Gas Lease Questions

We recently had an opportunity to meet with another local landowner in Springville Township, Susquehanna County, PA.  They were 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 landowners' names.  For purposes of this interview, we will refer to them as Land Owner #2. 

Stage 1 - Considering a Lease

SHWM:  How were you approached? 

LO #2:

Various companies contacted us.

SHWM:  Why did you choose the company you did?

LO #2:

We did not feel the first person who contacted us represented the company in a way that made us feel comfortable.  Later, another landman did a much more effective job of earning our trust.  One of the main factors for us was that so many of our neighbors had already signed with the same company.

SHWM:  Did you use an attorney?

LO #2:

No

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

LO #2:

Within the expected time frame

SHWM:  Any regrets regarding the lease negotiation stage?

LO #2:

There are those who do have regrets about the per acre price, but we have activity on our property that will likely produce royalties yielding money that we never expected.  That's more of a positive to us.  When this area was speculative, if the company had to pay high-dollar prices just for the lease acquisitions, they may not have been able to develop around us as effectively or quickly as they have.  That would change the picture today... for both parties.

SHWM:  Any surprise positives?

LO #2:

They recently requested to run a pipeline across the corner of our property and we agreed upon a price for that right-of-way.

Stage 2 Lease Signed

SHWM:  How were well locations determined?

LO #2:

The gas company knew exactly where they wanted to drill.  They informed us in the Spring of '07.

SHWM:  Was there flexibility to any of these locations?

LO #2:

Yes.  The initially wanted it about a couple of hundred feet from our house/pool.  We asked them to be considerate of our living space and suggested pushing it away another 100 yards or so.  They were very accommodating and did so.

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

LO #2:

The well pad is prepped, but no drilling yet.  Funny story:  One day, a whole lot of machinery and vehicles showed up, including a drilling rig.  A very short time later, they were all gone.  Apparently, there was a miscommunication on their part and they were supposed to go to a different well site first.  I'm sure they'll be back.

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

LO #2:

From what we received from the gas company, they expect to drill TWO horizontal wells from this pad.

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

LO #2:

So far, they've not been secretive at all.  It's kind of hard to do such substantial work without having some spectators.

SHWM:  Have you addressed any water quality issues?

LO #2:

Actually, the gas company agreed to pay for the testing.  They suggested specifically testing for Methane and Ethane.

Stage 3 Wells Drilled (Royalties)

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

LO #2:

We understand that their timeframe to finish the infrastructure is the 4th Quarter of this year. (2008)  Assuming that holds true, we may expect our first royalty check 3-4 months after our well is brought on-line.  Maybe February of '09?

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

LO #2:

A pipeline through our property over to my neighbor's land where they plan to build a large station.  Once there, they will do whatever it is that they need to do to prepare the gas for transmission into the Tennessee line.

SHWM:  How will this affect you?

LO #2:

We are concerned that although we don't plan to change our lives, perhaps our environment may change instead.  We truly hope that family, friends and neighbors do not treat us differently because of this.

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

LO #2:

Quite a bit actually.  It's impossible to make decisions about anything until we actually see financial changes, but given what we've discussed during this interview, we're certain that we will be faced with issues that we've never had to deal with before.  Educating ourselves on our options can only be very helpful.

SUMMARY

The time that these landowners 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.