Neighborhood Interests (Oil & Natural Gas Leases)
Marcellus Shale and Formations

Part 1: Presented by a New York State landowner March 2, 2008.

Part 2:  I, am not an attorney, oil and gas expert, or contract negotiations specialist, energy developer, and do not represent myself as being an expert or adviser on natural gas drilling, contracts, or negotiations. I am presenting this information as an unpaid volunteer simply to share the information and opinions accumulated and formed about natural gas drilling.

Part 3:  Gas Leases, Wind Turbine Leases, NG Powered Wind Turbine Leases, Solar Photovoltaic Leases, Water Leases.
Bonus, Royalty, Term, Contract Provisions, Drill Site Specifications.

Part 4:  Bonus
Up front money paid in full by voucher/check at the time a gas lease is signed/executed. Discussed in "per acre" terms. Calculated based on the mineral right owner's legal lot size description. Property owners MUST verify their correct lot size themselves (including all easements) to determine correct calculations for the bonus & royalty, PRIOR to signing a lease agreement. Property owners may be entitled to bonus & royalty calculations & payment to the center of any adjoining street, alley, creek, highway or other common property. Additionally property owners may want to reserve rights to allow for alternative energy sources leasing, such as wind turbine, wind farming, and solar farming considerations in the mineral rights lease contract.
With respect to the following question: Should an oil company have any care of the presence (or lack thereof) of a mortgage lien against a property (a property in which both surface and minerals are owned) which they would like to lease? In one word, Yes. The reason is that the oil and gas lease would become subject to the lien. In case of default, there goes the lease. The historical alternative is to have the lien holder execute a Subordination of Lien.
Property owners will pay Federal Income Tax on this payment & may pay additional taxes as well. Gas Companies usually prefer to pay by voucher; a deposited paper form that is not paid to your bank until your deed and mineral rights verification is confirmed and your contract is executed. Mineral Right Owners prefer that the gas company perform its research and verification prior to agreed lease signing events so that a payable check (not a voucher) is presented at the time you sign your Coalition endorsed contract. In Broome County, New York property owners are receiving as much as $3,000.00 per acre. While other areas of the USA are receiving as much as $25,000.00. An acre equates to 43,560 sq ft.

Part 5:  Royalty
It is very important for landowners to petition, and unite, to achieve the average USA natural gas royalty for their state. Many times as in the case of New York State the set royalty is 12.5 percent. Well below the USA average of 25 percent as of 2/1/09.
Monthly payments rendered to a mineral owner for their share in the profit from the natural gas.
The standard royalty for drilling in Broome County at this time is 12.5% - 18%.
The gas company prefers to pay this based on the lower value of either "at head" or "at market", whichever suits their profit margin. The gas companies' contracts may allow them to deduct a percentage of some of their operating costs from the royalty. These costs may equate to as much as 15%.
The mineral owner will likely have to pay both a Severance Tax and Federal Income Tax on their royalty and likely will also be taxed an additional amount by the County.

Part 6:  TERM, Primary Term, Optional Term.
The "Term" refers to the length of time by which the gas company is contractually permitted and expected to drill or 'produce' within. If the gas company does not begin production within this period of time, the contract is nullified.
The gas companies typically provides a primary term bonus & negotiates an optional term with an additional optional term bonus to allow themselves additional time within which to drill.
The gas companies typically negotiate a three year primary term & a two year optional term with a total term time of five years in which they must drill & begin production or else lose the contracts on the leased properties & either renegotiate or abandon the area.
Neighborhoods, Coalitions, & even individual property owners with larger parcels of land have been able to negotiate contracts without optional terms & with as short as a two year or (18) eighteen month primary term.

Part 7:  Contract Provisions
IF IT IS NOT IN THE CONTRACT IT IS NOT ENFORCEABLE!
Their Contract MAY:
Not limit them to the Marcellus Shale alone.
Give them 100% mineral rights.
Contain contradictory language even allowing surface rights.
Give no transfer of lease or (flipping) of the lease.
Require you to warranty your deed.
Not protect you against mortgage company costs.
Not protect you against long-term, non paying, shut in wells.
Not limit their truck traffic from residential streets.
Not define production as producing gas.
Not define One Way Indemnity requiring that the gas company be liable & responsible for anything & everything & that the property owner be liable for nothing.
Give them permanent easement rights even beyond the expiration of their lease should they not drill within their leased term.
Outright state their claim to place pipelines and seismic equipment on your property.
Allow them to pay your mortgage company directly.

Part 8:  Contract Provisions
IF IT IS NOT IN THE CONTRACT IT IS NOT ENFORCEABLE!
Neighborhood Interests to Consider:
Limiting drilling & extraction to the Marcellus Shale.
Limiting their mineral rights to oil & gas or hydrocarbons only.
Clearly & Cleanly stating NO SURFACE USE in the contract.
Limiting mortgage company costs to the mineral owner.
Defining aggressive terms for shut-in wells.
Requiring that the gas company assume risk & warranty the deed.
Limiting truck traffic from residential roads.
Defining production as producing gas to encourage quick & effective drilling as opposed to long and tedious construction.

Part 9:  Drill Site Specifications
Their Contract MAY Not discuss or define security, fencing, aesthetics, or maintenance of the drill site. Not limit their purchase of additional drill sites further into neighborhoods once a contract is signed & the first drill site is built. Not require that they house compressor stations & equipment in solid, standing structures to reduce fumes, sound, & unsightly aesthetics. Not discuss Noise & Light Abatement that protects the neighborhood's interests. Neighborhood Interests to Consider Requiring stable, aesthetically pleasing and secure fencing to be built and regularly and satisfactorily maintained by the gas company. Limiting additional drill sites from the interior boundaries of most, if not all, of our neighborhood associations. Requiring additional light and sound abatement. Requiring that the site be powered by electric or natural gas equipment to protect our air from diesel fumes. Requiring compressor stations and equipment to be housed in solid standing structures.

Part 10: Examples of Possible Natural Gas Drilling Truck Traffic.
All equipment needed to produce gas has to get to the site. Construction equipment, diesel generators, tractor trailers, over sized loads & heavy weight loads of cargo should be expected. Power lines and utilities such as cable, and telephone lines may need to be temporarily taken out of service.

Part 11: Example Drilling Rig Example Natural Gas Compressor Station.
Community Fire Departments, first responders, liability, insurance, taxes, property values, and thorough natural gas leasing of the land associated with a compressor station should all be considered by landowners faced with having a compressor station.
Compressor station land leasing considerations require and Attorney specializing in natural gas lease. The land area needed for a compressor station, and all the additional components can be up to 20 acres or even possibly more.
Compressor stations are also used at underground natural gas storage sites for injection and withdrawal operations and in production areas where operational wellhead pressures are not always enough to move the flow into the high-pressure mainline or gathering header systems. Compressor stations associated with field/gathering or natural gas transmission often also have facilities for water removal (dehydration) and heavy hydrocarbon liquid processing which are common characteristics of the natural gas streams that enter these stations.
Energy Information Administration, Office of Oil and Gas Compressor Station Informational [pdf] 413kb  View Article

Part 12:  Organizing
Don't wait for someone else to do the work; if you start it, help will come.
Form a board or committee to oversee reasonably manageable boundaries; this committee should meet regularly and often during this process. Obtain property owner addresses within your boundaries through your county's public record data base. Flier every private property in your boundaries with a meeting notice. Hold a meeting at which you educate property owners about gas leasing and at which you ask for volunteers and signatures of commitment to negotiate and sign through your neighborhood group. Utilize a website, email distribution, phone broadcast services or phone trees, and street captain volunteers to distribute information to your property owners. Send out regular updates to your property owners and hold regular meetings. Send letters by mail to property owners that do not inhabit their own properties. Organize a gas lease committee that will research and review the gas lease process, pros & cons, and neighborhood endorsed gas leases and that will create a neighborhood minded gas lease document with terms tailored to fit the needs of your properties. Consider working with surrounding neighborhoods forming Alliances to negotiate common leases and greater financial and contractual terms. Alliances and larger acreage groups are more likely to be dealt with directly by the gas companies, losing the middle man brokers and land persons that otherwise perform the legwork in obtaining leases for the gas companies. It is the normal for gas drilling companies to offer to compensate the negotiators for, or of the groups/coalitions/associations in a monetary sum for a successful deal. Be open and honest with your property owners, keeping them 'in the loop' of what is being done at all times. Consult professional legal guidance in regards to the lease that your committee has put together before going through actual negotiations with the gas company. Send a professional Request for Proposals to the interested gas companies, or any gas company operating within the play setting a deadline or expiration period for offers. Consider using an oil and gas attorney, who looks after the lessees not the gas company, throughout the contract language negotiation process. Be willing to exercise great patience and understand that waiting is part of the process.

Part 13: Reasons to Organize & Wait
What other investment opportunity can you come across in which thousands can increase to millions in a matter of months, with no effort. Though the County may consider your property more valuable due to mineral production, market value reflects the opposite. We want to do everything we can to protect our property values, our quality of life, our safety, and our future royalties through a mutually beneficial contract. Neighborhoods have to live with the long-term consequences of this decision, the gas companies do not. This is our home. If you agree that your home is the largest and most important financial investment of your lifetime, why would you essentially sign it away for a few thousand dollars, unless you are sure that you are protected first.