Gas Leasing and Real Estate Greevy

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Gas Leasing and Real Estate Greevy
Associates 1460 Washington BoulevardWilliamsport
, PA 17701570-326-6561

• Lester L. Greevy, Esq. Dale A. Tice, Esq.
• les_at_greevy.com dale_at_greevy.com

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Marcellus Shale

• Covers a large area extending from New York
  through Pennsylvania to West Virginia

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A multi-state play
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Marcellus Shale

• Gas companies have known about the Marcellus
  Shale for many years
• Technology to access the shale was developed in
  the Barnett Shale in Texas
• The Barnett Shale covers a portion of Texas and
  is the most prolific gas producing region in the
  nation

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Black Shale Resource Plays in North America

• Black Shale Resource Plays

EP Magazine, 3/2007, p. 77
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Marcellus Shale

• Key technologies
• Hydrofracturing or Fracing
• Horizontal drilling

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Leasing Activity

• Frenzy of leasing activity in Northeast
  Pennsylvania began in the fall of 2007
• Lease prices are now rising in Central and
  Southwest Pennsylvania

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Leasing Activity

• Currently leasing activity has peaked in parts of
  Northeast Pennsylvania
• Will there be a second peak as wells begin to
  produce?

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Essential Terms of a Gas Lease

• Terms a landowner must negotiate include
• Cash Bonus
• Royalty 1/8 is the state minimum
• Term of the lease typically five years
• Watch out for the option to extend
• Modify the lease by addenda

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Price

• Factors affecting landowners ability to
  negotiate a gas lease
• How much land
• How many bidders
• Proximity to producing wells and infrastructure
• Timing

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Issues to Consider in Real Estate Transactions

• Understand the status of the property
• Understand the intent of the parties to the
  transaction
• Understand the options available to effectuate
  the intent of the parties

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Status of the Property

• Oil and Gas Reservation
• The reservation of oil and gas includes the right
  to develop the resource
• Buyer takes the property subject to the right of
  the holder of the reservation
• Includes the right to access the property to
  drill a well
• Sub-surface rights are dominant

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Status of the Property

• Current lease
• Lease binds successors, heirs, and assigns
• The lease follows the deed
• Buyer takes property subject to the lease

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Status of the Property

• Title search
• Typical title search goes back 50 to 60 years
• Oil and gas reservations in the 1800s are often
  missed in this type of search
• May discover lost property owners

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Status of the Property

• Dormant Oil and Gas Act
• Allows a court to appoint a trustee to represent
  the interest of a lost property owner
• Trustee can execute an Oil and Gas Lease and hold
  payments for lost owner
• Escheats to the State

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Status of the Property

• Action to Quiet Title
• May be possible to extinguish old oil and gas
  reservations when it is impossible to locate the
  current owner
• Rights were lost or bought back at a tax sale,
  treasurers sale, or mortgage foreclosure

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Understanding the Intent of the Parties

• Does the seller intend to convey the oil and gas
  rights?
• Does the seller understand the value of the oil
  and gas rights?

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Understanding the Intent of the Parties

• Does the buyer understand the consequences if the
  property is subject to an oil and gas
  reservation?
• Does the buyer understand the consequences if
  there is an oil and gas lease on the property?
• Up-front payment what is it?
• Cash Bonus Not apportioned
• Advance Rental Apportioned
• Needs to be addressed

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Option to Effectuate the Intent of the Parties

• Seller retains the oil and gas rights with a
  decease in the purchase price
• Seller conveys the oil and gas rights with an
  increase in the purchase price
• Seller transfers the oil and gas rights but
  retains the rights under the lease by an
  assignment of the lease
• Seller transfers half of the oil and gas rights
  and retains the other half

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Valuation of the Land

• Typically done by appraisal
• Look at prices for comparable land
• Very few comparables
• Fair market value
• Willing buyer and willing seller

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Valuation of the Land

• Valuation of land in the Marcellus Shale is very
  speculative
• No history in Marcellus Shale of well production
  or the decline rate

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Valuation of the Land

• Surface rights
• Sub-surface rights
• Not generally considered separately before
• Dont just add together

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Taxes

• Real Estate Transfer Tax
• Applies to conveyance by deed of mineral and oil
  and gas rights

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Taxes

• Local Property Taxes
• Nonproducing oil and gas interests are not
  separately assessed

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Taxes

• Income Taxes
• Cash Bonus and royalties are considered ordinary
  income
• 15 depletion deduction for royalties

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Taxes

• Clean and Green
• Drilling activities may jeopardize Clean and
  Green eligibility
• Currently depends on the county
• Need state uniformity talk to your state
  representative and senator

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Responsibilities of Agents and Brokers

• Disclosures required in
• Listing agreement
• Disclosure statement
• Warranties and disclaimers
• Warnings
• Need for longer title search

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Responsibilities of Agents and Brokers

• What is an Agents or Brokers responsibility to
  a seller or buyer regarding the Marcellus Shale?

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Gas Leasing and Real Estate Greevy
Associates 1460 Washington BoulevardWilliamsport
, PA 17701570-326-6561

• Lester L. Greevy, Esq. Dale A. Tice, Esq.
• les_at_greevy.com dale_at_greevy.com