Gas Leases

Sorry for the last minute notice but I just received word of this seminar this morning. For anyone in the Hornell, NY area considering signing a gas/oil lease please consider attending this seminar. It’s probably one of the best investments you’ll make:

Steuben County landowners are banding together over mineral leases — particularly natural gas.

The Steuben County Landowner’s Coalition, along with the Cornell Cooperative Extension of Steuben County and the Steuben County Farm Bureau, is hosting a meeting from 7-9 p.m. Tuesday at Hornell High School to discuss the coalition’s mission of collectively negotiating natural gas leases.

According to the state Department of Environmental Conservation, gas production in the state — at 54.92 billion cubic feet in 2007 — is near an all-time high. Because of increased demand and cheaper drilling technology, said Jim Grace, head of farm business management at the Bath CCE office, demand for gas leases in the county have skyrocketed, especially for the two main gas formations.

The most-tapped formation, the Trenton-Black River Formation, consists of large gas pockets at around 10,000 feet — or close to 2 miles — below the surface. The formation has been under development in Steuben County for several years, Grace said, and most of the work on the deposit is near Corning and Caton.

The second deposit, the Marcellus Shale, is a shallower deposit — between 5,000 to 6,000 feet below the surface — but the pockets are vertical cracks in the Earth’s crust and very hard to drill normally.

“Recently, they figured out how to drill horizontally into the formation,” Grace said. “They’ve really built this up.”

Not only is horizontal drilling a necessity for maximizing the return, Grace added, but a process called hydrofracking — pumping water into the well at a high pressure to crack the shale open and release the gas — also is necessary.

Another difference with the Marcellus Shale is the gas is not under as much pressure.

“It (a well) could last 20 years,” he said, adding the gas would continue paying out royalties — at a lower rate — for a longer time than a deeper gas well.

And across the formation — from New York to West Virginia — there is an estimated 500 trillion cubic feet of gas, so it is a lucrative target for drilling with new technology, Grace added.

One of the problems with Steuben County’s gas reserves is the Marcellus Shale layer in the county is not as thick here.

“It’s about 50 to 75 feet thick,” he said, adding the layer in Chemung and Broome counties is more than 100 feet thick in many places.

To tap into the gas, companies need leases from landowners. According to Grace, drilling companies prefer to have all of the land in an area under lease before they begin drilling, but are legally allowed to start drilling when 60 percent of the acreage over a pocket is leased.

Leases can be as little as $20 an acre, he said, but some landowners in Chemung County have received more than $300 an acre for their property’s mineral rights.

The point of the SCLOC, Grace said, is to get landowners together to negotiate for higher lease payments.

People who already have leases, however, will not be able to participate until their leases — usually five to 10 years — expire.

“The question is how much of the property in this area is already leased,” Grace said. “If you have a lease for the next five years, you can’t get out of it. A lot of property has already been leased.”

Along with the lease payments, if the property produces gas, the landowner also will receive royalties.

“Traditionally, it has been 12.5 percent (of the gas value),” Grace said. “Only about 15 percent of leased acres yield gas, so if you get a royalty, you’re lucky. Most people would just get the signing bonus.”