Saturday, February 9, 2008

Notes from Penn State Extension Feb 4th Lehman Campus Penns State U.

The experts are not sure how thick the Marcellus Shale. Maps of the shale extent can be found at http://iogawv.com/RamsayBarrett-Shale.pdf The TOC (Total Organic Carbon) is of the Marcellus Shale is high. The Marcellus Shale is thick and of high quality.
Spacing – not exactly the 640 acres we had heard. The size of the spacing unit for a particular reservoir is set according to its depth and production characteristics. The larger the frac needed the larger the unit of land needed.
There is excitement in the gas industry over the ability to drill horizontally. A drilling rig can go vertically and then extend that drill to the side.
If people have not been approached there is time for them. The play keeps expanding.
Cosmic Seismic Services of Canada does the majority of the seismic testing in this area.

Atty. Dale Tice of Greevy Assoc. Williamsport
A well should be 500’ from any structure on a person’s property that contains living area.
Marcellus Shale is above the Onondaga , a layer of dense limestone that outcrops in NY and PA. Forced pooling is allowed above the Onondaga. A group of landowners may group themselves together voluntarily to negotiate a lease.
These landowners do not have to be adjoined. Each property owner in a group will have their own lease. One size may not fit all. Those same landowners may not be pooled together for the purpose of drilling for gas. To be pooled, the company gathers the land that has the potential to be above gas reservoirs. It can be the whole of one property or a portion. They will gather as much land is as necessary and form it into a unit. There may be several wells drilled in that unit. A unit is guided by production.
The horizontal drilling can be used with pooled properties.
Timber – it is best to get an independent appraisal for any timber for which you request payment.
Water – Make certain you have an independent entity take a water sample three months before drilling. Water can be drawn from any pond, lake, stream on a leased property. Check your addendum on this.
Roadways – make sure you address this in any addendums. Whose concern are they before and after the drilling.
Fences – Who is liable to replace. Make sure they fence off their well area so no one can enter.
Make certain that any seismic work has your pre-consent.
Pugh Clause – a bit murky to this writer. Make certain your attorney explains as it is important if you are in a pooled unit. In lay terms (I think) at the end of your lease, only the portions of your land in that pooled unit shall continue to be held by the lease. At any rate, check this one out with an atty.
Record and Audits - make certain you can review this information.
Should you sign a lease? It depends on: your goals for the property, your financial strength, your estate plans, the terms of the lease.
Should you not sign a lease? It depends on: do not sign because the neighbors did, because you are afraid they will drill across property lines, if you do not understand the effect on you, your family and your property, for the bonus dollars alone.
How to make a decision – Understand all terms of the lease, seek an attorney that works for you and makes you feel comfortable with asking questions.
The lease covers two different terms : Primary in which the do their exploration and seismic studies. There is little impact on property. Risk in this term – abandonment of lease – no gas under your ground. Poor lease terms, poor work relationship, assignment of lease to others with whom you are not comfortable. Think about the impact and negotiate terms that work for you.
Secondary in which there is well drilling and production. There is more impact. How much impact? As much as they need: well site – could be viable for years, access roads, pipelines, metering stations, compressor buildings (all mobile and not subject to Planning Commission), traffic for routine maintenance. If no well is drilled at the end of the term, make certain the addendum states that the lease is ended.
Financial Gain is a balancing act. Consider your property risk, resale and taxes.
Make certain you understand how much Royalty you might receive. There are many factors, the least of which is the percentage.
Have a clear understanding with your accountant before you sign any lease. After is not the time to make changes. You will pay tax. Just as you need a gas attorney you need someone that understands gas taxes. Do-it-yourself tax programs might not give you all the information you need.
Pipelines – Eminent Domain cannot be used for wells. Probably not for small pipelines but maybe for the large ones.
15% is the new plateau. Work toward that number.

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