Gas Lease Speculation Creating Disparities Among Residents In The Marcellus Shale Region

The drilling rigs are scattered throughout the Endless Mountains of Pennsylvania, some visible for miles on the tops of hills, others tucked deep into hollows behind ranks of maple, birch and ash trees. In some places, the rigs have been replaced with arrangements that look like oversized hot water heaters with gauges and dials attached to the pipes that one day will carry natural gas to pipelines that lead to markets throughout the Northeast.

Their presence has created rifts in the townships here, not just over environmental concerns, but economic ones as well. Because some farmers and woodland owners have leased the rights to use their land and the gas beneath it for small fortunes—as much as $6,000 an acre—and others virtually gave away their rights for as little as $50 an acre.

“Everybody used to be an equal; you know fish together, hunt together, drive the same vehicles. Well. now, it’s the land of the haves and the have-nots. There’s jealousy there’s greed…(Well…) No, no, there is. It just turns into the land of the haves and the have-nots.”

Dan Backer and his wife, Gretchen, run the Inn at Montrose, a small hotel in the Susquehanna County seat that rents mostly to gas and oil company executives. They could be considered among the “haves.” Business is booming for them.

“When we bought this two years ago, it historically employed nine people. And we employ 38 right now. And that’s directly a result of what’s going on with the gas industry around here, the demand of what we have to serve them. I mean that’s waitresses, housekeeping, cooks. I mean, it’s people that are local that we’re able to employ because of the gas industry.”

They leased the mineral rights to their 12 acres in nearby Dimock for $250-an-acre.

Among the “have-nots,” really the “have-not-as-much,” are Bonnie and Emmitt Lowry, whose encounter with the gas industry began six years ago when a representative of Cabot Oil and Gas -- known as a “land man”-- knocked on the door of their tidy rancher on a gravel road about a dozen miles northwest of Montrose.

“He was a nice little man, very nice. And then he sat down at the table and he talked to us and he said, ‘I’m going to offer you so much for your land, for this lease.’”

The offer, 50 dollars-an-acre for the 208 acres where they raise hay and cattle, sounded pretty good to them. So they took it. And then, the prices took off like a rocket. Their neighbors were getting four thousand, five thousand dollars an acre while they were locked in at 50.

“They really took advantage of us. You know, I mean, they came in and like swooped down on us and we had no idea what they were talking about. Never heard of them, never, you know, we didn’t dream that that would happen around here.”

You hear a lot of that in this stretch of Appalachia near the New York State border, where trucks rumble by almost constantly on the narrow roads. We were misled, we were lied to. But you also hear from those who are resigned to the deals they made.

Donald Potts’s family has been milking cows at this dairy farm in Forest Lake Township for more than a century. And the mineral rights to what lies beneath their 200 acres has been leased to one energy company or another for nearly half that time, though none of them turned the first shovel of dirt.

“But it was like a dollar an acre per year. So when they came around and started offering people twenty five dollars, well that seemed like a lot money. And they’d never done anything, so people took that. And then, as it went on up, it ended up being quite a bit.”

Potts was one of those who accepted an offer in the neighborhood of one hundred dollars an acre while others nearby got as much as $5,000. But he says that doesn’t bother him.

“I was happy with what I got at the time. I made a deal, that’s a deal. If they had switched it around on me, I wouldn’t be happy, if they were trying to take money away from me. And we agreed to it, so that’s what we agreed to.”

Mark Madden, a Penn State extension educator, says Marcellus shale exploration began as a trickle about 2002.

“So, in certain instances there were individuals who were, a good many, I should suggest, who really weren’t aware that anything was different this time.”

Before long, however, so many large rural landowners were being approached with what Madden called “orchestrated frequency” that it became obvious something was up. A few years later, the trickle became a torrent.

“And that was really a land grab at that point; a fair amount of competition, many of the companies had a fairly good handle on what it was they were producing up here and were capable of producing, had a little better notion of the quality of the shale, realized they wanted a significant stake in the acreage up here and that’s when it became particularly competitive.”

The Lowrys were among those who signed leases before the land grab began in Susquehanna County.

“Hey, a few years ago when Everitt and I were first married we signed it for a dollar an acre. So we thought, well, this is great, you know. Fifty dollars an acre sounded real good. But I guess it wasn’t as good as what it sounded. And he said, ‘This is all you’re going to get, this is the way it is,” and so we signed and we got took.”

George Stark is a spokesman for Cabot, which controls nearly all the gas drilling in Susquehanna County. He says the land men, employees of a separate firm, didn’t mislead anyone; it was a matter of timing.

“But over time, especially in Susquehanna when the pricing escalated among different competing companies you did see acreage go up in cost, but now there was less speculation and there was less risk.”

Stark said Cabot “would not encourage” land men who tell landowners “this is all you’re going to get.” And he put some of the responsibility on the property owners.

“You’ve got your opportunity to walk away and say you know what, I need this, to have this reviewed by someone that’s in my family, I need to have this reviewed by counsel. We’ll be back in touch with you.

But Frank Pinkowski, a real estate broker and appraiser, who runs a bed and breakfast where energy company executives have stayed during visits to the area, says it’s not so simple. The companies have an advantage.

“The oil and gas companies have done this numerous times in other areas, so they’re fully aware of how it’s going to play out. They know the rules, they hold the rule book and the person that actually owns the oil and gas, owns the property, has never been through this before, so they don’t know what to ask for.”

Pinkowski says the gas companies won’t admit to it, but they would rather bargain with landowners who aren’t as knowledgeable as they are about the leases.

“Because they can get better terms or get what they need without of more out of pocket costs and less aggravation than dealing with somebody that may be knowledgeable and may stand up for themselves.

Pinkowski, who has appraised property for gas companies, stood up for himself, learned the rules and got a much better deal than his neighbors.

I’m Joel McCord, reporting in Susquehanna County, Pennsylvania for 88.1, WYPR.

Tomorrow, Joel reports that land men used the same tactics in Maryland that they did in Pennsylvania, but property owners added a twist. And there are additional features on our web site, www.wypr.org. That’s “When the Land Man Comes” during Morning Edition on 88.1, WYPR, your NPR news station.