Replies to This Discussion

Permalink Reply by Brian Day on April 13, 2012 at 4:02pm

I think the only recourse to that issue lies with the Pa. government defining what production actualy means.  I heard there might be a law in the works to limit it in some way to ten years.  I sugest you contact your public officials on this issue, as I did years ago.  If the land isn't put into production, no tax revenues flow into state coffers.  Of course tehy will probably raise real estate taxes in some way immediately on the basis of potential value of oil and gas revenue some day.

Permalink Reply by scott brion on April 14, 2012 at 4:21am

Hi Brian,

Thanks for the reply.  I am a landowner with a couple of leases that East put in a unit and Shell now claims the leases remain in place due to a shut in well.   I believe under the terms of my leases they have legally expired.   I have reviewed this with several knowledgeable attorney's who agree, but I do not think I will get anywhere with Shell on an individual basis.   My leases were originally with East and Ultra and there are many landowners in the same situation with the same lease language.  (from your previous posts here - I think you might be one of them.)   My hope is to assemble a group effort to address this issue with Shell.  At a minimum, I am sure we will have a good informed discussion at the meeting.

I hope to see you on Tuesday.

Permalink Reply by Brian Day on April 14, 2012 at 1:38pm

Yes Scott you are correct about my situation.  I also think that some land owners in the recent past had grouped together and retained a lawyer to address the HBP issue legaly.  This proccess began less than a year ago.  One of these owners is a friend of my father's and an aquaintance of mine.  i spoke with him on the phone back then and he said that he would keep me informed if anything came of it.  I have heard nothing.  I applaud your efforts, but would warn you against attornies who would be delighted to take you collective retainer knowing full well the legal battle probably will be a waste of time.  Three years ago, I wrote letters to the Pa. governor, talked to DEP officials at all levels extensively on the phone, and spoke with Matt Baker about unit sizes and HBP.   Had the state acted more aggresively, had more land owners bargained better with other companies besides East for top leases, Shell might not have been so eager to prop up East long enough to drill all of those HBP wells.  Many of us would have at least enjoyed larger bonuses on top leases more immediately and that would have been better than to watch with empty bank accounts as drilling companies packed up and moved to Ohio.  I know, who could have guessed that they would find oil in Ohio?  ANYONE in a western state who has been in an oil or gas boom town and watched it bust could have warned them.  (Incidently, Ohio people should be taking heed to this last comment.)

The state can still create legislation to limit the term of a perpetual lease created by HBP wells to ten years, retroactive to the first signing of the lease.  The DEP could be allowed jursdiction, also perhaps retractively, over well spacing and unit size in the Marcellus.  The DEP should already have such control over future wells in the Utica and the Blackriver/ Trenton.  Such legislation would spur Shell and other companies in the area to get those pipelines in the ground and gas to market.

I believe that at least those scoundrels at East sold out our leases to a good, far sighted, company with good financial planning.  Shell seems to attempt to treat landowners as fair as any other company out there and much better than most.  They ARE a huge multinational entity with the soul purpose of making a lot of money at the least amount of investment.  I don't imagine that they are going to pony up any extra lease money unless pushed by a government at least at the state level.

Permalink Reply by Deborah Kittner Johnson on April 14, 2012 at 4:47am

Scott -

After speaking with landowners this weekend in Bradford County, I too am curious. I thought a well had to be producing in order to lock in the lease extension. I heard of at least one situation where the expiring lease (within one month) was pulled into a non-producing unit and the landowners were told they were locked in. Not Shell.

I will watch for follow-up.

- deb

Permalink Reply by Brian V. on April 14, 2012 at 3:42pm

What really needs to be examined is the shut-in language in said leases. If the lease does not have specific wording limiting the time a well can be shut-in without production than this could be all for nothing.

 

Another trick I have seen used is the operations wording. If a driller has a unit shut-in or HPB they can extend the time frame they have to bring the well into production by doing as little as plcing a sign on sight or moving a pile of dirt. A simple "operation" such as this could give the operator another 180 days to do nothing.

 

If you are in a unit that is HBP and not producing you should get a copy of your Declaration of Unitization, which will name all landowners in that unit and give there parcel number and lease or memorandum of lease instrument number. If even one person in your unit has language in their lease limiting shut-in time that language would affect the entire unit. For the most part people hardly know what is in there lease nor do they care to follow up or check into what the gas companies are doing.

 

I'm not in a unit yet and I hope that if I am unitized in the next 4 years that they do not produce because this gas market dive looks to be in effect for a while.  

Permalink Reply by paleface on April 14, 2012 at 11:48pm

 Brian whats your alternative if your in a unit and the gas company doesn't produce in time who is going to buy your lease,your gas company owns the vertical if there is one and why wouldn't the gas company honor each lease as its written?

Permalink Reply by Brian Day on April 15, 2012 at 2:37am

The vagueness and variable nature of the lease language from customer to customer is one of the chief reasons that I believe the Pa. government must define HBP.  As for the company owning the vertical well indefinitely, I am not sure how that would work.  My guess at an analogy would go like this.  If you lease your land for someone to build a cabin on and they loose the lease through lack of payment or perhaps failure to make improvements to the site, you can then lease your property to someone else to build an additional cabin.  The first cabin builder may have the right to come and remove their cabin, or at least as much of it that can be carted away, but perhaps the foundation would remain.  That was the risk that they took in constructing their cabin on land that they did not own and then not really honoring the true terms of the lease.  It is kind of an ill-fitting analogy probably.

Permalink Reply by scott brion on April 15, 2012 at 3:13am

All,

You all have good comments / questions here & I think there are good answers to all of them.  My primary intent in posting was to notice you all of the meeting, but since a discussion has started it might be helpful to give you some background on my efforts.

I have been researching this particular issue for over 18 months.  First I want to be clear that I am not a lawyer and acknowledge that there are important legal aspects to understanding my leases and the remedies given that I think my lease has expired.   I am however, experienced and knowledgeable on the business side as I have over 10 years experience in real estate development & investment and have for the last 11 years worked in the energy sector.  I currently have my own company that provides consulting services to landowners and invests in land & minerals, but previous to that I worked for a US based company and managed landman groups active across the US and Europe.   

After reviewing this issue with many different lawyers I believe that my leases and many others have expired.  On an individual basis, I don't think there is much that I can do to improve my lease situation as my leases alone are not very important to Shell's operations.  I do believe that a group of landowners can be successful in engaging Shell.  I have not previously posted on this topic here, as it is complex and I believe the best way to evaluate it is in a meeting to share information to let others decide if they agree that there is value to joining a landowner group. 

Permalink Reply by Brian Day on April 15, 2012 at 8:09am

I believe your efforts are worthwhile.  I and many other landowners have accepted Shell's renewal payments, so perhaps we cannot contest things at this late date.  Perhaps the situation could be contested four years from now if no producing well or pipeline is in place.  Again, the legal situation has to be better defined by Pa. law.  If Shell were to feel impending pressure that they might indeed no longer hold leases with useless vertical wells, they might decide to make a decent offer for a new lease or a lease renewal for everyone, to avoid competion coming into the area and muddying the waters.  Natural gas will rebound in value as soon as more outlets for its sale become available.  If Shell felt threatened by a change in the unit laws , they might offer new leases to all for say $2500 an acre and 17% royalties at the well head.  this might be in line with the current market in the area for the next 2 or 3 years.  If you don't like my numbers, fine, pick your own.  It would probably still be a better investment for Shell to pay for the leases than to risk loosing a substantial portion to other leasers who might actually only be speculators.

Again, good luck in your efforts.  Ask around a bit about what legal efforts have been tried in the recent past and see how well they have worked out.

Permalink Reply by Schnoozie on April 17, 2012 at 7:09am

Scott are you in any way associated with the landowner groups or law Firms based out of Pittsburgh?

Permalink Reply by scott brion on April 17, 2012 at 10:11am

No.  I am from Lycoming county and am working on this independently.

Permalink Reply by scott brion on May 1, 2012 at 5:19am

All,

I am having a third public introductory meeting for new landowners at the Blossburg library Wednesday May 2nd. at 7:30 PM. 

I have had good response on this issue outside Go Marcellus and am forming a group.  The response here has not been very significant, so I will not be posting additional information here regularly.  Please feel free to contact me directly with any interest you might have.  I am forming an email list for updates and will be happy to add you if you contact me.

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