As our name implies, the Steuben County Land Owners’ Coalition (SCLOC) started out as a group of land owners in Steuben County (NY). The coalition grew strong and we were joined by landowners in Schuyler, Yates, Allegany, Livingston and Chemung counties. The Coalition is sponsored by the Steuben County Farm Bureau. We would like to thank Cornell Cooperative Extension Service for technical assistance. There is no fee to join the coalition. Registering with us entails no obligations. Our goal is to understand the true value of the mineral rights in our area and to work together to ensure that land owners receive fair and equitable reimbursement should they choose to lease those rights.
Our key goal is education. We believe that full disclosure is important in developing a contract but that key information has not been readily available. Land owners are making decisions that may well tie up the mineral rights on the property for 20, 30 years or more without understanding the true value of the rights they are giving up. Thus, we are attempting to understand:
1. What gas or oil deposits appear to exist in the county? How likely are they to prove viable? What sign-up bonuses and royalties are being offered in other areas of the state or country that have similar potential?
2. How much land is currently under contract and for what periods? Where, exactly, is it located?
As we gather this information, it is being shared through a series of public meetings, by flyers, and through this website.
Ultimately, the coalition will develop an RFP – a Request for Proposals – that will be submitted to multiple leasing companies. After the bid review and any re-negotiation, the steering committee will recommend the most advantageous bid to Coalition members. Members can choose to participate in that contract, to negotiate their own contract, or to decline to sign any contract.
SCLOC was established and is overseen by a group of local volunteers. Our reward will be the same as yours: the highest possible bid and best possible environmental, noise, and traffic provisions in the gas lease contract to protect our homes, children, and our quality of life. We are working to unite our communities and get the best negotiations going for our area. We formed our alliance to:
Increase our bargaining power as a result of accumulated land masses
Keep apprised of drilling industry updates and local experiences
Better track bids offered to other alliances
Benefit from experienced professional negotiators
Maximize compensation and royalties
Negotiate a fair, friendly, and environmentally safe contract
Protect ourselves and you, our neighboring land owners
The Coalition will accomplish these goals through strong organization, open dialogue, and community education.
Submit your information immediately if you want to join our group. Providing this information does NOT commit you to a lease or to any duties in our group. The more members we have, however, improves our negotiating strength with the drilling companies.
Why the increased interest in our area?
It has long been known that both natural gas and oil are under the land in the Finger Lakes region. But until recently it has not been economically viable to pursue it in great quantities. Two factors have increased interest in the region:
1. As the price of gas and oil increases, the high cost of drilling becomes less of an obstacle.
2. New technologies, such as horizontal drilling, make heretofore difficult areas more attractive.
Besides the Trenton Black River play which has been accessed in the area in the past, the Marcellus Shale formation is believed to now be accessible and expected to be productive.
What is the Marcellus Shale?
Signing Bonus and Royalty
Before a company can explore or drill, they must have the mineral rights to 60% of the land in a production unit. Production units are typically 640 acres. The companies offer landowners a signing bonus for their mineral rights. Historically, this has been $5 to $50 an acre in year 1 with $5 to $10 an acre in years 2 through 5 and the right of the gas company to extend the lease for 5 additional years for the same schedule of payments.
If the gas company actually begins operations on a productive well, the contract moves into another phase and the landowner receives a royalty in lieu of the sign-up bonus. Although signing bonuses generate an enormous amount of interest because they are guaranteed income, royalties can be significantly higher. A royalty is a share of a well’s income. The customary royalty rate is 12.5 percent of the value of gas produced by a well. This is actually the minimum the gas company can pay by NY state law. Higher royalty rates are sometimes paid for properties that are likely to produce gas.
Royalties are divided among all eligible property owners within a production unit (an area of land that is thought to contribute gas to a producing well – typically 640 acres). The amount paid to each eligible property owner is based upon their ownership share. In numbers:
A landowner with 100 acres will receive about 2% of the profits if they have a 12.5% royalty and are part of a 640 acre unit.
If everyone in the unit receives a 1/8th or 12.5% royalty, for each $1 million in profit, the landowners split $125,000 and the gas company retains $875,000. An increase in the royalty to 15% still nets the gas company $850,000 of each milion.
While the proportions appear small, the royalties shared by eligible property owners from a well yielding over one million cubic feet of natural gas per day can be millions of dollars per year. Note that as profitable production is more predicatble and multiple land owners work as a group, both signing bonuses and royalties have been increasing.
Tax Implications of Signing Bonuses and Royalties
Signing bonues are taxed as ordinary income. The federal government provides a depreciation allowance for royalty income. At this time, NY state does not.
Several companies are actively drilling, leasing or planning activity on Marcellus Shale properties. Range Resources, North Coast Energy Inc., Chesapeake Energy, Chief Oil & Gas LLC, East Resources Inc., Fortuna Energy Inc., Equitable Production Company, Cabot Oil & Gas Corporation, Southwestern Energy Production Company, and Atlas Energy Resources are all involved. Shares of most of these companies are up strongly over the past two years.
The Pennsylvania Department of Environmental Protection says that drilling permits are up about 25% since 2005 and much of the activity increase can be attributed to wells targeting the Marcellus shale. Some of the new wells are yielding millions of cubic feet per day and that has companies working hard to acquire leases on desirable properties and complete new wells.
New York properties along the Pennsylvania border have elicited the most interest to date but the state has frozen horizontal drilling permits until an environmental impact study is completed.
PRIMARY SOURCE: http://geology.com/articles/marcellus-shale.shtml
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