Cumberland Times-News

Local News

January 19, 2013

Some area property owners signed low-rent drilling leases

Advisory committee agrees to recommend legislation to force land men to register with state

OAKLAND (AP) — The land men came one evening in 2006, offering property owners modest riches for a simple act: leasing their land rights to the natural gas industry’s middlemen.

Carl W. Lohr, a farmer in Friendsville, didn’t sign that night. But when the land men from the Lexington, Ky.-based Keeton Group LLC came knocking at his door weeks later, he leased his 156 acres to the company for five years, at $5 per acre, in return for allowing gas wells to be drilled using a controversial practice called hydraulic fracturing, or fracking.

At $5 an acre, Lohr is cut a check every year for less than $800. He’s happy with that amount, which he said is enough to cover real estate taxes in Garrett County. But other land owners, as close at hand as Pennsylvania, have signed leases for up to $6,000 per acre. And natural gas industry members and experts say it’s fairly common for some land men to sign property owners to a lowball lease and then resell the rights to energy companies for a big profit.

A commission formed by Gov. Martin O’Malley in 2011 to study fracking practices and safety has agreed to recommend that legislation be introduced in the General Assembly to force land men to register with the state.

Jon Laughner, an extension educator with Pennsylvania State University’s College of Agricultural Sciences, said Maryland’s experience isn’t unique. He has tried to educate Pennsylvania residents about how some land men do business for years.

“Their goal is to accumulate a lot of land leases in an area and then flip them, sell them to the energy companies,” said Laughner, who has studied hundreds of leases in Pennsylvania, where there are far more natural gas deposits than in Maryland.

A man who answered the phone at The Keeton Group’s office declined to answer questions about the company’s leasing practices. Keeton persuaded hundreds of Garrett County residents to sign land leases starting in 2006, but the company is not alone in the complicated world of energy company land leases.

Land men — sometimes brokers, sometimes contractors and sometimes direct employees of gas companies — first descended in 2006 on Western Maryland, where the Marcellus Shale rock formation runs a mile below the surface. At that point, residents in Garrett and Allegany counties didn’t know what they had beneath them.

The Marcellus Shale formation is a rock-encased deposit of natural gas that can be extracted through a complicated process that involves drilling a mile deep and blasting a water and chemical mixture into the rock, fracturing it and releasing gas.

Companies that employ land men generally don’t have the wherewithal to actually extract the gas. They make their money by finalizing real estate deals, then selling groups of leases to natural gas exploration and production companies at a profit.

Laughner said energy companies and land men keep the details of their transactions secret, treating them as proprietary information. The sale of land leases can be tracked from company to company, but the purchase amount is usually described in court documents only as “good and valuable consideration.”

Such is the case with Lohr’s lease, which from 2006 to 2010 changed hands from Keeton to Unconventionals I LLC, to Chief Exploration & Development LLC and Radler 2000 Limited Partnership, and finally to Chevron U.S.A. Inc., which bought the leasing rights to Lohr’s 156 acres and dozens of other lease agreements in July 2010.

Delmer R. Yoder, a 76-year-old farmer in Accident, said he didn’t sign with the land men when they came to Garrett County in 2006. Instead, he did some research.

What he found was that land owners in areas of the country that were already leasing property to gas companies were making far more money than the land men were offering Maryland residents. According to several people familiar with land leasing, the lease amount has been up to $6,000 per acre in Pennsylvania, West Virginia and elsewhere, with royalties on extracted natural gas reaching up to 18 percent.

“I started looking into this thing and calling different places around,” Yoder said. “Come to find out that we could do better.”

Yoder started a group that quickly swelled to more than 200 county residents who wanted to lease their land. Yoder hired a consultant and negotiated a fee of $1,150 per acre.

Lohr, who was among the first Western Marylanders to sign with the land men, said most of his neighbors followed suit. Some made out a little better than he did, garnering up to $15 an acre, but he said he was shocked to hear that the land he leased may be worth so much more.

At the price Yoder’s group had negotiated, Lohr’s payment of $780 per year would have swelled to $179,400.

Lohr said he’s not upset with the land men who signed him up for $5 an acre. There was no arm twisting, he said, and he was happy for the extra money.

It was Sen. George Edwards and Delegate Wendell Beitzel who introduced legislation last year that would have forced land men to pay a $100 fee and register with the state Department of Labor, Licensing and Regulation.

The bill would have provided a modicum of accountability, Edwards said — an argument that has belatedly been recognized by the Marcellus Shale Safe Drilling Initiative Advisory Commission.

The Senate version of the 2012 bill, heard in the Education, Health and Environmental Affairs Committee, was relegated to a drawer by Sen. Joan Carter Conway, a Baltimore Democrat who chairs the committee and has not had her panel vote on several fracking-related bills in the last two legislative sessions.

Beitzel’s version of the bill was bounced from the House of Delegates’ Environmental Matters Committee into the Economic Matters Committee, where it ultimately received an unfavorable report.

Edwards, who wants fracking to happen in Western Maryland — he sees economic benefits to it — said the land men ought to be held accountable.

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