Marcellus Shale Land and Gas Lease Value Analysis

If your thinking of investing in the purchase of Marcellus Shale land you need my latest report. It provides  current (as of January 20, 2012) Marcellus Shale Land Values and Recent Gas Lease Terms and Trends in the Southern Tier of New York and Northeast Pennsylvania.  This is very timely and useful information that you need to know before New York permits horizontal hydrofracturing. If you wait to invest you may wind up paying double the current prices. On the other hand if New York decides not to permit horizontal hydrofracturing land values in the Southern Tier are sure to take a steep tumble. Call or email me today to get your free copy of my report.

David Bors, AICP, Realtor

607-760-2564

dbors@stny.rr.com

Alternative to Hydrofracturing

Here’s an alternative to hydrofracking that uses LPN gas to fracture the shale instead of water which eliminates concerns about water pollution, reduces truck traffic by 80% as there is no need to haul water to the drill site and would address nearly all of the concerns that the environmental and hydrofracking opponents have. Unfortunately the large gas development companies like Schlumberger have alot of money invested in hydrofraking and may be reluctant to convert to another fracking process.
http://www.gasfrac.com/fracturing_process.aspx

Marcellus Facts

Check this website for more facts about Marcellus Shale Natural Gas. Knowledge is power. http://www.marcellusfacts.com/blog/

Beware of Chesapeake Energy

Chesapeake  Energy touts itself as one of the largest producers of natural gas in the nation.  You can be sure they didn’t get there by ethical practices.  One of their strategies is to buy old gas leases from other gas companies and exercising very one-sided extension clauses to gain control of large areas of land.  I’m personally aware of one such lease which  was extended last year for another 10 years just by Chesapeake paying an annual rent payment of $3.00 per acre without the landowner having any say whatsoever.  Meanwhile this landowner is on the verge of bankruptcy and needs to sell his land.  Of course this proves to be very difficult with Chesapeake laying claim to the lease extension.   

This all may be perfectly legal according to the terms of the lease.  However, many of these leases including this one, were written over ten years ago by gas companies who were primarily interested in vertical drilling in formations other than the Marcellus Shale. Sure the landowners should have consulted with an attorney before signing such a one-sided lease. But when one of your neighbors knocks on your door saying he is a Landman for a gas company who wants to lease your land why wouldn’t you believe it was a good deal.  Besides back then everybody signed these leases and nobody ever showed up with a drill rig so why not get a few extra bucks when your struggling to keep your dairy farm inoperation.

Chesapeake’s actions have been reported to the The Attorney Generals Office of New York State, but Chesapeake doesn’t seem to care and isn’t really interested in renegotiating these lopsided leases. The bottom line here is that Chesapeake is only interested in their bottom line and if that means taking advantage of  poor farmers and landowners who signed bad leases years ago so be it.  It’s all perfectly legal but not very ethical. 

MY BOTTOM LINE: I’m very much in support of horizontal gas drilling and the economic benefits it will bring to the Southern Tier of New York, but lets not be led astray by major natural gas companies whose motives and tactics may be far less than noble. Our farmers and rural landowners deserve fair compensation and the major gas companies should do the right thing and renegotiate the terms of these old, one-sided leases.

Land Values

Land values are definitely holding firm across the Southern Tier of New York and I sense an upward pressure that will eventually break out to new highs as NYSDEC’s environmental review process is nearing completion.  Once NYSDEC’s establishes its permit regulations and procedures for horizontal gas drilling you can expect land values in many areas to double almost overnight.  I remain hopeful that horizontal drilling will be permitted in New York State within the next 12 months.  So hold on to your seat and enjoy the ride.

Price trends over the past year

Factors on both sides of the marketplace have contributed to price declines over the past year. Despite a recent upward movement in spot prices, the overall trend has been downward since mid-2008. The severe reduction in natural gas prices may be related to continued strength in domestic production, specifically related to supplies from gas shale fields such as the Barnett Shale in Northeast Texas and the Haynesville Shale in Louisiana. Furthermore, the decline in economic activity has reduced demand in the industrial sector, as demonstrated by a 5.5 percent decline in the country’s gross domestic product, according to a June 25 release by the Commerce Department. Natural gas producers have responded with drastic cutbacks in drilling activity, with the number of rigs drilling for natural gas falling from 1,267 at the start of the year to 692 as of Friday, June 19, according to Baker Hughes Incorporated data (see Other Market Trends below). The combined impact of these influences on the recent natural gas supply and demand balances has resulted in an inordinately high amount of natural gas in storage for this time of year.

Calculate Your Potential Gas Royalties

Check this link out if you are interested in calculating the potential value of your gas royalty. http://geology.com/royalty

Natural Gas Futures at 6 Year Low

03/18/09: April natural gas contracts closed lower today. Natural gas contracts are being priced at $3.69 each, down 3.3%. Natural gas actually fell as low as $3.67 per contract, which is the lowest level in more than six years. Natural gas inventory data is due tomorrow morning. Low natural gas prices and abundant supplies may extend the horizon for gas drilling in upstate New York.

Natural Gas Pricing Lowest Since 2002

03/06/09: April natural gas contracts finished at $3.98 each, down 2.8%. Natural gas prices traded with weakness for virtually the entire session, registering multiyear lows at $3.92 per contract. Natural gas contracts had not traded at such low levels since late 2002.   With natural gas prices so low coupled with large existing supplies of natural gas there is less incentive for gas companies and speculators to purchase new gas leases with the high sign on bonuses of  last summer.  Certainly, the incentive to drill new wells at current pricing is not very great.  I have heard that some coalitions in the Broome County area are planning to go to bid with hopes of getting sign-on bonuses of $4,500.00 per arce.  I wonder what they have been smoking.  My investors won’t pay more than $500.00 per acre at the present time.

Be your own thinker

Just like it isn’t prudent to blindly sign a gas lease with any gas company, PLEASE don’t blindly assume that a landowners coalition is unconditionally the best way to negotiate the terms of your lease.  Yes they do have alot of good information but the best advice I can give to anyone would be to hire your own expert legal advice to help your negotiate your lease.  Some of the coalitions only listen to what they think reality should be.  I’ve seen many deals fall apart because everyone gets too greedy.  Its just not the gas companies at fault.  Those $25,000/acre sign on bonuses just aren’t the norm and usually only occur under very unique circumstance.  Do your own research and hire true experts and maybe who knows you just might have a great lease in place while the coalition members are still waiting for the perfect deal that may never happen.