Iowa Public Television

 

Landowners Getting Trampled in Gas Rights Rush

posted on May 30, 2008


CHARLESTON, W.Va. (AP) — Unsuspecting property owners around the country are getting trampled in an old-fashioned land rush by natural gas companies and speculators trying to lock up long-ignored drilling rights quickly and cheaply.

Stories of fast-talking industry representatives using scare tactics to strong-arm people into signing lowball leases are popping up in rural areas and suburbs from New York to West Virginia to parts of Indiana and Texas. All sit atop largely untapped natural gas deposits made suddenly viable — and valuable — by soaring prices and improved drilling techniques.

West Virginia farmer and convenience store owner Brad Castle is still smarting from his experience.

Castle and his father thought they were getting a windfall when they signed a $5-an-acre lease and promise of 12.5 percent royalties for the gas rights to 800 acres they own near Rowlesburg in northern West Virginia. The process started when a landman — an industry term for a person who secures mineral rights — knocked on their door.

"They're very nice people, the ones that come around. You thought you could trust them," said Castle, who adds that he was warned to sign or drillers would siphon the gas beneath his property without paying him a dime.

His feelings of trust evaporated when rival companies started offering $350 an acre and royalties as high as 15 percent.

"They knew what they were doing when they come in, but we didn't," said Castle, who's hired a lawyer to look into breaking the lease. "There's got to be a law broke somewhere."

Retired dairy farmer Dewey Decker heard similar pitches when landmen started showing up in New York's Broome and Delaware counties.

"They were offering like $25, then $50," Decker said. "Quite a few people signed for $50."

But Decker held out and formed a pool with other landowners that has grown to more than 40,000 acres. The approach worked: Decker's group agreed to a five-year deal that pays $2,411 an acre and a 15 percent royalty.

So, too, did entrepreneur and writer Tom Rodgers and much of his suburban Arlington, Texas, neighborhood, which sits atop a gas-rich formation called Barnett shale. Rodgers remembers the landmen's spiel as almost exactly like oilman Daniel Plainview's sweet-talking sales pitch in the movie "There Will be Blood."

"That original speech that guy makes to the rural property owners, it hasn't changed much in 100 years," Rodgers said. And like Castle, Rodgers said landmen often warned that homeowners risked getting nothing if they didn't sign. "These landmen do lie. They do exaggerate."

Gas companies such as Chesapeake Energy Corp. make no bones about their desire to lock up leasing rights. The Oklahoma City-based natural gas giant calls its aggressive lease acquisition program the "land grab" in its latest annual report to the Securities and Exchange Commission.

Chesapeake did not immediately return a call seeking comment.

While Rodgers said Chesapeake was aggressive in its efforts to secure rights in his neighborhood, he said the company quickly clamped down when residents complained about dishonest tactics by independent landmen hired by the company.

West Virginia lawyer David McMahon said such aggressive tactics are showing up across West Virginia counties with substantial Marcellus shale, a 6,000-foot-deep rock formation believed to hold 50 trillion cubic feet of recoverable gas.

"Most everybody's getting a lowball dollar offer and lots of people are getting rushed," McMahon said.

As for the kind of half-truths Castle was told — landowners can be reimbursed for gas sucked from beneath their property — McMahon said that's not universal — and not true. "Some landmen are being fair, but sharp bargainers."

McMahon recently started a campaign to educate landowners about mineral leasing through the West Virginia Surface Owners' Rights Organization. Among other things, McMahon advises landowners to take their time and refuse to be rushed into signing leases. He also suggests rejecting standard leases in favor of documents containing protections against roads, potential pollutants such as saltwater injections, and use of depleted wells for gas storage.

Herschel McDivitt, director of Indiana's Division of Oil and Gas, offers similar advice. He hears from landowners often enough to suspect landmen are employing similar tactics as they try to secure rights to New Albany shale in the Illinois basin.

"There just aren't a lot of savvy landowners out there," McDivitt said of the calls he gets regularly. "Some of them are just, 'Hey, we just had some slick-talking guy who's just been pounding on us, but we don't understand.'"


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