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Area wells produce gas, wealth
Business editor
mbradwell@observer-reporter.com
With just over a year of drilling activity completed in the local Marcellus Shale strata, attorneys and brokers are beginning to field questions from landholders with money from natural gas leasing and royalties.
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Lawyers, economists and investment professionals say it's too early to tell how big of an economic impact the drilling activity will have locally, but most believe it will be significant, with some landowners potentially receiving millions from royalty payments over the life of a lease.
In mid-August, the Washington County Bar Association sponsored a seminar on oil and gas leasing that drew more than 40 local attorneys to the 90-minute session at the Holiday Inn in Meadow Lands.
Washington attorney Jim McCune, who moderated the event, said demand for legal services is growing along with the number of leases being sought by gas exploration companies here.
McCune, who chairs the bar association's continuing legal education program, said the gas leasing seminar was a natural, considering the activity here.
"The legal community is constantly buzzing with talk of gas exploration," he said last week, adding that his firm, Bassi McCune & Vreeland, is working with numerous landholders who have leases with Range Resources.
Range, one of the biggest gas exploration companies with local operations, has drilled about 100 wells in the region since it began tapping into the Marcellus Shale strata in 2006.
Just the beginning
While attorneys and investment professionals are hearing from more landowners who have been approached by landsmen offering leases and royalties for wells that produce, the consensus is that they're seeing just the beginning of something that could go on for many years.
Jason Mendicino of Carroll Township, who formed Pennsylvania Landowner Alliance with his brothers, Domenic and Michael Mendicino of Rostraver Township, said the group represents landowners in a four-county area of Southwestern Pennsylvania, including some from Washington and Greene counties who collectively own about 33,000 acres.
Mendicino said his group conducted a series of seminars over the summer to encourage the various landowners to join the group and offer their holdings to several gas companies to get the best offer. The group is represented by Waynesburg attorney David Hook.
"We took the acreage position to companies and tried to obtain a bid," Mendicino explained, adding that the group is currently in negotiations with one of the companies it approached.
He explained that if the alliance obtains an offer, it will bring it back to members who are under no obligation to accept it. He said the drilling company would group the leaseholders in 640-acre production units, distributing royalties among the participating landowners in each unit.
According to a calculator on the Pennsylvania Landowner Alliance's Web site, someone who owns 100 acres and receives a 2.5 percent royalty of an overall 16 percent royalty payment for a 640-acre unit could receive annual payments totaling nearly $2 million over a 20-year agreement.
While the drilling activity has the potential to create wealth for the average person with a lease, bigger landowners are also getting involved. Last week, the Allegheny County Airport Authority, the agency that owns Pittsburgh International Airport and controls more than 9,000 acres mostly at PIA but also at the Allegheny County Airport, said it wants to lease the land for gas exploration. A day after the announcement, the plan was temporarily halted by Allegheny County Executive Dan Onorato, who said more time was needed to study the proposal.
Jason Harrison, a vice president with Hefren Tillotson, a regional brokerage based in Pittsburgh, said the firm has received "a handful of calls" from Washington County residents asking questions about how to invest proceeds from their lease and royalty payments.
"As far as this particular situation, we're just starting to scratch the surface in Western Pennsylvania," Harrison said, adding that his firm already has clients from Northcentral Pennsylvania, where drilling has been under way for some time.
But Harrison and Pete Dochinez, president of Trustmont Financial Group in Greensburg, believe that as more leases are negotiated and wells begin producing, there will be some serious wealth generated among residents here and throughout the region.
Harrison said his early exposure to the wealth potential from gas drilling came when an elderly landowner from Clearfield County arrived at the firm with a $750,000 check, seeking investment advice. She had brought 30 other leaseholder with her, also seeking advice about where to invest their royalty payments.
"She probably hadn't filed an income tax return in 10 years, and now she needed estate planning," Harrison said.
Potential unknown
Larry Hunt, a vice president with Janney Montgomery Scott in Southpointe, said most of the calls his brokerage has received so far are from local people with questions about leasing. He said the brokerage is suggesting that people contact an attorney with their questions.
Dochinez, who launched the Web site recourcetradingonline.
com in June to give the region's landowners an opportunity to establish competitive bidding for leasing their land, said the leasing and royalty offers have the potential of creating wealth for average people.
Like Hunt, he said those being approached about signing a lease should seek the advice of an attorney experienced in mineral rights, adding that the leasing arrangements can become highly technical.
"They need to get an attorney who is well-versed in the oil and gas industry," said Dochinez, adding that a friend has been negotiating a large lease for the past six months.
"There are 45 addendums to his lease. He's a very, very bright man who is looking at a lot of money and wants to make sure things get done right," he said.
While it's too early to tell how much wealth will be generated locally as a result of drilling in the Marcellus Shale, at least one preliminary study suggests it could be substantial for many parts of Pennsylvania.
A Penn State University study conducted on the shale's statewide economic impact and released in June concluded the royalty payments will spur additional spending by landowners throughout the economy and lead to the creation of new jobs that will attract workers.
The study's authors, David Passmore and Rose Baker, said last month that no one will know the full impact of the shale for some time and that it's currently impossible to break down economic projections by regions of the state.
In the Penn State study, researchers used $1 billion in annual royalty income as a yardstick to measure potential gains in employment, disposable income, population and other economic indicators in Pennsylvania through 2011. The actual amount of royalty income could be higher or lower; the study did not provide a forecast.
According to the research, each $1 billion in royalty income would translate into nearly 8,000 new jobs and population gains ranging from 1,484 to 4,045, depending on the year being studied.
Passmore, who is director of the Penn State Institute for Research in Training and Development, said that when his group studied the Barnett Shale region in Texas, it noted that lease and royalty payments account for about 15 percent of the economic impact, while business activity related to gas drilling accounted for the remaining 85 percent.
"We don't know how big it's going to be here," Passmore said, adding that regardless of how the numbers break out for Pennsylvania, the money being generated by drilling activity and the leases and royalties it creates is all "new" money.
"It's almost like found money in the economy," he said.
Gas drilling : 9/14/2008
Is this gas drilling going to benefit all tax payers in the Township or County? What about the small property owner. Will it lower our Taxes?
gas drilling : 9/16/2008
As a small property owner why are you looking for lower taxes from someone elses riches. Do you believe in socialism?
