Pipeline ROW is forever

The closest thing to eternal life we may ever know is a pipeline right of way.

In 1886 the Standard Oil Co organized the Buckeye Pipeline Co to move it's products out of western OH. Many of the ROW are still in existence in OH, PA and NY. They are still used till this day, that's 127 years.

So when you are negotiating a pipeline ROW take your time, be very thorough you will be living with it for the rest of your life. Not only will you live with it, your children, grand children even great grand children will be affected by the decisions you make today.

In posts to other threads about this subject, people have warned that if you don't cooperate with the company they will go around you. If the company goes around you then you will miss out on the financial rewards. This may be true, but we have seen the results of this type of thinking here in the Marcellus and Utica plays. Many land owners rushed to sign leases to receive the bonus money without a thought for the language of those leases, and about the affect to their property. We see their stories regularly here on GMS.

We should all learn from our mistakes, and the mistakes of others. Take your time and be very thorough, if you can't get comfortable with the terms of the agreement then pass. Otherwise we, will be hearing from you in the future and how your bad decision has hurt you and your property.

Mark

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Permalink Reply by Ted Croft on February 28, 2013 at 6:29am

A real helpful link for me on the ins and outs of sticky points to look for and what to negotiate for in a ROW agreement. This was from the Eagle Ford Shale area but most items seem germane in a lot of other areas.

 

http://eaglefordforum.com/profiles/blogs/natural-gas-pipeline-easem...

Permalink Reply by Greg Smith on March 1, 2013 at 3:43am

Thanks, Ted!

Permalink Reply by Frank Walker on February 28, 2013 at 7:32am

Agreed, Mark

Granting of pipeline rights of way is tantamount to sale of your property . . . . except that you retain the privilege of paying the real estate taxes on it.  It is, as you point out, forever.  And forever is a long, long time.  There is no payment beyond today, no matter what that incredibly long future might hold.  While you likely will avoid burdens unforeseen, it's unlikely your kids, grand kids, and greats will have equivalent good fortune.  Loss of privacy alone is good reason to hesitate regarding ROW sale.  They can walk "your" land whenever they please for any reason they want.  

ROW granting is financial myopia with massive potential long-term regret.  It is inescapable once entered into.  Sign, and you've moved "through the looking glass".

I've been approached several times, but I've never signed a ROW agreement.  My land is fully leased, but it's a strict non surface development, no trespass, lease.  Only way I would ever even consider signing a ROW agreement is if it included periodic reviews at five year maximum intervals with opportunity for payment hikes owing to cost of living, taxes, etc..  And I would not sign even with those benefits at anything near the paltry amounts routinely offered today.  Signing on terms currently offered is one of the dumbest land moves I can conjure.  It's crazy.  

Permalink Reply by Michael Allen on February 28, 2013 at 12:39pm

Of course, if you are concerned about your well production and only get paid if the product goes to market, then you are all for pipelines, and that's no crime. It either goes by pipeline or it is trucked. For me, I much prefer a pipeline over large numbers of rubber tired bombs running the roads, always over weight and driving too fast.

Then comes another argument I hear all the time,"Why don't you put that pipeline on someone's property that already has a pipeline, they obviously don't care?"; and from the other side,"Why are you picking on me with another pipeline, go see my neighbor and give him all that pipeline money!"........and so on.

 

If you really want to see some dust fly by farmers, ranchers, and subdivision landowners, go talk to them about a power line with nice big towers along with guy wires to assist in their farming activities.

 

One big advantage in pipelines, tax wise, is the advalorum taxes paid to the state and county governments. That's supposed to help with roads, schools, firemen, police, etc. Sometimes it does and sometimes municipal governments don't do a very good job with all that new money. Speaking of taxes, if you are approached by a pipeline company that has eminent domain power, tell them you want all of the check attributed to the easement itself. That way you should pay no taxes on that money, even if you agree to everything, but you know you are under the threat of condemnation, so why fight it. All other monies from gathering, damages, crops, etc, is all income unless you can prove a loss or that you used the oney for improvements. Check out IRS Bullitin 944. More to come-

 

Pipeline Pappy

Permalink Reply by Hunter on February 28, 2013 at 12:44pm

Michael

Your statement about taxes in regards to payment for ROW is wrong. The portion for easement is capital gains and you will be taxed in year it is reveived. You want it all for damages as those are not taxed until sale of property.

Permalink Reply by Michael Allen on February 28, 2013 at 12:58pm

Get a new CPA. An eminent domain pipeline taking is no different than a taking by a highway department. On your damage statement, how have you been damaged? If the pipeline company fixes all of your fences, gates, plants grass, places erosion control, etc, how have you been damaged? Your last statement is exactly what the IRS claims for the easement money. All of the work space payments are based upon a "rental" agreement, the pipeline company is using it for a period of time. Crops are paid at the going rate, also income. The easement is forced upon you by the company, you have no choice. A few years ago our ROW organization invited 2 IRS supervisors and asked that very question. If not an company with condemnation rights, then all of the money is considered income, because there is no threat. If the company does have condemnation authority, even if you agree with the concept, the threat of the taking is always there. You pay no tax on the easement portion, only the damages/land rental, crops, etc. Read the bullitin, it deals with highway takings, but it's the same situation, it's a taking.

 

Pipeline Pappy

Permalink Reply by Michael Allen on February 28, 2013 at 1:08pm

Again, how have you been damaged? Your only real "damage" is that you had to agree to a condemnation authority for an easement or they would take it via court. Any other payment, however negotiated, is just income. This is one reason to make sure the company writing the check, splits out the value for the easement, value for the temporary work space, and value for crops, if any. Timber is a crop, they generally pay you for the timber, and you get to keep it and sell it again. All income. The more you can put on the easement column, the less you will pay taxes on the income portion. Again, if it is a gathering line or the company does not have condemnation authority, it doesn't matter what column the values are placed, it's all income.

Where you have to watch it on the easement portion, especially in this time of inflated values, your local assessor is going to get the picture one of these days and your "highest and best use" is going to be for pipelines, then hang on to your hat. In the past, the value for a pipeline easement in an eminent domain court case ranged from 50-70% of appraised fee value per acre. Most pipeline companies would offer over that % even going up to 125% of fee to make a fair offer for the easement. If it went to court, the judges, especially in federal court, awarded at 65% of fee value for the easement and 10% of fee for the temporary use of working space for a one year period. Now we have inflated value offers that are way over the actual fee value per acre. While landowners are loving this bid war going on, the local authorities are going to see the light one of these days.

 

Pipeline Pappy

Permalink Reply by Michael Allen on February 28, 2013 at 1:45pm

On this note, find out who is logging your property and give them 50% mill tally to haul it to the mill, you have made 150% on your timber and no worries of the logs going to pot.

Permalink Reply by Michael Allen on February 28, 2013 at 1:21pm

If you have gone through and had it rezoned, then good on ya. Buy some cows, that's a good write off and you can eat one every now and then for good measure. Hire your kid as a gate guard, at least you will know where he/she is every day, plus they will be a write-off at the end of the year.

 

Pap

Permalink Reply by Richard Droske on March 4, 2013 at 3:51pm

You all warn but say not one word about what the problems this could cause are? Even the article itself makes no mention of any possible downside? What are they?

Permalink Reply by Richard Droske on March 12, 2013 at 8:56am

Sounds like Carp is getting no offers for his land or has none. The leases being signed now are often for more than 5 times the previous value of the properties for a 5 year lease. This  without even taking into account the possibility of lucrative royalties if they even proceed to drill.

 

So you get 5 times the value of the property up front and possibly they never even drill and if they do you get royalties. Seems to me like it is worth the inconveniences mentioned and then some.

Permalink Reply by Michael Allen on March 12, 2013 at 9:10am

Not only that, the only thing you CAN'T do on the pipeline easement is a permanent structure. Deer blinds, feeders, sheds and of course, any farming, livestock, whatever, is OK. I've never seen homeowners insurance go up, but if that is a concern, then make the pipeline company keep $5mil liability insurance for the entire period they are affecting your property with you as co-insured. The taxes you are paying is only the regular county tax rate unless the assessor decides to increase it, then you can appeal it. If you are having drainage issues from the construction that wasn't there before, make the company come back and fix it. $2/inch per foot is the going rate in Eagle Ford at this time. I have heard of some folks getting more and some less. Again, if you have production on your property, you would be foolish to demand a very high amount/foot, but you should still protect yourself with some good general clauses.

 

Pipeline Pappy

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