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Pa. man regrets signing lease without research

Posted May 22, 2014

— Bill Them has advice for North Carolina landowners when the first gas company agent knocks on the door carrying a prewritten lease: Don't take it.

"I took the first offer because I was stupid," Them said. "I was just uninformed."

The 64-year-old is a real estate agent for Century 21 in Bradford County, Pennsylvania, where the gas rush began in 2006 a couple of years before drilling.

He signed a lease with Chesapeake Energy that included a signing bonus of $90 an acre for his 240 acres, or a total of $21,600, plus royalties.

About 18 months later, gas agents were offering $5,000 an acre to Bradford County property owners, he said.

"I left over a million dollars on the table," Them said, laughing.

Chesapeake has drilled two gas wells on a fenced well pad on Them's property, and it has room for four more wellheads.

The pad has two above-ground storage tanks for fracking wastewater. A tanker empties the waste every week or so, Them said.

Chesapeake likely will dig more wells at the site when the price of natural gas increases, he said.

The wells on his property are low producers, but he still collects about $5,000 a month in royalties.

"It's OK," he said. "It's nothing to sneeze at, either."

The average landowner with 20 to 30 acres usually collects about $500 a month, he said.

Doug McLinko, chairman of the Bradford County Board of Commissioners, has similar advice for people contemplating mineral leases: "You need to make sure your leases are solid, and do not trust land men."

Gas companies often pay their agents, or land men, by the day and through commission, according to America's Counties for Energy Independence, a coalition of elected officials that promotes unconventional drilling and educates landowners.

McLinko is a leader of the coalition, which he helped form in 2012.
Reduced royalties

In Pennsylvania, a recent concern is how Oklahoma-based Chesapeake - the largest company drilling in Bradford County - has drastically reduced royalty payments. Last year, Chesapeake began deducting what it calls "post-production" expenses, such as for marketing and transporting gas.

The affected landowners said they feel cheated and have lobbied Pennsylvania lawmakers to close a loophole in a 1979 state law establishing a minimum 12.5 percent royalty on the value of the gas or oil.

After expenses are deducted, Chesapeake is paying as little as 1.5 percent, according to the Marcellus Drilling News website.

Chesapeake has a large presence in Bradford County, where more than 100 property owners held a courthouse rally in February. They want lawmakers to pass a bill that would give them more protection against companies taking out large deductions from royalties. The bill is pending in the Pennsylvania legislature.

North Carolina has a 2-year-old law establishing a minimum royalty payment of 12.5 percent "of the proceeds of sale of all oil or gas produced" from a well. Those proceeds, the law says, "shall not be diminished by pre-production or post-production costs," such as those being charged by Chesapeake.

Jim Womack, who heads the N.C. Mining and Energy Commission, says North Carolina property owners should consult a lawyer before signing a lease.

"The industry should have the freedom to negotiate the conditions and terms in what is basically a private contract between two parties," Womack said.

Staff writer Andrew Barksdale can be reached at barksdalea@fayobserver.com or 910-486-3565.


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