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Landowner fields offers to buy shale royalties

October 16, 2012
By LARRY SHIELDS , Salem News

SALEM - A local landowner received a call a couple of weeks ago about selling the oil and gas royalties to his Salem Township property.

He had already leased the rights so he was a little surprised by the call.

But the caller, who identified himself as "land man" representing a Forth Worth, Texas-based company, realized he had not been heard correctly.

The caller said he was interested in the royalties and not the gas and oil rights.

The caller, who was doing most of the talking, made an offer for the royalties that the landowner called "tempting" but declined.

The landowner, who wished to be unnamed, said the caller knew about his property, but with public records in the Internet age, that's not unusual.

And the company has been persistent with subsequent calls offering to sweeten the deal.

"They've been around for awhile, I've heard that quite awhile ago," said Salem Township Trustee Chairman John Wilms.

"I've heard some stories," he said.

Trustee Bill Heston has heard about them too, noting they're similar to companies that buy up structured settlements.

He noted some companies are also trying to purchase mineral rights which he said, "could mean everything."

When oil and gas exploration companies lease the rights the deals almost always contain a royalty clause, usually a 15 to 20 percent cut on the product extracted from the well that is paid to the property owner.

The royalty is paid during the production life of the well.

Going after the royalties isn't a new game but it comes at a point when many observers agree that more drilling is needed to appreciate the enormity of the play while establishing the sweet spots regarding the quality and quantity of the products extracted.

It's clear there's a ton of oil and gas in the Marcellus and Utica shale plays and new wells show signs of high quality products, but for some it might too soon to exchange large lump sums of cash for long-term royalties.

But maybe not for others.

With the kind of money being spent, royalty deals aren't tied to reckless hopes but based on current production data and the most recent forward-looking commodity prices.

Like most, oil people are risk adverse and the deduction is they feel money can be made on the royalties, even before the first well-hole in Salem Township was drilled.

The Marcellus geology, as Consol Energy's General Manager Harry Schurr said a few weeks ago at the Utica Expo in Youngstown, will point the way.

"It's still a little ahead in development and optimization," he said.

That geology is good enough for someone to call from Fort Worth wanting to cut a deal with a Salem Township landowner.

And the shale boom rides on.

Larry Shields can be reached at lshields@salemnews.net

 
 

 

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