Comment

Comment by sldouglass on March 19, 2014 at 1:49pm

The deductions are frustrating, but that is only one issue in computing royalties.  Most people seem to think that the royalty is applied to a price paid by a user [or at least someone close to an end user].  But that price may be an imaginary price set, one way or another] by the producer.  Note that the Utica has become popular because it contains not only the dry methane gas; it has wet stuff like propane, ethane and other "thanes" that bring in higher revenue per mcf even oil in some places.  One might expect the landowner to get the benefit of the higher wet gas component prices in the royalty computation [x amount of propane sold at Y price,      A amount of methane sold for B price etc.  The agreed royalty would be applied to the several sales.  After all the producers ran from the lower priced dry Marcellus gas to get higher priced stuff from the Utica.  BUT I doubt if any landowner has received a statement reflecting all this [and this is before the deductions].  Instead the production is sold to the local very friendly gathering line for a price "set by the gathering line."  An arms-length transaction?  And the producers have formed interesting limited partnerships to own the gathering lines - many times with the producer as general partner calling the shots.  All with some fascinating results.

Comment by Jim Dickinson on March 18, 2014 at 7:58am

Anybody up for a class action?
Chesapeake Mineral Owners See Large Deductions on Royalty Checks
by KIRK EGGLESTON on MARCH 17, 2014
Chesapeake Energy has come under increased scrutiny in recent months for allegedly defrauding Pennsylvania mineral owners.

The Wall Street Journal reported in March 2014 that some mineral owners are seeing deductions of more than 35% on their royalty checks! The publication compared the royalty checks of Pennsylvania mineral owners and found that Chesapeake’s lessors had higher deductions than other companies operating in the area.

The deductions stem from post-production costs (i.e. transporting, processing, and marketing the oil or gas). In 2010, the Pennsylvania Supreme Court ruled in Kilmer v. Elexco Land Services, Inc. that the word “royalty” was not defined in state law, and the industry could rely on its own interpretation. As a result, oil and gas companies gained the legal right to deduct post-production costs from a mineral owner’s royalty. The caveat is the lease agreement between the oil and gas company and the mineral owner allows the company to deduct post-production costs in some cases.

In states such as Pennsylvania where mineral owner’s royalties are not protected from post-production costs, it is up to mineral owners to protect themselves. Phrases to watch out for include “cost free” royalty clause and “market enhancement” clause. Also, pay close attention to terms such as “gross proceeds” and “gross market value.” You want to make sure that your royalty is calculated on the gross proceeds from the well and not less than gross market value.

Pennsylvania mineral owners are guaranteed a minimum royalty of 12.5% under the Pennsylvania’s Guaranteed Minimum Royalty Act of 1979. This guarantee however does not protect mineral owners from being dinged for post-production costs. It is unclear if the state will be able to do anything about deductions from mineral owners’ royalty checks because of the precedent set by Kilmer v. Elexco Land Services, Inc. and Chesapeake’s lease agreements with the mineral owners. According to the Wall Street Journal, public outcry has grown so loud that Pennsylvania Governor Tom Corbett wrote an open letter to the state attorney general to investigate.

Read more at wsj.com

Comment by Dave on March 14, 2014 at 8:51am

I'm looking to sell.  They are free and clear.

Comment by Adam Thomas on March 13, 2014 at 10:09am

Dave. Are the mineral rights tied up with old leases or are they free and clear?

Comment by james on March 13, 2014 at 9:56am

You selling or buying Dave?

Comment by Dave on March 13, 2014 at 8:44am

Do you think $2850/acre to sell mineral rights in crawford county is a fair price?  If not what do you think a fair price is?

Comment by Janice L. Hancharick on March 3, 2014 at 8:31am

Mr. Douglas/ Mr. Orr ... Thank you for common sense postings.  May readers recognize them as such.

Professional news just appeared in front of me that has made a solid prediction ... by 2040 natural gas production in U. S. will be up 56%. :)

A Utica well in Tioga County PA has an initial yield more than 3 times PA's most productive Marcellus Shale well ... this news from Penn State's MCOR.

May  O & G companies see the promise of OH and PA as  long-range ventures, and respect the folks and the land as their industry grows.

Comment by Samuel J. Orr on March 2, 2014 at 4:34pm

Perhaps CX decided that it was not proper to list acreage, location, and prices on this website, or at least on the discussion part of this website. The website should allow the posting of ads but I think they are not supposed  to appear as the title to a discussion thread nor in comments posted to a thread. If I am correct, then I believe CX did the right think in removing the information from the website. ( I would assume that if the CX posting was in violation of the website rules, the violation was unintentional and inadvertent. Perhaps Mr Mauck can clarify the rules because I concede that this comment by me is only speculation.

Comment by sldouglass on March 2, 2014 at 10:13am

There does not seem to be any reason to believe that acreage should not bring $5000/acre and 20% royalties - some places more.  But the producers are not going to pay up until they are ready for it.  Remember: 100 years worth of drilling maybe more.  There are some outfits that can pay a lesser price and hold it until the real guys arrive.  If you need money, take it.

Remember these guys want it all, every layer, not just the Utica and the Marcellus, and they want it forever.  One way or another they are going to figure out how to take deductions.  That is why the percentage is so important.  And if they are just buying reserves to produce in the future, ask the they start paying an advance minimum royalty after say the 5th year.  Your land will be less marketable and less mortgageable after you grant one of these leases.  And make sure you get paid separately for what they do on the surface.

Comment by the two of us on March 2, 2014 at 8:47am

Before people do any deal with CX it would be
Wise to research ( easy to do on this site )
Thier track record. Pay special attention to who
is suing who.

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