Some West Virginia landowners who feel shortchanged with low drilling signing bonuses ($5 per acre) and royalty rates (12.5%) are holding out for better deals to run pipelines across their property, and that’s leading to a slow-down of new wells coming online in the state, according to a former DEP representative.
Counties being affected by the slowdown include Ohio, Brooke and Hancock. Typically pipeline easements are a one-time payment, like a signing bonus, and are based on a per foot price. How high will those prices go? Some of the numbers being tossed about are breathtaking.
And as Tim Greene emphasized, until there are pipelines connecting the wells in Ohio, Brooke and Hancock counties to transmission lines or processing plants, there will be no production – and no royalty checks for mineral owners.
Greene is the owner of Land and Mineral Management of Appalachia and is a former West Virginia Department of Environmental Protection oil and gas inspector. He said some companies are still having a hard time getting right of way agreements to build pipelines, largely because landowners believe they got bad deals from leases that pay as low as $5 per acre with 12.5 percent royalties.
“Before Chesapeake (Energy) sold their midstream company, they were telling people they were getting the pipelines in place,” said Green. “Now, there is another company involved. People are still upset about getting shortchanged on their gas leases, so they are not really open to it right now. They want to wait to see how much they can get for a pipeline.”
The pipeline contract is a deal with the surface owner, rather than the mineral owner. Some West Virginia and Ohio residents only own the surface on which their home or farm sits, while someone else owns the mineral rights.
“If you are just a surface owner, you’re not getting anything from the gas anyway,” he said. “So you’re really just pretty upset with all of it.”
As for the price an owner should expect to receive for a right of way agreement, Greene said the whole problem is that no one is sure what they should be getting now.
“Is it $25 per foot, $50 per foot, $100 per foot? Who knows how high it could go?” he said.*
No idea if this reality or not, but if a surface owner negotiates $100 per foot and the pipeline going across his property is 1,000 feet long, that’s a cool $100,000 to put in the bank.
*Wheeling (WV) The Intelligencer/Wheeling News-Register (Jul 6, 2012) – A Long Way To Go On Pipes