Replies to This Discussion

Permalink Reply by KAnderson on February 4, 2016 at 6:32am

Unless you are in dire need of funds, never sell OGM rights.  In this situation, ethics has nothing to do with smart business cents (sense).

Permalink Reply by Ken Barton on February 4, 2016 at 7:12am

It is perfectly ethical to reserve your mineral rights, and as you mentioned, property without mineral rights is worth less that property with those rights.  I would not be out of line to offer the property at $2,500 to $3,000 less per acre than the price you would offer with the minerals.  A compromise would be to reserve half of the minerals, which could "sweeten" your deal, and not reduce your price at all.  This would allow the buyer to evaluate if the prospect for future production and royalties could be worth paying a higher price for the property now.  With the current oil and gas  situation, it may be some time before any oil or gas is actually sold from any wells in Tioga and Potter counties, even though there is drilling activity.  As far as surface activity, the landowner, not the mineral owner, would get paid for any spud fee, or surface use fee, so really, that is a non issue, even if you retain the minerals.  Any O&G company has to negotiate with the landowner before setting foot on their property. ( I take it this property is not leased as yet?)  Good luck in God's Country, and I hope this helps.

Permalink Reply by Becky Smith on February 4, 2016 at 9:06am

The property has no gas lease on it.

Permalink Reply by Jack Young on February 4, 2016 at 12:39pm

Owning a property in the US involves owning a bundle of rights that run from the center of the earth to the heavens above - you can split it up horizontally (sell a portion to a person wanting to build, for instance) or split it vertically (selling off the surface but keeping the subsurface). Or you can sell other specific rights (pipeline or electric rights of way, hunting rights, coal, flag stone, spring rights, conservation easements - whatever someone is willing to buy). There's nothing unethical about splitting a property up, no matter how you do it. That's how the property system works in our country. At least half of the property owners in Potter County split off their oil and gas rights from their surface years ago, so you're lucky you still have yours!

Before you can determine what discount the surface should sell for given an oil and gas reservation, you have to know what the oil and gas rights you're keeping are worth. In some parts of Potter County the values are pretty high right now, while in others you won't get so much. If you sold the property with all rights attached, you'd combine the value of the land, timber, improvements and the oil & gas and that's what you would try to get. So if you decide to keep the oil & gas, that value ought to come off the asking price.

In recent times (and a sale needs to be very current to be much use for this analysis since prices have been falling rapidly in most areas) I'm seeing $1,500 to $2,000/acre paid for oil and gas rights in the best areas, and closer to $500/acre in the least appealing townships. Adding a "no surface use" provision to your reservation shouldn't impact the discount much - 40 acres is small enough that any driller ought to be able to work around you unless they're drilling shallow wells.

If you can give us a township, I can probably give you a better sense of the discount that you might want to offer in exchange for retaining the oil and gas rights. Hope this helps.

Permalink Reply by Becky Smith on February 4, 2016 at 12:57pm

Bingham township

Permalink Reply by Jack Young on February 4, 2016 at 1:31pm

That's a tricky one - if you're in southeastern Bingham Township you're on the fringe of the area where JKLM and Travis Peak were both leasing early last year, although neither is doing much now. Otherwise the majority of the township is either inside the Ellisburg Storage Field (so off limits to deep drilling at present) or between Ellisburg and the NYS line, where nobody has been leasing, the Utica isn't supposed to be so good and there's not enough room between the storage field and undrillable New York to fit in very many full-sized units anyway.

If you're in the southeastern corner of Bingham Township, your oil and gas rights are probably worth a little over $1,000/acre now, although finding a buyer is hard everywhere, but if you're on the NY side of the Ellisburg field, the value is probably closer to $500/acre. Inside Ellisburg? Well, that would worry me since they believe they have everything under lease and you say you aren't under lease. So you'd want to double-check your title in that case.

If you have a tax map number, I could dig a little deeper and see exactly how your location lines up with the storage field etc.  Bingham Township oil and gas rights aren't uniformly valuable, so your exact location could make a difference. But in any case, you can definitely give your friend a decent discount regardless of where the property is located, they'll be happy and you may even get lucky one day!

Permalink Reply by Becky Smith on February 4, 2016 at 3:28pm

We're just about as southeast as you can get in the township.

Permalink Reply by Jack Young on February 4, 2016 at 4:33pm

Quite a few tracts in that area already have their oil and gas rights owned by another party - that's something worth checking. Parts of the old Somogyi property, for instance. But if you've got your OGMs it's probably the best place to be in Bingham Township. I assume you were approached by JKLM and Travis Peak last year - if not, I would definitely check your abstract and make sure you have the oil and gas rights before you reduce the sales price on the land. Good luck!

Permalink Reply by Becky Smith on February 5, 2016 at 3:03am

Yes, we own the rights and were approached last year but did not lease.  According to Landex and just asking around, it looks like just about all of our surrounding neighbors have leases.  Does that make us more desirable in future?  Is there any downside to keeping the mineral rights?  I was told I don't have to pay taxes on them.

Do you think it matters what lawyer we talk to about drawing up a purchase agreement?  I know there are some that specialize in drawing up lease agreements, but I assume retaining the mineral rights is pretty straightforward.

Permalink Reply by Jack Young on February 5, 2016 at 4:52am

Excepting the oil and gas rights from the deed you'll be signing will be simple for any attorney - I'd use whoever you're most comfortable with otherwise. Oil and gas rights aren't taxable at present but "minerals" are taxed in some counties, so I would just keep the oil and gas.

If the properties around you are under lease that's a positive, but not a big one until/unless developmental drilling starts. Which seems unlikely for a few more years based on what I'm hearing from the players in that area. So you're in a good spot - you can keep the oil and gas rights and see what happens next.

Permalink Reply by Vicki Gray on February 23, 2016 at 10:58am

Hi Becky,

I too have close to 40 acres in Potter Co., in fact I am currently near one of the wells JKLM has erected and their pipeline is crossing my land and another is going up behind my acreage which another oil and gas company is calling me. I was contacted for the last 2 years by JKLM and now this other gas company if I was interested in leasing or selling

I was under the belief that I had mineral rights. But after a lengthy search by JKLM, found that since 1904, I have had NO mineral, gas or oil rights. My property changed hands 10 times, in each deed the Oil, Gas and mineral rights line showed up only on two deeds so hence the research. Over 100 years ago it was all given up. 

I am extremely angry because this is an extremely crucial piece of info that we were not aware of back in 1970 when the acreage was purchased. There is nothing I can do about this and my family feels duped because the land was purchased for $1500 an acre back then. If we would have known there were no rights for what is under the ground and they can do whatever they want on the surface to obtain they also have egress, ingress and regress; we would have offered extremely less per acre. Currently I am told my land is only worth $500 an acre maybe less since there is now an encumbrance on the land.

I supposedly have one of the top firms to help with this and may I say, they were of no help. I had to do everything and am in the hole $13,000 for attorney fees

Permalink Reply by Jack Young on February 23, 2016 at 1:16pm

That's unfortunate, Vicki, but if you had asked your attorney to research the title to the oil and gas before you bought the land, they would have found exactly what JKLM found. It would have cost a little more, but I would never buy land without checking first. Back in the 1970s, however, there was virtually no drilling or leasing in Potter County, so not paying extra to have the research done probably didn't seem like much of a risk.

I doubt that your land is worth only $500/acre as a result, however, The majority of the landowners in Potter County don't own their oil and gas rights, and if it was that important none of them would be able to sell their land for a decent price either. It's frustrating to learn that you won't get a windfall from leasing to JKLM, but if you don't own the right, even a "top firm" can't be expected to perform magic.

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