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| navigate: home: magazine: fall 2001: article | |
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Rapid response to community need Pennsylvania landowners learn about pros and cons of signing gas leases By Susan J. Burlingame | ||||||
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Fairly recent discoveries of natural gas wells just over the border in New York have sparked interest in Pennsylvania among gas leasing companies and landowners alike. The Trenton/Black River Play is an area of extremely deep underground natural gas that extends from the St. Lawrence Seaway to Kentucky. It has the potential for enormous gas production and, consequently, could bring tremendous financial gain to gas leasing companies as well as to Pennsylvania farmers and landowners. According to Dr. Bob Watson, professor of petroleum and natural gas engineering and geo-environmental engineering at Penn State, “Successful wells have penetrated the formation in West Virginia and New York. Pennsylvania, which is located in the middle, contains the potential for much development. Interestingly, much of this acreage is owned by the Commonwealth and as a consequence, its citizens should also benefit from development.” Leasing one’s land to a gas company can be a risky business, however. Many gas-leasing companies have been knocking on landowners’ doors and offering the dream of great profit in exchange for the right to drill. Though testing has indicated a high likelihood of gas discovery in the Tioga County area, allowing a company to drill on one’s property is speculative and could yield nothing. Or, it could yield a great deal, but a landowner must understand that the lease is a contract between himself and the developer, and hindsight may suggest that he has not negotiated for enough of the profit. There are many questions to be answered: What does the process entail? What percentage of the profit is a landowner entitled to? What different types of leases are there? What will happen if no gas is discovered? What will happen if the landowner opts not to sign a lease? These questions led Penn State Cooperative Extension in Tioga County to look into this potential windfall for Pennsylvania landowners. Plus, several dairy farmers had already been approached and had contacted Cooperative Extension to find out what they should do. Extension agents ascertained Cornell University Cooperative Extension in New York had addressed these sorts of issues in the past. Cornell University invited Penn State Cooperative Extension agents to a meeting and offered resource material for conducting educational meetings in Pennsylvania. This led Penn State Cooperative Extension to invite farmers and landowners to a program on “Leasing Your Oil and Gas Rights: The Potential Impacts of Well Drilling and Operation on Your Land.” According to Tioga County Extension Director Earle Robbins, this meeting, held in February at the Tioga County Fairgrounds, was all about addressing a community need and “wanting people to understand what they were signing” when they were approached by a leasing company. “Gas leasing agencies were going door to door in Tioga County to obtain landowners’ gas and oil rights,” he said. “We wanted to make sure that our dairy farmers and landowners had enough information. There are a number of possible consequences [to signing away gas and oil rights]. All leases are different. Drilling companies have almost exclusive rights to put in roads, use waterways, cut down trees.” To balance out the meeting and give all perspectives of the issue a voice, resources were pooled from many different sources, Robbins explained. Watson, who is familiar with drilling operations, was invited to participate, along with attorneys, the news media and representatives from the drilling industry. The Tioga/Potter Farm Bureau co-sponsored the meeting, which was attended by about 200 landowners and farmers. Dr. Theodore R. Alter, associate vice president for outreach, director of Cooperative Extension and associate dean of the College of Agricultural Sciences at Penn State, agreed with this approach. “Penn State Cooperative Extension’s role in these public issues is to provide factual, research-based information and be the organization that creates a neutral forum for discussion,” he said. “We provide information, education and perspective on the issues to help landowners in their decision-making, not make people’s decisions for them. “This is a classic situation where landowners have an opportunity to enhance their personal and family economic well-being while maintaining their farming enterprise,” Alter added. “Our approach is to ensure that all dimensions of the issue are represented. Penn State Cooperative Extension is one of the key partners in Penn State Outreach, because of its ability to field issues like this and tap into the expertise of the whole University to address critical situations.” “The pundits in my business have been talking about this for a long time,” Watson said, describing the potential for gas discovery deep in these Pennsylvania county lands. Over the years, the shallower formations have been tested, and the wells in Tioga County are typically 4,000 to 6,000 feet below the Earth’s surface. It is expected that the new wells will be at depths between 8,000 to 12,000 feet. Watson added, “It should be noted that these same formations in Centre County, home of Penn State, might be at depths approaching 20,000 feet. The potential of these wells, in terms of reserves, could be enormous and in some instances could rival a well in Saudi Arabia.” How long will this last? According to Watson, much has to fall in place in terms of successful drilling as the drillers move south of the Pennsylvania–New York state line. Additionally, most of the pipelines currently available for gas transmission were designed to handle the gas produced from shallow-low volume and low-pressure wells. Given the amount of untested acreage in the state, this development could extend into the next century. “The big concern I have is for the typical farmer,” Watson added, as he described the criticality of the education process. Before the farmers understand what is happening, “land men could go in and scoop up as many acres in the state as they can and then parlay them to a third party.” With the proper education and information, however, “this can be a tremendous marriage between farmers and the leasing companies in southern New York and in Pennsylvania,” Watson stressed. “For some, this could be like winning the lottery. Landowners will be able to keep their farms, expand them, buy new equipment, afford education for their children.” One of the most discussed issues at the meeting was how farmers could negotiate royalties for wells drilled on their property. “It was interesting to see the variety of leases offered,” Robbins said. “Usually, the [royalty] rate is one-eighth of the value of the gas after expenses. But farmers found out that’s negotiable. We recommend that landowners get an enlarged copy of their lease before they sign. The print on them is pretty small. We also recommend that farmers show these leases to their lawyers.” The meeting generated some 40 to 50 follow-up phone calls, Robbins said. “We were the only ones who tried to do any type of educational programming like this. The government agencies we contacted said they were regulatory and didn’t do educational programming. Now,” Robbins pointed out, “people look a little more closely when they are approached by a leasing agency. This has been an exciting project to work on.” “If this works out,” Watson concluded, “the value to the people of the Commonwealth will be tremendous.” An outreach program of Penn State Cooperative Extension | |||||
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