Mineral Rights in Big Demand: Be Careful When Leasing Your Land

By Eric Bowen, The Dominion Post, Morgantown, W.Va.

Apr. 21–As fuel prices hit all-time highs, energy companies are looking for new places to drill, creating a run on open land and mineral rights, a company official said this week.

But landowners should take care before selling or leasing the rights to the ore underneath their property, an expert said.

Companies that drill for natural gas and other fuels have been scouting the Appalachian region for new places to drill, said Scott Rotruck, vice president of Chesapeake Energy.

At a session in Pennsylvania last week, more than 1,000 landowners turned out to get information on leasing their mineral rights to energy companies, Rotruck said.

He said that leasing land to energy companies can bring in big money for landowners, as much as $2,000 an acre for high-demand sites. If natural gas is found, the landowner can also receive royalties on the extraction.

Land prices are so high because the commodities are in demand, Rotruck said. Chesapeake builds natural gas drilling rigs across the country and has had success tapping into new reserves.

“There is a strong demand for clean-burning energy,” Rotruck said. “The whole general energy market now has a lot of upward pressure on price, so the only way to help solve that problem is to produce more of our own.”

Leasing tips

Chesapeake has been signing up landowners for new exploration, Rotruck said. The company’s land department has put together information in a brochure and talked to landowners personally about leasing their property.

Leasing property can be complicated, Rotruck said. Some landowners have rights only to the surface of the property, and not to the minerals underneath. Surface owners have to provide some accommodation for extraction of gas and other minerals if the mineral rights holder sells those rights.

Rotruck said that drilling for natural gas has a relatively small impact on the property. The largest drills can take up to 5 acres for a well and an access road. The company also installs pipes to get the gas out of the well to a distribution center.

Landowners typically get an up- front payment for signing the lease, Rotruck said. Once the site is drilled, the landowner will get a share of the profits in royalties.

Entering into a lease should be weighed carefully, however, said Lee Avary, petroleum geologist and manager of the oil and gas program for the West Virginia Geological and Economic Survey.

Mineral leases are legally binding contracts and landowners should read all of the fine print.

Wells can be in production for decades before the company is finished extracting all of the fuel, Avary said.

Farmers who rent property can work with energy companies to place the wells in locations that won’t affect crop production. Once a lease is completed, Avary said, drilling companies are required to cap the well and return the site to its former state.

Avary said landowners also should consider whether the company they are working with has plans to drill the wells itself or sell the drilling rights to someone else. She said it’s generally better to lease to someone with a high expectation that the well will be put into production.

It’s also a good idea to check into the prices that other landowners are getting, either by talking with neighbors or by looking at land records at the county courthouse, Avary said. Her office doesn’t give legal advice, so landowners might also want to ask a lawyer to review the terms of the lease.

“There are many points of negotiation that people can derive in looking through the terms of the lease,” Avary said. “I think people need to look at these things, and understand the language and what the implications are as best they can.”

Soaring prices

Natural gas prices are going up because of international demand, Avary said.

Companies are responding to higher prices by looking for sources of natural gas in places that until recently would not have been considered, Avary said. A new seam of shale holding natural gas, called the Marcellus seam, was discovered recently. It stretches through most of West Virginia and into other eastern states.

New technologies have also allowed energy producers to find natural gas and other fuels more easily.

One relatively new technology has allowed drillers to go down into the rock and then drill horizontally underneath the ground, Avary said. New techniques also allow energy companies to increase the productivity of wells by releasing more gas and acquire gas from sources such as coal seams.

“A lot of new technology for drilling wells in these shales, and stimulating and enhancing them for gas production, has been developed,” Avary said. “Horizontal drilling … has revolutionized the ability to produce natural gas from coal seams. It’s being used in shale as well.”

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