SHERRARD - If you are getting ready to sign a natural gas drilling contract - or are one of the hundreds of local mineral owners already signed to deals - Paul McKay hopes you realize how important your decisions are.
"The amount of royalties from Marcellus Shale are tremendous," said McKay, a senior trust officer for WesBanco Inc. during a gas meeting last week at Sherrard Middle School. "You are looking at a lot of money over generations."
Local lease contracts range from as low as $5 per acre to at least as high as $4,000 per acre - with production royalties ranging from 12.5 percent to 19 percent - from companies such as Chesapeake Energy, AB Resources, and Trans Energy. McKay said "the royalty is far more valuable than the bonus (lease payment)," noting the amount a mineral owner can collect once drilling begins will total more money over time than will the lease payment.
However, the lease and royalty money is only one aspect of the contract, McKay stressed. Shut-in royalties, taxes and production expenses, and whether a mineral owner will be compensated for byproducts commonly known as natural gas liquids are also major considerations.
"The first lease that they offer you is negotiable. They are going to have bottom lines that they are not going to cross, but there is room for negotiation," McKay said during a later interview. "Don't expect to hit a home run, but don't let them hit a home run against you."
A shut-in royalty is a payment that mineral owners receive when a company is not producing gas, which McKay said those signing the contracts must make sure they are qualified to receive.
As for taxes, the mineral owner can request that the gas company pay the taxes on production royalties - and if the mineral owner will receive royalty payments before the gas company removes money to cover its post-production expenses.
The payment of royalties for natural gas liquids - including ethane, butane, propane and pentane - is another significant aspect to consider, McKay said.
"A lot of the leases were drafted before the natural gas liquids were contemplated," he said. "It is unclear if the mineral owners will be compensated for them, if it is not specifically spelled out in the contract."
During the same meeting last week, West Virginia University's Marshall Miller Professor of Geology Tim Carr told those in attendance,"Natural gas liquids are worth money - and you have a lot of them."
Other items McKay urges mineral owners to consider when signing a lease include:
Another major issue affecting mineral owners is the matter of "forced pooling," a practice that is now illegal in West Virginia for Marcellus Shale extraction. A bill pending before the state Legislature would allow the practice, which would enable gas drillers to use land that they have not leased to form a well pad. For example, if all of your neighbors have signed leases with a particular drilling company but you refuse, you may be forced to allow your land to be used by gas drillers for the development of your neighbors' gas.
"Pooling allows for the efficient extraction of resources. It is a good idea, unless you are the one being pooled," said West Virginia Department of Environmental Protection Secretary Randy Huffman.
Dave McMahon, co-founder of the West Virginia Surface Owners' Rights Organization, supports the general idea of pooling to ensure that anyone seeing their gas taken by a drilling company receives proper compensation. However, he opposes this particular pooling provision, noting it would allow drillers to force "new huge horizontal well sites on surface owners" and do so without guaranteeing the mineral owners full compensation.