Utica Shale Leasing Price Per Acre
Oil and gas “bonus” rates or the price paid per acre for leases in the Utica shale play, (which allow a company to explore for two to five years), have risen dramatically in the past few weeks. Since Chesapeake Energy first announced in August that the Utica shale “may be one of the biggest oil discoveries in history”, county courthouses in Ohio and Pennsylvania have been flooded by “land men” who are pouring over deed records in an effort to find mineral rights owners and make them an offer. Here are some things to consider when approached by an oil and gas exploration company to lease your property. (The information in this article is not a substitute for qualified legal advice.)
Owners Of Large Acreages Have The Upper Hand In Negotiations
In other shale plays in the United States the price per acre has risen as high as $9,000 in areas with high concentrations of oil and natural gas liquids. Like the Eagle Ford shale in South Texas, the Utica shale in Ohio and Pennsylvania has a “sweet spot” between the heavy oil and dry gas zones, where large volumes of “volatile oil” or light oil, propane, butane, ethane and other natural gas liquids are found. It is in counties such as Columbiana, prices are headed north of $4,000 an acre.”Landmen” are individuals who work on behalf of oil and gas companies to locate mineral rights owners from information in county records, and make them lease offers. Once a lease is signed, the company has a defined amount of time, such as three to five years, in which to drill a well. If a well is made, the land then becomes held by production (HBP) and the landowner then receives whatever amount of royalty payments they negotiated for. If no wells are made, the lease ends after all renewal options expire.
Landowners who have several hundred or several thousand acres have the upper hand in negotiations, since oil companies want large tracts of contiguous land on which to drill the long horizontal wells, as well as dig frac water pits, etc. Unlike South Texas, the Eastern part of Ohio, where the Utica shale play is hottest, features many small farms and acreages. For these property owners it might be a good idea to join a landowner’s group, such as The Associated Landowners of the Ohio Valley, which has assembled 200,000 acres in Columbiana, Carroll, Jefferson, Mahoning, Trumbull, Harrison, Tuscarawas, Portage and Stark counties. (In recent weeks there has been an increase in leasing Utica shale acreage in Guernsey, Belmont and Noble counties to the south.)
Joining a landowner group is a good way for small to medium sized property owners to increase their bargaining power, since oil companies want large tracts of land. There are now several Utica shale and Marcellus shale landowners groups in Pennsylvania and Ohio. Some of these are “landowner’s groups” in name only, since they were started by attorney’s offices. Your best bet is to choose a group that is not bound to any one law office and governed by landowners themselves, who vote on each offer and the terms of the deal. So called “landowner groups” started by lawyers may end up costing you a good chunk of your lease bonus payment. It is beyond the scope of this article to endorse any of the Utica shale landowners groups, however the Associated Landowners of The Ohio Valley, website, is a nonprofit organization that was started at the grass roots level, not by a law firm looking to get rich. Even if you do not own the mineral rights below your land, joining such a group may help you negotiate a “surface damage” agreement, which will compensate you for land taken up by oil wells, tanks, pipelines, etc.
Things To Consider When Signing A Utica Shale Mineral Rights Lease
First off, landowners should understand the difference between selling and leasing mineral rights. Beware of those companies and lawyers who are now seeking out Ohio and Pennsylvania landowners, offering to buy all of their mineral rights. If you sell them, you will not get any future royalties from Utica shale or Marcellus shale wells on your property. You will essentially be signing all of your rights to future oil production away for a lump sum payment. This is a very bad idea if you are in one of the zones proven to contain oil and gas. Leasing your land for Utica shale drilling on the other hand entitles you to a “bonus payment”. The lease price per acre for Utica shale drilling rights is the “icing on the cake”. The real money will come in the form of royalty payments when a well is made. Make sure you negotiate for a good share of royalty payments. In South Texas the going rate for royalty is around 25% to the landowner. In Ohio’s Utica shale play, contracts from 12% to 25% have been written, but this is changing all the time. Belonging to a landowner’s group can help you stay informed of the going rate for bonus payments, and royalty percentage.
Key Lease Terms For Utica – Marcellus Shale Acreage
- You may elect to lease your property only to a certain depth. For example, you may lease the Utica shale to one company, and reserve the right to lease the Marcellus to another, if you are in an area where both formations are productive. Natural gas prices will rise again, and when they do the Marcellus shale will be hotter than ever.
- Make sure you control the water rights on your property. Don’t sign away your water rights for use on other tracts of land without being properly compensated at the going rate for water in your area. Utica shale wells will require up to 6 million gallons of water each to drill and complete.
- If you have multiple parcels of land that are separate from each other, you may not want to add all of them to the same lease. The reason being is that one well may “hold by production” all of the acreage, meaning it will be tied up and unavailable to lease to any other company if a well is made on even one small part of it.
For more information on Utica shale price per acre or leasing advice, consult with a local landowners group and a qualified attorney.
Share Your Price Per Acre For Utica Shale Leases Below
Please visit the Utica Shale Group on the Oil and Gas Mineral Rights Owner’s Forum to share information about current lease bonus amounts and other information with fellow landowners.