How to Know if You Have an Oil Well in Your Land
Jim Barrett stands adjacent to a well pad on his farm in Bradford County, Pa. He accuses Chesapeake Free energy of cheating him out of royalty money. Marie Cusick/StateImpact Pennsylvania hide caption
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Marie Cusick/StateImpact Pennsylvania
Jim Barrett stands adjacent to a well pad on his farm in Bradford County, Pa. He accuses Chesapeake Free energy of cheating him out of royalty money.
Marie Cusick/StateImpact Pennsylvania
The U.S. is i of only a few countries in the world that allow individual individuals to own the minerals under their land, a policy that dates to the Founding Fathers every bit they sought to elevate private interests over those of the British Crown. This financial incentive to allow new drilling goes a long style in explaining the nation's natural gas smash. The National Association of Royalty Owners estimates some 12 million American landowners receive royalties for the exploitation of oil, gas and other mineral resources under their holding.
But as U.Southward. product reaches tape levels — information technology recently surpassed the previous loftier point in 1970 — a circuitous web of laws and court rulings is evolving over how these royalties are distributed. That's creating vast differences in how much money belongings owners actually get and prompting a number of lawsuits accusing free energy companies of shortchanging them.
A tale of ii mineral owners
This disparity is playing out beyond Pennsylvania's gas-rich Marcellus Shale.
When natural gas companies approached Charlie Clark and Jim Barrett, two farmers living in neighboring counties, both decided to let them drill.
Clark says it felt like he had "won the lottery," and he is grateful every solar day for the ii gas wells drilled on his dairy farm. He estimates he receives almost $10,000 per month in the course of gas royalties.
"This is what nosotros've washed with our gas money," Clark says, standing in his new befouled filled with cows. "This barn here cost $40,000 to build it, and we were able to build it out of our pocket."
When he was growing up in rural Susquehanna County in the northeastern corner of Pennsylvania, his family used to scrimp and save simply to buy nuts, like new shoes.
Now, since the drilling rigs rolled into town and he started receiving royalty checks, Clark has a newfound sense of fiscal security.
"We're living like we used to, but without the stress," Clark says. "The bills are all paid. Your kid'south gotta go to college? No trouble."
He's a good example of when the royalty process works. It goes similar this: Gas companies and landowners sign a lease agreement before drilling begins. The royalty is coin paid to the mineral possessor, similar Clark, for the right to use his resource. It's negotiated to exist a certain percentage of the acquirement from the sale of the gas.
Clark is leased to a visitor chosen Primary Oil and Gas. The company gets gas it needs, and Clark gets paid. But he knows other people with similar gas wells are striking out.
"I give thanks God every twenty-four hour period that it happened here," he says, and non a few miles to the west.
Dairy farmer Charlie Clark bought a new hay baler with the royalties he received from natural gas development on his land. Marie Cusick/StateImpact Pennsylvania hibernate explanation
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Marie Cusick/StateImpact Pennsylvania
Dairy farmer Charlie Clark bought a new hay baler with the royalties he received from natural gas development on his land.
Marie Cusick/StateImpact Pennsylvania
Striking out
That's where Jim Barrett lives, about 40 miles away in Bradford County on what he describes equally "a pretty typical mountain subcontract."
Like Clark, he is grateful for the drilling.
"Information technology kept Bradford Canton alive," he says. If not for the gas manufacture, he says, his customs "would have been a ghost town in 2008 or 2010" later the Great Recession.
But for Barrett, the gas boom has not panned out the way he had hoped.
He says Chesapeake Energy, which operates four wells on his subcontract, is stealing from him, and he has joined a class-activity lawsuit against the company. Chesapeake, which declined to comment for this story, is defending itself against lawsuits in at least seven states for allegedly underpaying royalties.
By Barrett's calculations, Chesapeake owes him hundreds of thousands of dollars for the gas information technology has pumped out of his farm. The company has said in the past that it is committed to working with its royalty owners to answer questions.
Clark and Barrett might take started out with similar hopes, but their dissimilar experiences bear witness how tough it can exist for landowners to navigate the gas business and how resolutions are hard to come by.
Why the disparity?
Much of the controversy surrounding royalty money boils down to a concept known every bit post-production costs: the expenses of moving and treating gas through a network of pipelines. To cover the costs, drillers might take deductions from royalty checks.
Some landowners agree to that, while others negotiate a lease that prohibits it, says attorney John McFarland, who represents landowners with the Texas-based law house Graves, Dougherty, Hearon and Moody. Many others sign leases that don't address information technology at all. Fifty-fifty when possible deductions are addressed, McFarland says, the charter language tin be vague. That leaves room for a gas company to have deductions even if a landowner objects.
Disputes over post-product costs have popped upward all over the country as oil and gas production has soared, the effect of new horizontal drilling and fracking technologies that allow drillers to tap into shale rock.
By 2014, the United States was producing and then much oil and gas that it led to a global oversupply. That'south when complaints over these deductions actually started to scroll in, says Gary Preszler, vice president of the National Association of Royalty Owners lath.
Many free energy-producing states took a hit during the downturn, equally companies went bankrupt, workers were laid off, and tax revenue collected from oil and gas dropped. In most of them, like North Dakota, where Preszler lives, wells produce both oil and gas. When prices plummeted, oil suddenly wasn't worth what it used to be, he says, simply the gas still needed to be transported and treated, and that cost stayed constant.
"That's when people saw their checks beingness reduced significantly," he says. Some even received statements with a negative balance, meaning they wouldn't receive more royalties until the balance turned positive again.
In Pennsylvania, wells produce mainly gas, so landowners like Barrett noticed correct abroad when companies took out big, unexplained cuts. Some Pennsylvania landowners have been lament for years about exorbitant deductions. Still, many never have a reason to complain. Clark, for instance, says he feels his deductions are reasonable.
A patchwork of court rulings, allegations of cheating
Over the years, some landowners sued when they felt they were being cheated. That has led to a patchwork of court rulings in many states, determining how leases are interpreted.
Some landowners hire a lawyer to negotiate a lease with explicit linguistic communication that prohibits deductions or spells out exactly which costs tin can be taken out. The greater stake an private has in a well, the more than bargaining power he or she has to negotiate a lease that works in his or her favor, says University of Texas police professor Owen Anderson.
Simply not all become that route.
"As oftentimes happens, these landowners and mineral owners sign these leases the visitor offers without negotiating terms and without getting legal advice," Anderson says.
Later, if they believe they're not getting paid adequately, their options are slim. They tin can hire an expert to audit their royalties and get to court, merely some can't afford to practice that.
Preszler says the better pick is to prevent landowners from signing bad leases.
"It'southward a lot easier to try to get the terms correctly done at the front end end than to try to manage and fix a trouble afterwards," he says. His grouping is developing a seminar to better educate landowners.
In Pennsylvania, a decades-old law guarantees a minimum 12.5 percent royalty. But the state's Supreme Courtroom has ruled that deductions tin still exist taken, even if they cut into that rate. For four years, mineral owners have pushed to keep that from happening, but so far the Legislature has not passed a bill.
It's a unlike story in Due west Virginia, where royalty owners merely scored a victory. Lawmakers did step in after the state Supreme Court sided with energy companies in a case final year. Now, the governor has signed a new police prohibiting gas and oil companies from deducting post-production expenses in certain types of leases.
Meanwhile, lawsuits are playing out in several states, including i brought past Pennsylvania's attorney general accusing several gas companies of stiffing thousands of landowners past promising royalty money that was never paid. So far, he has not agreed to an offering by Chesapeake Energy to settle its royalty cases in the state for $30 1000000.
Back on his farm in Susquehanna County, Clark says fifty-fifty though he is pleased with his gas royalties, he thinks the law should ensure everyone is paid adequately.
"I approximate I really don't understand why the government hasn't stepped in and done a picayune bit more, because information technology would benefit them likewise," he says. "Any extra money we'd get, we'd be taxed on."
Over in Bradford Canton, Barrett but wants to protect his family'southward legacy. "Every farmer would say they want their subcontract to go on," he says.
Barrett's land was passed down from his great-granddaddy, and he hopes to hand it over to his grandchildren. Just without the royalty money he expected, he and his wife may have to sell the farm to retire.
Source: https://www.npr.org/2018/03/15/592890524/millions-own-gas-and-oil-under-their-land-heres-why-only-some-strike-it-rich
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