At a recent meeting in Sherrard, West Virginia, senior trust officer for WesBanco Inc., Paul McKay, had some excellent advice for landowners as they get ready to sign leases. He told those at the meeting that the first lease they’re offered usually has room for negotiation, and some of the items landowners need to check for include shut-in royalties, the question of who pays taxes, and payment for natural gas liquids.
A shut-in royalty is a payment that mineral owners receive when a company is not producing gas, which McKay said those signing the contracts must make sure they are qualified to receive.
As for taxes, the mineral owner can request that the gas company pay the taxes on production royalties – and if the mineral owner will receive royalty payments before the gas company removes money to cover its post-production expenses.
The payment of royalties for natural gas liquids – including ethane, butane, propane and pentane – is another significant aspect to consider, McKay said. “A lot of the leases were drafted before the natural gas liquids were contemplated,” he said. “It is unclear if the mineral owners will be compensated for them, if it is not specifically spelled out in the contract.”*
Other things to consider when signing a lease, according to McKay:
- limiting the area of the lease to the Marcellus Shale by limiting the depth of the drilling;
- limiting the extension of the lease;
- limiting the gas company’s ability to install storage facilities, disposal or injection wells for hydraulic fracturing waste, pipelines and compressor stations;
- including surface damage protections to ensure the least amount of property damage.*
McKay said that leases are currently being offered to landowners in West Virginia with signing bonuses up to $4,000 per acre, and royalties from 12.5 to 19 percent.
*The Intelligencer / Wheeling News-Register (Feb 14) – Drilling Leases Will Impact Generations