Leases Offered in Noble County

I'm new to "gomarcellusshale", as well as new to this business.  We have a 152 acre farm with "Clinton" gas wells which supply our needs.

We've been approached by Fossil Creek Energy Corp (FCEC) for $50/acre, 12.5% Royalty, and $10,000 if a well is drilled.  We are sitting on the Utica Strata.  I've carefully read the lease and am very suspicious of the terms.  We are consulting attorneys.  I don't see any members from Noble County..and some interesting notes from Guernsey which lead me to suspect the FCEC lease.  Can they broker a lease after signing "cheap"?

We have news of ARTEX Oil offering leases in our County, they're out of Marietta.  Any comment on FCEC, ARTEX, and my suspicions would be welcomed!

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Replies to This Discussion

Permalink Reply by scott peterson on July 22, 2011 at 8:59am
Was told that at a meeting last night with Ohio Landowner Consultants.
Permalink Reply by DON B on July 22, 2011 at 8:58am
I am not sure, since I am new to this process, but I think the person from Harrison co. was referring to the ammount of money that is taxable, and not the tax rate. 100% upfront and 85% royalty. That was just my impression of his statement.
Permalink Reply by Jeanette Krunich on July 22, 2011 at 9:52am
OK.  The account said the upfront was 100% taxable.  No deductions or credit, but did give some suggestions for lowering your tax obligation at end of year.  Not many.  She suggested individuals should check with their tax accountant.  She did not discuss much about the royalty.  Thanks for clarification.
Permalink Reply by scott peterson on July 22, 2011 at 10:08am
I think one option is to form an LLC and have royalty payments paid to it. Not sure how much of a benefit that gives you but it was discussed as a way of lowering tax liability on royalties.
Permalink Reply by Finnbear on July 22, 2011 at 10:46am
No tax benefit there. Consult a GOOD tax adviser.
Permalink Reply by scott peterson on July 22, 2011 at 10:48am
More pablum spewed by lease consultant i guess.....already have call into my CPA. Thanks
Permalink Reply by Finnbear on July 22, 2011 at 10:34am

You can deduct any costs directly associated with obtaining the lease (attorney fees, mineral search fees, etc.)

If you have earned income for the year, you could fully fund a Roth IRA for the year (based on your earned income) and shelter that amount from taxation. You can also make charitable contributions up to 50% of your AGI which will lessen what you send to Washington. I personally would rather write the check to my favorite charities than to the IRS. At least the charitable organization will do some good with the $. Washington will just pi$$ it away. Consult a good tax adviser for your options.

Permalink Reply by Finnbear on July 22, 2011 at 10:39am

don baker,

You are correct. 100% of the lease bonus and 85% of royalties are taxable.

Permalink Reply by Finnbear on July 22, 2011 at 10:21am

Lease bonus money is taxed as unearned (passive) income and will be in whatever tax bracket your AGI fits in. It is not all taxed at 42%. I believe Federal tax brackets are as follows:

$0-$16,750 = 10%

$16,750-$68,000 = 15%

$68,000-$137,300 = 25%

$137,300-$209,250 = 28%

$209,250-$373,650 = 33%

$373,650+ = 35%

If your income this year is approximately the same as last year (aside from the lease payment) then add your lease bonus payment to your AGI from last year to get a good estimate of your tax liability.

You also need to consider your state tax liability. In Ohio, tax rates are from 4.327% to 6.24% depending on your income.

Royalty income has a tax advantage in that you get a 15% depletion deduction so you only pay taxes on 85% of the royalty money.

If you get any sizeable lease payment you should hire a good tax adviser to figure out how to keep as much of it as possible.

Permalink Reply by scott peterson on July 22, 2011 at 10:25am
Great info, thanks.
Permalink Reply by joe on July 22, 2011 at 12:44am

I have land in noble county was approached by a land man last week for the first time does anyone know anything about Eclipse resourses? anyone signed there lease?

Permalink Reply by Nelson Roe on July 22, 2011 at 2:15pm

Joe,

I am actually in Guernsey Co., but am following the surounding areas to see what is going on there as well.  I believe I have an Eclipse resources lease in my posession.  If they are using the same lease in Noble, that I got, I would try to renogotiate some of the terms.  I did not see many addendums to the lease & the copy that I saw gave them the right to convert the leased land to storage if they desired.  The storage clause can hold your land under lease for an indefinite amount of time from what I have been told, so if you want to consider going through with the eclipse company, I would definitely have someone with good leasing knowledge review that lease first.  I did not read much further into the lease once I saw the storage rights clause.

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