Raising the gas ante

By Dan Hust
DAMASCUS, PA — March 11, 2008 — A Wayne County, Pa. property owners’ group is in the process of landing an historic deal with natural gas companies seeking to drill in the area.
The Northern Wayne Property Owners Alliance announced last week that property lease offers from some of these companies had topped $1,250 an acre.
By Friday, that figure had jumped to $1,500, double the $750 offers that had been floated for the past few months – and many, many times higher than the $25-$50/acre lease proposals during the early days of prospecting in October and November.
But that’s just the upfront, one-time payment for a 7-year lease (renewable for another 7 years), only offered on properties where the gas companies plan to drill wells.
Royalties, however, are a standard offering on any properties underneath which gas will be drawn from, regardless of where the well is situated. In Pennsylvania, landowners must have that royalty agreement in writing, lest they lose their mineral rights. (New Yorkers are protected by law from a loss of mineral rights.)
Up till now, they could expect 12.5 percent (one-eighth) of annual profits, proportionate to the amount of property covered by the agreement.
According to the Northern Wayne Property Owners Alliance, royalty offers are now at 15 percent – and since the Alliance has yet to finalize any agreements with these companies, royalties and lease payments could rise even further.
That bodes well for Sullivan County landowners, said Sullivan-Delaware Property Owners Association founder Noel van Swol.
According to his calculations, every one percent of additional royalties translates to as much as $250,000 more per landowner over the span of a decade.
“We’re up to 17,000 acres [in our association],” said van Swol, referencing property throughout northwest Sullivan County and southwest Delaware County. “My phone is ringing off the hook.”
Van Swol, who was visited in his Long Eddy home by a Chesapeake Energy Company landsman (lease negotiator) as recently as this past Friday, has heard companies are now seeking properties as small as five acres on which to drill, indicative of the enormous production potential these corporations and geologists believe lies thousands of feet beneath the local soil.
The first well on this side of the Delaware River may be drilled within the next two months, as Chesapeake officials are known to be surveying four potential sites near Long Eddy on properties that were leased back in December.
Still, van Swol is cautioning New York landowners to join the association and hold out for higher amounts.
“The smart money is on not signing at this point,” he remarked.
His organization is using the same team of attorneys hired by Northern Wayne, who are now in the process of drafting a lease to be shopped around to the various competing gas companies, with the mineral rights going to the highest bidder.
Northern Wayne plans to have a deal locked up within a month, while Sullivan-Delaware will be at least two weeks behind.
Such a bidding war will help ensure property owners see their interests protected, said van Swol, including the environmental concerns.
“We want tough leases that protect the environment and the property,” he said.
Indeed, most of the involved landowners are seeking to stay on their properties and use the acreage for a variety of agricultural and recreational activities, giving them a vested interest in its preservation.
That’s why van Swol is confident consensus can be built between those interested in dealing with the gas companies and those who fear the environmental consequences of their entrance into Sullivan County.
“Reasonable people can work this out,” he remarked.
For more information on Sullivan-Delaware or to join, van Swol welcomes calls at 887-4728.