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Marcellus Shale Region Residents Complain About Gas Industry Sale Tactics
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July 21, 2011
It’s been better than five years now since the land man first knocked on the door at Gene Sines’ farm, where he raises beef cattle and runs a saw mill on 200 acres of rocky, steep slopes in the very northwestern corner of Maryland.
“Men wanted to know if we was interested in leasing our gas, and so I said, well give us a while to think it over and we thought it over.”
A few weeks later, the land man came back.
“He said everybody around us was signing, or thinking about it and it would be nice to get everybody as a group.”
So, Sines and his wife signed; for five dollars an acre.
Much the same thing happened at Nancy and Alvin Bernard’s farm a few miles away in Swanton, though they did get a little more money.
“Well, they wanted us to sign ‘cause they said if we don’t and the next person does, that they’ll be able to come in and be able to drill underneath it and draw the gas off of you.”
The stories sound similar to those from farmers in the Marcellus shale regions of Pennsylvania. A land man shows up one day with a four or five page lease, drafted by an energy company that offers to pay a certain amount per acre for mineral rights. The land man says, it’s the best price you’re going to get, you better sign now. And the land owners do, only to find out later their neighbors got more money, and in some cases more protections.
“We’re just ordinary people and this come on us all at one time and they kept saying if you don’t lease it somebody else will lease it and they’ll take gas off of you and this probably be about the highest price you’ll get. It wasn’t pressure, but yet you was kind of shoved.”
The disparities were instantly noticeable in the Bernard’s case. Nancy’s family held in common 129 acres near the West Virginia line for which they got $100 an acre. Alvin’s family got one $1,150 an acre for the land it held in common.
“We’d already heard that different people got different prices and we had no idea how low some of them was and how high some of them was. Different people got a lot less than we did and some got a lot more. But I think it should have been level, myself.”
Kim Durst, of the Garrett County Department of Economic Development, says almost 127,000 acres, roughly a third of the county, are under lease to energy companies for drilling in the Marcellus Shale formation. Two companies—Oklahoma-based Samson Energy and Texas-based Chief Oil and Gas--have applied to the state Department of the Environment for drilling permits. But it is unclear when those permits might be issued.
Governor Martin O’Malley issued an executive order last month creating a commission to conduct a three-part study of drilling operations and recommend safety regulations. The third part of that study is not to be completed until August 2014.
Last May, MDE secretary Robert Summers told a Congressional committee that his department does not intend to allow drillers to use the controversial method known as “fracking” until scientists can resolve environmental concerns to their satisfaction.
Gene Sines and the Bernards signed standard gas company leases, which Bill Capouillez, a geologist and leasing consultant from Western Pennsylvania describes as “horrendous.”
“It would be like me saying to you I want to be able to come onto your property and do anything I want.”
Frequently the land men warn property owners not to talk to their neighbors about the negotiations. Capouillez says that’s because the gas companies know that some people, whose financial burdens are heavy, might jump on the first offer, while others might be a little savvier and negotiate a higher price.
“So, they normally come in and they have a range that they’ll work within, but they normally start on the low end of that range in the hopes that they’ll get some of those leases, too. And if people talk, and word gets out as to how successful one land owner was, that sets a new precedent for them.”
In 2008, Capouillez organized the owners of some 30,000 acres in Garrett County to put their mineral rights out to bid. Because he drafted the leases, it gave the landowners greater protection.
“It says where they can and can’t drill, how they have to fix the roads, how they have to fix everything when they’re gone, how they have to protect my water.”
Marshall Stacy, who owns a 373-acre Christmas tree farm in Swanton, was among those who pooled their land with Capouillez.
“I mean you name it, the color that they paint the equipment that stays here, we get to pick what color it is. I mean little dinky things like that…”
And some big things, as well, like eliminating “held by production,” a common energy company clause that stops lease payments once a well is drilled and could tie up property for years.
As Capouillez explains it, the clause allows a gas company to sign a five-year lease and, soon thereafter, drill a well and consider it “under production,” which stops the lease payments. But because there is no pipeline available, the company isn’t selling any gas and doesn’t have to pay the land owner royalties that should be in the contract.
“And depending on the situation they could do that for 10 or 15 years and wait for more money to come in, more revenue, maybe their company to assign the lease to someone else or whatever, and so land owners get stuck because they just don’t realize what it is they’re signing.”
Capouillez bundled the leases and offered them to several gas companies, Stacy said. But only one, Lodge Energy, a small, Texas-based firm, agreed to the terms and offered to pay $2,300 an acre.
“There was another company that was over four thousand an acre, but they said the heck with this lease, we want our standard lease if we’re going to pay the top dollar.”
An estimated 500 people voted unanimously to take the lower, Lodge Energy offer because of the safeguards, Stacy said. Unfortunately for him and the others that was in September 2008. By December, the recession had taken hold, financing dried up and Lodge backed out of the deal.
Still, Stacy said, they know how to handle things the next time a land man comes.
I’m Joel McCord, reporting in Garrett County for 88.1, WYPR.
Tomorrow, landowners say they learned a simple lesson. 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.
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