Gas Lease Questions

We recently had an opportunity to meet with a local landowner in Dimock Township, Susquehanna County, PA.  He was very helpful and willing to share some things with us that may be of interest to many who view our site.  We have left out any specific gas company name as well as the landowner's name.  For purposes of this interview, we will refer to him as Land Owner #1. 

Stage 1 - Considering a Lease

SHWM:  How were you approached? 

LO #1:

Only by mail for some time, then someone finally came to the door.

SHWM:  Why did you choose the company you did?

LO #1:

He was the one who came to the door.  He was very professional and easy to talk to.  Back when we signed, there weren't many people talking about natural gas wells.

SHWM:  Did you use an attorney?

LO #1:

No

SHWM:  How long after signing did you receive a check?

LO #1:

Well within the 60 day period.

SHWM:  Any regrets regarding the lease negotiation stage?

LO #1:

Sure.  A couple of years ago, when signing for $25, no one anticipated that it would get like it is today.  I definitely wish I had waited a bit for a higher price.

SHWM:  Any surprise positives?

LO #1:

The bright side of signing so early is that we already have a well drilled and capped during the Fall of '07.  Although we obviously missed out on the front end signing bonus, we will likely be one of the first wells online.

Stage 2 Lease Signed

SHWM:  How were well locations determined?

LO #1:

The gas company knew exactly where they wanted to drill.

SHWM:  Was there flexibility to any of these locations?

LO #1:

Definitely.  Their first choice was close to one of my buildings and on the side of a hill.  The slope meant they would need to disturb more of the property to prep the site.  We discussed alternative locations and we agreed on a site that was much more accessible for them and there was already an existing service road through the field. 

SHWM:  To date, how many wells have been drilled?

LO #1:

Only one so far.  It was drilled in September of '07

SHWM:  Do you have any way to gauge its production rate?

LO #1:

The gas company has estimated it to be around 1 to 1.3 Million Daily Cubic Feet

SHWM:  Are there any more wells planned on your property?

LO #1:

The gas company has one more already sited.

SHWM:  Roughly how many acres are wrapped up for your existing well?

LO #1:

About 90 acres.

SHWM:  During well drilling:

SHWM:  How many acres were disturbed?

LO #1:

Very little.  They built up the access road a bit.  The 'pad' they cleared for the actual drilling is only 200' X 200'.

SHWM:  Inconveniences? Noise/Lights/smells/etc…

LO #1:

Not too bad.  During fracturing, there were quite a few trucks here.  The compressor which has to run in order to force the water and sand down the well was very loud.  But the whole process only lasted a couple of weeks.

SHWM:  Was DEP on site frequently during this time?

LO #1:

They had a truck there the whole time.

SHWM:  Were you allowed to see as much as you wanted to at any time?

LO #1:

Sure.  We stopped in occasionally to check the progress and sometimes just watch certain stages.  Very friendly crew.  They worked around the clock.

SHWM:  Did they do a burn-off at the completion?

LO #1:

No they didn't.  I can't tell you why, but apparently it was not necessary.

Stage 3 Wells Drilled (Royalties)

SHWM:  When do you expect to be in this stage?

LO # 1:

It's difficult to say.  Right now, the gas company is projecting to have this well on-line by the end of the 3rd Quarter of this year.

SHWM:  How are they connecting you to the main line?

LO #1:

They will be running feeder lines through my property to the Tennessee line.  They have several planned which will pick up other wells from the area and link them to the main.  They are 'expecting' to start this in May.

SHWM:  Do you have any current restrictions on your acreage as a result of the wells?

LO #1:

No.

SHWM:  How long from when they bring your well on-line to when your first royalty checks might start?

LO #1:

The gas company has told us that our first check would come a few months after connecting the well to the main line.  He also suggested not to get too excited about the first amount.  Apparently, it is typical that the amount of gas fluctuates over time and that not only do the checks change each time, but they tend to be higher in the very beginning than long term.

SHWM:  How will this affect you?

LO #1:

Not sure.  Estimates, projections, royalty calculators are all fine… but I'll believe it when I see it.  We won't be jumping to any long term conclusions tomorrow.

SHWM:  Have you given thought to planning and estate issues already?

LO #1:

We have done some thinking, but most of these topics are in areas that we are unfamiliar with.  I would expect that we will be sitting down with someone, in the near future to discuss all of our options.  Assuming that we have the assets, we will want some guidance from someone we can trust.

SUMMARY

The time that this landowner took to answer our questions was very appreciated.  In some cases, postponing thoughts about planning and estate issues are fine. In other scenarios, you may miss an opportunity to maximize return, reduce taxes, maintain proper control, etc...  The Stone House Team can help guide you through these decisions every step of the way.