Countryside Conservancy, met in Harrisburg in mid-June to learn more about the Marcellus Shale gas resource, how it will be developed, and how gas extraction can coexist with conservation. The conference organizer, the Pennsylvania Land Trust Association ( www.conserveland.org), has indicated that they will soon post information from this meeting on their website.

As a land trust, the Countryside Conservancy is dedicated to land and water conservation. We are not opposed to exploration and extraction of natural gas, but we want to ensure that the process does not damage natural resources of conservation value. To that end, we are working hard to educate ourselves about the pros and cons of gas development, and we urge landowners to do the same.

At the moment, one of the more accessible information resources for landowners is the Penn State Cooperative Extension website (naturalgaslease.pbwiki.com). It contains information, publications, links to lawyers, CPAs, energy companies and more. The Extension does not recommend the services of anyone referred to on their website, but it is a place to start.

If you are a landowner considering leasing your gas rights, you will NOT want to sign any lease you are given by a gas or leasing company. There are many provisions that may need to be added to a lease to protect you, your land and your finances. A small sampling of things that you may want your lease to dictate, beyond leasing rates and royalties: removal of waste materials from the site; bearing the costs of Clean and Green or other tax penalties; lease extension clauses; permitting gas storage and transmission in addition to extraction; “shut-in” or “holding by production” clauses; defining the primary vs. secondary term of the lease; controlling the number of wells permitted on a property; timber payment for any trees removed; use of ponds as a water source; testing and protection of drinking water supply; the “Pugh Clause”; the landowner’s right to audit the operator’s production data; and landowner indemnification. This is not a comprehensive list, just an illustration that leases are complex legal documents.

Our #1 advice remains: talk to a lawyer who has experience in this field. You do not want to sign any important legal document that may change your land forever without having a lawyer on your side.

Also, get your well water tested. In fact, even if you are not leasing but your neighbors are, it is an excellent idea to test your water supply so that you will have pre-drilling baseline data. The testing needs to be done by a DEP-certified lab in order to be admissible for legal purposes. You can visit the Department of Environmental Protection website ( www.dep.state.pa.us) for a list of approved labs and other information (search under “Energy,” then “oil and gas wells”).

We at the Conservancy are not geologists or gas-rights lawyers, but we are dedicated to helping landowners make the best decisions for their land. We will do our best to put landowners in touch with people who can provide sound advice.

I can’t do better than quote the disclaimer on the Penn State Cooperative Extension web site: This information is for educational purposes only. The information posted here is NOT to be considered as legal advice. Consult a qualified attorney before signing anything!

Last call for the Countryside Conservancy’s 9th Annual Auction! The Auction takes place Saturday, July 12 on the green at Keystone College and tickets are still available. The party starts at 6 pm. Call 945-6995 now to reserve your place!

Mary Felley is the Executive Director of the Countryside Conservancy. Contact her at 945-6995 or cconserv@epix.net

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