**Disclaimer – General notes taken at the meeting. Info may not be 100% accurate.**
Speaker – Jeff Decker
Findley
General consensus from the energy companies, they would love to deal with coalitions. They have had a good turnout and good response from them. It’s only been in the last year they’ve been having to deal with coalitions. It’s working really well. It’s a lot more positive for the companies than working with the landmen.
Questions:
Q. How many gas companies are in the area right now looking to negotiate?
A. About 18 different companies are looking in this area. Some moving up here from
Q. Who is the highest bidder right now?
A. Depends where you are. Most of the range is between $2500 – $2800 an acre.
Q. How do royalties work?
A. Start with a sign-on bonus. These landmen want you to sign on with their lease. Paying between $2500-$2800/acre. Once they drill a well and well starts producing, they pay you royalties (12.5% minimum recommended by NYS. It’s not a law. That is a base line.). Want to negotiate a higher royalties price than 12.5%. Some of the landmen will tell you it’s a law that they can’t pay you more than 12.5% . That’s not true.
Q. Do the royalties start right away, or are they able to recoup their drilling costs first?
A. Begins after they drill a well and it starts producing. Once the well is either hooked up to a pipeline, or they are drilling cheap wells and cheap lines to keep a gas drill going to call those wells in production. They can hold you indefinitely in production.
Q. Royalties are also only paid on that portion of your acreage that the well is on?
A. That is correct. If you have a regular, vertical Marcellus well, 40-acre unit. It’s determined from the center of the well head in either a circle or a square. All of the people in that property will share the royalties. If you only have partial of your land in the parcel and only 1 acre of your land is in that unit, make sure the rest of your land is not tied up in the producing unit!!
Q. What do you recommend the length of the lease to be?
A. Negotiating a 5-year lease with a 3-year extension. On the 3-year extension you can negotiate to get the same sign-on bonus again; that it’s not an option.
If they drill on the property within the 5 years or before the lease expires, the first lease, and your property is producing and you get royalties, you do not get that extra sign-on bonus.
They don’t shut the wells off until it runs out. That lease is active until it runs out. They run the well until the well is dry.
Q. Who is responsible if you lose your well water if it goes bad?
A. Put in your lease that the gas company is responsible. Also put in that they can’t use your water.
Q. How many acres do they need to drill a well?
A. 40 acres for vertical Marcellus well. 60% of the land in that unit has to be leased.
Horizontal wells encompass 640-acre units.
Q. Current leases with a year or two. Explain a top lease.
A. If your lease has not expired yet, they want to come and renew the lease or top lease you. The next lease is going to take over automatically once this one expires. Usually with top leasing they will pay you a small balance now and the percentage of the bonus when it becomes active.
Q. You’ve been talking about the Marcellus formation and fracking. Up here we have
A. Yes, Marcellus is up here also. The Marcellus shale is on top of the Trenton Black River (TBR). Marcellus is primarily what they are interested in right now. There are going to be “sweet spots.” Some areas have more gas in particular areas.
Q. What makes a sweet spot?
A. Some places have a higher organic content in the shale. Organic content, thickness and depth.
Q. Are we just limiting them to the Marcellus?
A. Vestal Coalition didn’t limit them to the Marcellus because we’ll get paid royalties for everything that goes through the meter. Vertical Pugh clause and horizontal Pugh clause. Some coalitions choose to also have that vertical separation so that you lease only to Marcellus, only to TBR or whatever.
Q. How large of a footprint is required for a drilling operation?
A. The well pads are just about all between 1-2 acres. Actually put the drilling rig where all of the stuff is actually happening. A functioning well on a pad.
Q. What happens with a lease if the property changes hands?
A. If you are selling property, you want to maintain your mineral rights. If you are buying property, you want to check and see if you are keeping the mineral rights. The person who owns the land currently is going to own the mineral rights. You can keep or sell the mineral rights with the property.
Q. How much do we have to pay to the attorneys if we’re in the coalition?
A. That’s up to the steering committee to negotiate with the attorneys. It won’t come out of your pocket. That will come out of your sign-on bonus when it comes.
Q. Is there a fee to join the coalition?
A. No.
Q. Drilling units on a horizontal well, is it based on a circle or a square?
A. No. The direction is based on the direction that they are drilling.
Q. Is there any regulations for how close they can put a well to somebody’s house or a septic system?
A. Yes, there is. The DEC has regulations. We can negotiate that. DEC has 100 foot from a dwelling. 50 foot from a creek.
Q. How far did Vestal integrate?
A. 500 feet unless landowner gives permission to put closer.
Q. Is NY getting involved with the energy companies in mandating what they have to pay?
A. Currently they are not. The leasing portion is entirely your individual deal, even if you are in a coalition. You sign it personally. It’s YOUR deal. You have to live with it.
Q. After they drill a well, they have to get permits for pipelines.
A. All of the pipeline permits are being ready before they start drilling.
They aren’t going to drill a well where they can’t get to it with a pipeline. If they can’t get to you, they aren’t going to drill until they can.
Q. What happens to the lease if the company you have a lease with goes out of business?
A. Some company will buy it out and the lease remains in effect.
Q. Is the purpose of the coalition just to draw up the lease?
A. It’s up to the steering committee. It could stay intact or not to keep informed.
Q. What advantage does an energy company have in holding you in production rather than getting the gas out of the well? Drilling a well that just trickles.
A. Costs about $5 Million to put in a good Marcellus well. If they put in a little well and tie up as many properties as they can, if you don’t have a Pugh Clause and tie up your property for 50-60 years until they need you. They can shelf you.
If you have separate parcels, you can do a separate lease for each one. Don’t lump them together.
Q. After a lease is signed and money changes hands, what effects does the lease have on your taxes?
A. In the past assessment doesn’t change on the property until they start drilling. You can negotiate in your lease for the gas company to pay the increase in your property assessment and taxes. Once the well is on, it’s a commercial operation. You’ll be taxed on that.
Q. Can you find out if you’ve already been slated to be drilled on or if they are going to be getting a permit to drill on your property?
A. They will notify you. If you are not leased, they will notify you that you’ll be in a pooled unit. They won’t just show up and start drilling.
Q. Is the coalition incorporated?
A. No.