Motivation

 

Our Coalition 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?

The Marcellus Shale, also referred to as the Marcellus Formation, is a Middle Devonian-age black, low density,   organic rich shale that occurs in the subsurface beneath much of Ohio, West Virginia, Pennsylvania and New York. Throughout most of its extent, the Marcellus is nearly a mile or more below the surface. These depths make the Marcellus Formation a very expensive target. Successful wells must yield large volumes of gas to pay for the drilling costs that can easily exceed a million dollars for a traditional vertical well and much more for a horizontal well with hydraulic fracturing.

However, some especially interesting areas have been located. These are where thick Marcellus Shale can be drilled at minimum depths. Although this is a great oversimplification, it correlates with the heavy leasing activity that has occurred in parts of northern Pennsylvania and western New York.

Click on the following links for more descriptions about the Marcellus:

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    • How productive is the Marcellus Shale Formation?
     
    Before 2000, the yields of many of the Marcellus gas wells were unimpressive. However, others were found to   have a sustained production that decreased slowly over time and many continued to produce gas for several decades. For wells drilled with the new horizontal drilling and hydraulic fracturing technologies the inital production can be much higher than what was seen in the old wells. Then as production rates decline the well might receive new hydraulic fracturing treatments to boost the production. The wells will deplete over time but the fracturing treatments help to produce a more complete recovery of the natural gas over what   may now be   expected to be a 20 to 30 year period.
     
    High yield wells in the Marcellus Shale have been   developed using the horizontal drilling technique. Some horizontal wells in the Marcellus Shale have initial flows that suggest that they are capable of yielding millions of cubic feet of gas per day, making them some of the most productive gas wells in the eastern United States. Although some experts are very optimistic on the long-term production rates of these wells, it is too early to determine their productive life or long-term yield.
     
     
    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 million.

    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 predictable and multiple land owners work as a group, both signing bonuses and royalties have been increasing.

     

    Tax Implications of Signing Bonuses and Royalties

    A signing bonus is taxed as ordinary income. The federal government provides a depreciation allowance for royalty income. At this time, NY state does not.

     

    Drilling Activity

    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

    Marcellus Shale - Appalachian Basin Natural Gas Play: New research results surprise everyone on the potential of this well-known Devonian black shale.
     
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