Landowners organizing to prepare for natural gas lease solicitations
By Matthew J. Perry
The pie-in-the-sky stories promise money beyond comprehension. In Texas, the savviest received $20,000 an acre. Royalties on productive wells can bring in thousands more to the luckiest. Land, once too expensive to farm or keep in the family, suddenly becomes the source of salvation.
Then, there are the horror stories. Rights signed away for a pittance, royalties never to be seen. Leases that allow drills to pound through the ground within a hundred feet of a primary dwelling. Thieving landmen who take cues from central casting villains, ready to bilk the uniformed and naïve. In many ways it is a repeat of an old story, of exploitative outsiders and local interests fighting to keep from getting short-changed.
The new energy rush—in this case for natural gas within the Marcellus Shale, a rock formation that spans beneath four states, seems to have swept into the region from nowhere. But mixed in with the hyperbole and tall tales are the hard facts of developable energy in the ground, large, resourceful companies intent on extracting it, and landowners facing choices that could indeed have enormous impact on their futures.
It is a time for landowners throughout the county to get informed in a hurry.
But hurry is not the advice of landowner and environmental activists when it comes to signing leases. Some are telling all interested parties, including the gas companies, to slow down the pace.
“When a rush is on, emotion runs high, and the truth gets lost,” says Chris Denton, an Elmira-based attorney who is advising landowner coalitions and individuals alike.
“The gas companies are afraid that if they don’t get into the area fast they’ll miss the boat. The landowners are afraid they’ll miss the boat if they don’t sign leases now. And the environmentalists are afraid the boat’s going to sink.”
To clear away uncertainty, landowner coalitions have been forming throughout the southern portion of New York State. In Delaware County, many landowners have joined the Central New York Landowners Coalition, which began in Chenango County as a band of eight landowners, with 1,200 acres, who had been contacted by landmen—gas company employees—and did not like the terms.
“[A landman] stuck two different leases in my hand and told me to sign them both,” says Richard Lasky, president of the coalition, recalling his own experience. “One lease said they could drill within 100 feet of my house. I was offered $35 an acre. The landman put his arm around my shoulder and said ‘Look, don’t worry. We’ll take care of you.”
Instead, Lasky got organized and put the word out to fellow landowners through meetings and information sessions. His coalition’s membership owns some 55,000 acres in three counties, including Delaware; Lasky expects that amount to nearly double before the coalition is ready to negotiate with gas companies.
The CNY coalition intends to draft a master lease, which would then be put out to bid. Chris Denton, who has a contingency agreement with the coalition according to Lasky, would tailor leases to suit the needs of individual landowners and also negotiate a deal between one energy company and the coalition. His fee would be $20 an acre under each lease.
But until the master lease is put out to bid, landowners are free to join and drop out of the coalition at any time. At this stage, the primary purpose of those involved is to access information and find commonality with other landowners.
“The process of coming together provides protection,” says Denton.
Not all landowner groups advocate collective bargaining. The Catskill Landowner Association, based in Margaretville, has advised its members of the complexities of gas leases but has no stated intention to bargain as a unit. The group’s advice is presently simple: don’t negotiate without a trusted attorney’s advice.
Dennis Metnick, whose Margaretville law office drafted a Q and A sheet for the CLA, concurs. “The gas companies are very powerful and very smart,” he says.
But Denton takes a skeptical view of landowners who negotiate individually. “It’s very hard to secure the top royalty rates if you don’t bargain collectively. If you go out as a group it’s easier to get your price.” Gas companies are more inclined to work on a bigger land deal, because of the greater likelihood of a return and to keep competitors out of the same area. Meanwhile, Denton argued, a coalition can instill more environmental safeguards.
But there are few illusions that signed leases will be a ticket to a happy ending for everyone. Drilling is a noisy, dirty business, land-use rights are complicated and the pay-offs are uncertain. “It’s not going to be all gravy,” said Lasky. “There are going to be sacrifices.”