A Cautionary Tale
A new species of predator prowls our hills, stalking the unwary. They hunger not for your flesh, but for your signature. They’re called Landmen, and they want your land for gas drilling. They will try to get it for as little as possible: for as little money and as little protection for you.
Landmen secure the rights to drill for oil and gas. They manage the leasing campaign, research mineral ownership, acquire leases, clear up title defects, and negotiate lease trades and sales between companies. The ones you’ll confront are those who are hunting for new leases.
In our region, most landmen work in the field for land service companies such as Elexco, Millennium, and Western. By subcontracting, energy companies such as Atlas Energy, Chesapeake Appalachian, Gastem USA, and Lenape can disavow any of the landmen’s misstatements.
- Landmen will say that you must sign right now. In fact, early lessors typically receive a lower bonus and royalty. Also, royalty payments depend on the price of natural gas, which is currently near a historic low.
- Landmen will say that all your neighbors have leased. In fact, they say the same to every neighbor.
- Landmen will say that unless you sign, your neighbors will not be paid and therefore hold you responsible. In fact, energy companies need lease only 60 percent of the land in a drilling unit.
- Landmen will say that if you do not sign, the energy company will draw the boundaries of drilling units to exclude your property. In fact, state law requires them to collect the gas efficiently. Therefore, units must cover the landscape.
- Landmen will say that theirs is the standard lease. In fact, almost every clause or term of the lease can be negotiated. The ‘boiler plate’ lease that they show you was written to give every advantage to the energy company.
- Landmen will say that signing will win you the lottery. In fact, a lease is a complex business transaction that could occupy and encumber your land for your lifetime and beyond.
- Landmen will say that if you do not sign, then you will get nothing. In fact, you are guaranteed at least 12.5 percent of any gas taken from under your property. And while it is true that you would forgo the signing bonus, without a lease the company may not trespass on your property.
- Landmen will say that a well on your property could produce billions of cubic feet of gas over its lifetime. In fact, to do so, your well would have to produce for decades, but Marcellus gas wells are only a few years old and no one knows how long that they will produce. Generally, gas production falls rapidly to only a few percent after a decade.
On the other hand:
- Landmen will not say that a 12.5 percent (1/8) royalty is the minimum royalty set by state law. In New York State royalties of 20 percent (1/5) have been signed, and in the Barnette of Texas 25 percent (1/4).
- Landmen will not say that any promise they make to you is worthless – including the location of the spacing unit and well – unless it is written into the lease.
- Landmen will not say that if you have a mortgage, you may not lease without permission of the bank. If you do sign, the bank can (and probably will) demand that you pay off the mortgage in full, immediately. And your leased property will be difficult to sell because many banks will not grant the buyer a mortgage on a property with a gas lease due to the accompanying unknown risk.
- Landmen will not say that once operations begin on your property, they can continue forever. In Texas, some leases are still in effect after a century.
The Center for Future Civic Media at MIT hosts the website (landmanreportcard.com) where you can learn from the experiences of other landowners. You can compare this with how the industry claims to operate from Northern Appalachian Landman’s Association at nalalandman.org or the national association at landman.org.
In case you weren’t suspicious enough already:
- Landmen will start a campaign by visiting the poor, the widowed, the elderly, and the least educated.
- Landmen will arrive on your doorstep unannounced, finding you unprepared.
- Landmen will show you a map with every parcel colored in as leased except yours. Out in their truck, there are many similar maps, identical except for which parcel is uncolored.
- Landmen will repeatedly visit and call even when you declare you are not interested. If unsuccessful, they will hand off your file to a fellow landman with more experience.
- Landmen will take the only signed copy of your lease with them when they leave. If and when you get your copy in the mail, any terms that were left blank are now filled in.
Unlike realtors, landmen are not regulated by New York State. As a result of complaints against landmen working for Fortuna (now Talisman) Energy, Attorney General Spitzer negotiated for better leasing practices. (See http://www.ag.ny.gov/media_center/2006/dec/dec28b_06.html.)
Remember that landmen are professional negotiators from an industry with over a century of experience in getting what it wants. By comparison, you are a novice. Landowners who try to negotiate a gas lease on their own are bound to be fleeced. In fact, landowners who feel that they have been cheated by the leases they have signed have formed Fleased (see fleased.org). Wary landowners have formed coalitions and hired experienced lawyers to bargain for them. In Franklin, there is some interest in forming a local coalition, but no resident has stepped forward to organize one.
Above all, remember that as an adult, your signing of a lease is binding (no matter how uninformed you are) unless you can prove fraud, and the thing that landmen are best at is deceiving you without actually lying.