This document discusses strategies for landowners negotiating gas leases and estate planning regarding subsurface mineral rights. Key points include: - Landowners should negotiate addendums to gas leases to obtain better terms regarding bonuses, royalties, environmental protections and other provisions. - Subsurface mineral rights can be owned separately from surface land rights and transferred separately through various legal mechanisms. - Careful estate planning is needed to ensure subsurface rights pass to future generations as intended, such as through trusts, partnerships and corporations. - The value of property depends on whether subsurface rights are included or separated, as they provide both income potential and use restrictions. Appraisals consider various valuation approaches.

1. Marcellus Shale Drilling Frederick M. Nice, Esq. © 2010

3. Language in favor of gas company

4. An addendum is expected if you ask

5. Negotiate a higher bonus payment

6. Negotiate a higher royalty

7. Negotiate better lease terms© 2010

8. 44 Typical Addendum Provisions Conflict Royalty Shut-in Royalty Indemnify and Hold Harmless Pipeline Clause No Gas Storage No Drilling within 500 feet Timber Clause Clean Up Premises Clean and Green Clause No Option to Extend © 2010

9. 44 Typical Addendum Provisions Pugh Clause Surface Damage Payment in Lieu Location Approval Use of Ponds Plow Depth Road Width Commencement of Operations Crop Damage Water Quality Fresh Water Damage © 2010

10. 44 Typical Addendum Provisions Minimize Soil Erosion Fence Producing Well Fences and Gates Well Sitting Fee No Other Minerals Three Year Shut-in Limit Double Ditch Method Market Enhancement Prudent Operator Access to Information Disposal Wells © 2010

11. 44 Typical Addendum Provisions Compliance Fair Market Value Royalty Notice of Assignment No Facilities Audit Ad Valorem Taxes Special Warranty Title Release of Lease Force Majeure Arbitration Clause Lease Ratified © 2010

12. Before Drilling Notice to landowner Required by permit To all surface owners or water supplies within 1000 feet of proposed well location Review the well location plat plan Well location and number Angle and direction of drilling © 2010

13. Before Drilling Take pre-drill water samples If pollution or diminution of water supply within 6 months of drilling Presumption well operator responsible Few defenses Restore or replace © 2010

14. Two Separate Estates in Land Can Be Created Interests or estates can be dealt with separately Surface – raw land, recreation, hunting, home site, cabin Subsurface – mineral rights, monetary value © 2010

15. If Selling Land, Subsurface Rights (Estates) Can Be: Sold with the land Retained by the seller Sold separately Lease assignment Mineral deed © 2010

16. Lifetime and Multigenerational Planning Estates can be owned separately Surface by Mom & Dad Subsurface by LLC of Mom & Dad LLC: Limited Liability Company LLC becomes General Partner of Limited Partnership (LP) which includes children Provides governance and control in parents Orderly and easy shift of equity to next generation Cash flow during lifetime © 2010

17. Lifetime and Multigenerational Planning Limited Partnership No PA Capital Stock/Franchise Tax Family Limited Partnership Revocable Trust or Irrevocable Trust Own subsurface rights Mineral deed No real estate transfer tax Corporation C Corp or S Corp © 2010

18. Valuation of Interests Fair market value Appraisal techniques Cost Income approach Comparables Surface rights Subsurface rights © 2010

19. Valuation of Interests Pre-production value Very speculative May be no additional value During production value Still very speculative No history in Marcellus of well production decline rate or production life expectancy Discount rates apply © 2010

20. Valuation of Interests Subsurface rights increaseproperty valueif together Preserve right to minerals Preserve stream of income Greater value on resale © 2010

21. Valuation of Interests Subsurface rights decrease property value if separate Right of ingress, egress, regress Build roads, drilling pad, pipelines Limitation on use and enjoyment Lower fair market value © 2010

23. Family Limited Partnership

24. Corporation – gift of stock during lifetime and at death© 2010