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Boom Times on Hold

The leaseholders, the gas drillers, and the regulators.

Apr 18, 2011, Vol. 16, No. 30 • By ABBY WISSE SCHACHTER
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Wayne County, Pa.
The landmen who came here three years ago weren’t counting on Betty Sutliff. Representatives of energy heavy-hitters like Chesapeake, Hess, Newfield, and XTO came to northeastern Pennsylvania to get property owners to sign leases to allow gas exploration and drilling on their land. Specifically, the companies wanted to extract natural gas using a technique called fracking, where treated water is pumped at very high pressure through a pipe thousands of feet underground to “fracture” the rock formation called the Marcellus Shale and loosen the natural gas trapped inside.

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The landmen wanted the leases signed quickly and cheaply. But they weren’t expecting a retired fourth-grade math teacher to get educated, get tough, and get together with her neighbors to protect their interests. This isn’t the usual story of small farmers and property owners being exploited by big corporations. This is a story, rather, of successful collective bargaining. Longtime neighbors in a quiet corner of Pennsylvania saw an opportunity before them and grabbed it with both hands. This is also a story, alas, of how their big opportunity may yet be wrecked by overzealous environmentalists and regulators.

Sutliff says the landmen looked like stereotypical used car salesmen when they first approached her and her husband in November 2007. The consultants started with high-pressure sales tactics to try to get property-owners to sign renewable leases quickly. The landmen operating next door in Susquehanna County got leases signed for Cabot Oil & Gas for as little as $25 an acre. So the guys working in Wayne County thought they could pull off similar deals.

Sutliff and her husband own 80 acres. While they both had day jobs (Sutliff’s husband used to work for the state Department of Transportation), they raised beef cattle on their land and they hayed. She says that when the landmen first approached them the offer was $300 an acre. “It was pitched as ‘if you don’t take this you’ll miss the opportunity,’ ” Sutliff explains. The couple already knew that those with large acreage had been approached first, and Sutliff was trying to learn “from those north of us” who had been offered as little as $25 an acre.

Sutliff started making trips to the county courthouse to see if the consultants were telling the truth about who had signed and for what price. And she used a website called PA Gas Lease where some of the area’s latest lease offers were posted. “Electronic communication was the [energy companies’] undoing,” she explains. The Sutliffs and their neighbors learned, for example, that the boilerplate lease was for 10 years but would have tied up their land indefinitely because of its automatic renewal clause.

This process of collecting information, building a database, and disseminating information among a larger and larger group of local landowners led to the birth of the Northern Wayne Property Owners Alliance in late 2007. “We wanted a group of 10,000 acres” with which to negotiate collectively, Sutliff says.

Over the course of a year, the NWPOA got commitments to negotiate with more and more acreage controlled by property owners, all of whom had been approached to lease their land. Sutliff says some people dropped out and signed independent leases “because they needed the money.” The final tally for the group was more than 80,000 acres made up of approximately 1,500 families who negotiated a deal for, on average, $3,000 an acre, with more royalties to follow if wells are drilled and gas produced. The payments are split in half, with the first payment covering a two-and-a-half year period of exploration and the second a subsequent five years of production.

Other groups of landowners formed to do exactly what the NWPOA did. Ex-military man Bob Suhosky was part of a separate group that negotiated with a different company but says his experience was similar. “They know a lot about drilling and leases,” Suhosky says of the energy companies, “but not a lot about public relations.”

Once leases were signed, the companies tried to make nice with the locals by answering questions at town hall-style meetings and hosting a picnic for new leaseholders. The energy companies have also created jobs, hiring locals for office work, construction, and security. What bothers the owners I spoke with, however, is how ineffective they think the companies have been at fighting back against the campaign by environmentalists to stop the drilling. “The industry is not skilled at land-use battles,” Suhosky says. And while the science may be on their side, as Suhosky puts it, “science isn’t the only important thing.”

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