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What landowners should look for in oil, natural gas leases

Published Jan. 19, 2011 | Discuss this article on Facebook
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Buckeye Farm News

With gas prices continuing to skyrocket, interest in tapping into Ohio’s natural resources for gas and oil is booming. More and more landowners are being approached by strangers asking if they are interested in leasing their property for oil and natural gas exploration. Even Gov. John Kasich recently said natural gas drilling could be a big boost for the state’s economy.

What are Marcellus and Utica shale and where are they? How much money should landowners get for property leases? What are the environmental effects? What companies are reputable?

These are just some of the questions that Dale Arnold is asked on an almost daily basis from Ohio Farm Bureau Federation (OFBF) members who are asked to allow oil and natural gas exploration on their property. Arnold, OFBF’s director of energy policy, has been traveling around the state, talking at packed meeting halls about how to negotiate a lease.

“The key is to take your time and get a local attorney who is working on your behalf. Many of these companies have a profit motive to get a specific number of people signed in a certain amount of time. They’re on a time commitment but you as a landowner are not,” Arnold said.

Marcellus shale  is an ancient shale formation that lies 8,000 to 15,000 feet under eastern Ohio, Pennsylvania, West Virginia and New York. Experts estimate that its methane resources could supply the United States’ needs for natural gas and methane for the next 40 years, Arnold said.

Utica shale is another ancient shale formation found underneath the Marcellus and holds similar reserves. The Utica shale formation stretches into many areas of central Ohio. New technology coupled with rising natural gas and oil prices have made it economically viable to tap into the Marcellus shale. Previously it was too expensive and too difficult.

How do you know if you have Marcellus or Utica shale on your property?

Arnold said energy companies have been collecting data about these formations for years and if they show up on your doorstep, you’ve likely got it. If you previously had an oil or gas lease, be aware that today’s leases are worth significantly more money. For example, in the 1990s, it was typical to get $15 to $30 per acre per year. Today, that amount should be in the hundreds or thousands of dollars over the life of the lease, Arnold said.

Examples of questions that landowners should ask are: what is the amount of money they will receive per year and when, how deep the drilling could go, what type of technology will be used, what other equipment will be on the property, what shale formation they are going for and will the lease be sold to another company.

“In many of these leases, the company states it could sell to another holding company. Landowners need to know if the company they sign with is going to be the company doing the drilling and what its goals and objectives are,” Arnold said, noting that a company could sell the lease to another company at a much higher rate and the landowner would be unable to renegotiate.

Arnold also said landowners should negotiate to get free natural gas and be aware of automatic lease renewals. Other areas to negotiate include reimbursement for impact on water supplies, exact location of all sites and access roads, shut-in royalties and post-drilling reclamation agreements.

He said Ohio Farm Bureau’s state office has a list of attorneys who are experts in this type of leasing and recommended landowners look at OFBF’s website as well as that of the Ohio Division of Natural Resources’ Division of Mineral Resources, Oil and Gas.

“Knowledge is power and the more you know, the better you can negotiate and the better benefits you can achieve,” he said.

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