Marcellus Shale Presentation


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Marcellus Shale Oil and Gas Leases

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Marcellus Shale Presentation

  1. 1. Marcellus Shale Drilling<br />Frederick M. Nice, Esq.<br />© 2010<br />
  2. 2. Before You Sign A Gas LeaseNegotiate Addendum<br /><ul><li>Language less than clear
  3. 3. Language in favor of gas company
  4. 4. An addendum is expected if you ask
  5. 5. Negotiate a higher bonus payment
  6. 6. Negotiate a higher royalty
  7. 7. Negotiate better lease terms</li></ul>© 2010<br />
  8. 8. 44 Typical Addendum Provisions<br />Conflict<br />Royalty<br />Shut-in Royalty<br />Indemnify and Hold Harmless<br />Pipeline Clause<br />No Gas Storage<br />No Drilling within 500 feet<br />Timber Clause<br />Clean Up Premises<br />Clean and Green Clause<br />No Option to Extend<br />© 2010<br />
  9. 9. 44 Typical Addendum Provisions<br />Pugh Clause<br />Surface Damage<br />Payment in Lieu<br />Location Approval<br />Use of Ponds<br />Plow Depth<br />Road Width<br />Commencement of Operations<br />Crop Damage<br />Water Quality<br />Fresh Water Damage<br />© 2010<br />
  10. 10. 44 Typical Addendum Provisions<br />Minimize Soil Erosion<br />Fence Producing Well<br />Fences and Gates<br />Well Sitting Fee<br />No Other Minerals<br />Three Year Shut-in Limit<br />Double Ditch Method<br />Market Enhancement<br />Prudent Operator<br />Access to Information<br />Disposal Wells<br />© 2010<br />
  11. 11. 44 Typical Addendum Provisions<br />Compliance<br />Fair Market Value Royalty<br />Notice of Assignment<br />No Facilities<br />Audit<br />Ad Valorem Taxes<br />Special Warranty Title<br />Release of Lease<br />Force Majeure<br />Arbitration Clause<br />Lease Ratified<br />© 2010<br />
  12. 12. Before Drilling<br />Notice to landowner<br />Required by permit<br />To all surface owners or water supplies within 1000 feet of proposed well location<br />Review the well location plat plan<br />Well location and number<br />Angle and direction of drilling<br />© 2010<br />
  13. 13. Before Drilling<br />Take pre-drill water samples<br />If pollution or diminution of water supply within 6 months of drilling<br />Presumption well operator responsible<br />Few defenses<br />Restore or replace<br />© 2010<br />
  14. 14. Two Separate Estates in Land Can Be Created<br />Interests or estates can be dealt with separately<br />Surface – raw land, recreation, hunting, home site, cabin<br />Subsurface – mineral rights, monetary value<br />© 2010<br />
  15. 15. If Selling Land, Subsurface Rights (Estates) Can Be:<br />Sold with the land<br />Retained by the seller<br />Sold separately<br />Lease assignment<br />Mineral deed<br />© 2010<br />
  16. 16. Lifetime and<br />Multigenerational Planning<br />Estates can be owned separately<br />Surface by Mom & Dad<br />Subsurface by LLC of Mom & Dad<br />LLC: Limited Liability Company<br />LLC becomes General Partner of Limited Partnership (LP) which includes children<br />Provides governance and control in parents<br />Orderly and easy shift of equity to next generation<br />Cash flow during lifetime<br />© 2010<br />
  17. 17. Lifetime and<br />Multigenerational Planning<br />Limited Partnership<br />No PA Capital Stock/Franchise Tax<br />Family Limited Partnership<br />Revocable Trust or Irrevocable Trust<br />Own subsurface rights<br />Mineral deed<br />No real estate transfer tax<br />Corporation<br />C Corp or S Corp<br />© 2010<br />
  18. 18. Valuation of Interests<br />Fair market value<br />Appraisal techniques<br />Cost<br />Income approach<br />Comparables<br />Surface rights<br />Subsurface rights<br />© 2010<br />
  19. 19. Valuation of Interests<br />Pre-production value<br />Very speculative<br />May be no additional value<br />During production value<br />Still very speculative<br />No history in Marcellus of well production decline rate or production life expectancy<br />Discount rates apply<br />© 2010<br />
  20. 20. Valuation of Interests<br />Subsurface rights increaseproperty valueif together<br />Preserve right to minerals<br />Preserve stream of income<br />Greater value on resale <br />© 2010<br />
  21. 21. Valuation of Interests<br />Subsurface rights decrease property value if separate<br />Right of ingress, egress, regress<br />Build roads, drilling pad, pipelines<br />Limitation on use and enjoyment<br />Lower fair market value<br />© 2010<br />
  22. 22. Estate Planning: How to Pass Subsurface Rights to Next Generation<br />Will<br />Revocable trust<br />Irrevocable trust<br />Mineral deed<br />Life estate deed<br /><ul><li>Limited LiabilityCompany
  23. 23. Family Limited Partnership
  24. 24. Corporation – gift of stock during lifetime and at death</li></ul>© 2010<br />