Marcellus Gas Wells Generate an Amazing Bounty for Landowners

Pittsburgh Tribune Review
27 February 2011
By Rachel Weaver

Rich Bednarski is a farmer but hasn't milked a cow in a year. The eight Marcellus shale gas wells Range Resources put on his Washington County land help feed the family now.

"It's better than any milk checks we ever got," said Bednarski, 52, of Avella, whose family has owned the farm since 1932. Today, he sells hay and breeds heifers. "It made farming more fun."

Bednarski sold his 50 dairy cows when his family began receiving royalty checks in January 2010 from a lease his mother signed 11 years ago. He declined to say how much money he's made, but this year, he had the time — and the money — to go to his first Daytona 500 race.

Say hello to Pennsylvania's nouveau riche — the Marcellus "shalionaires."

In 2009, the latest data available, the Marcellus shale industry paid out more than $1.7 billion in leases and bonuses and $54 million in royalties to Pennsylvanians, according to Natural Resource Economics Inc., a Wyoming-based consulting firm. A study the firm conducted does not say how many landowners received money.

Industry insiders said the windfall Bednarski and others are enjoying is well-deserved.

"If there is a tougher industry than farming, I don't know what it is," said Lou D'Amico, president of Pennsylvania Independent Oil and Gas Association. "You never know if it's going to be a good year or a bad year.

"All of a sudden, there is something that allows these folks to have a little bit of a breather. There is less pressure to accept a price to sell the land for development and give up farming."

Mark Windle, a spokesman for Range Resources — Western Pennsylvania's dominant leaseholder — estimates that since the onset of the shale boom around 2002, landowners have received more than $5 billion in lease and royalty payments. Getting a representation of an average lease is tricky, Windle said, because many variables go into each contract.

"There are a couple dozen companies drilling in Pennsylvania. Some are paying $1,000 to $2,000 an acre; some are paying $5,000 to $6,000 an acre," he said. Windle said the number of acres varies widely, from as small as a tenth of an acre up to a "couple of thousand."

"It can depend on where you are and what the company already has in the area. As far as royalties, it depends on how many wells are drilled and what they produce. It's a pretty intricate process," Windle said.

Regardless of the leases' value, the best is yet to come, said Kathryn Klaber, executive director of the Marcellus Shale Coalition, a Cecil-based trade group supporting gas exploration and production. The industry is a "multi-generational" opportunity, she said. A lot of the Marcellus shale — the underground rock formation from which drillers extract natural gas — is untapped.

"Either the infrastructure is not going to be able to get there in the next several years or the major companies don't have the capacity to drill that much acreage," Klaber said. "By no means is all the land leased yet."

The coalition does not track all the Marcellus shale leases signed. Lease information is kept by each county's Recorder of Deeds Office.

Brad Carpenter, 45, of Peters cautions anyone considering a contract to avoid treating it "like a lottery ticket," even though he was able to quit his job. He signed a lease for his first farm in 2007 and has leases on properties in West Virginia, Ohio and Pennsylvania.

"Most people think if they own 10 acres, they'll never have to work again," he said. "Not every property will be developed. Not every landowner is going to become wealthy."

The potential is undeniable, however. Say a drilling company spends $5 million to build a well, and 15 percent — a typical figure — of the royalties go to the farmer. If the company breaks even on its investment, that's $750,000 for the farmer.

Carpenter quit commuting to his job as a banker in New York City after signing his first lease. Today, he lives off his investments. He declined to say how much he's made from his contracts.

"The opportunities Marcellus shale has created for landowners in general has been remarkable," he said. "We're only in the first or second inning of the baseball game. The major wealth is still to be created."

Some say everyone eventually will pay a price for this wealth. Across the state, people have packed meetings with concerns about the possible drawbacks of the high-pressure process drillers use to get to the gas, and wear and tear on infrastructure.

Last week, an explosion at a well in Independence, about 10 miles from Bednarski's farm, injured three workers.

Whether people support or oppose drilling, its impact on leaseholders such as Richard Foster is unmistakable.

Foster has a lease with Range Resources for 365 acres. Last year, royalties started kicking in at 14 percent and, at age 78, he's making more money than he "ever dreamed of having." He declined to be specific.

"It's a lot easier getting money from a gas well than from chasing cattle," he said. "I wish I would have done this prior to being 78. I would enjoy it a lot better."

Foster has lived in a part of town near Washington known as Wolfdale his entire life. A full-time farmer since 1980, he specialized in dairy and then beef cattle.

"A farm is a funny creature. I can sell my house and walk out and never look back. I couldn't emotionally sell my farm," he said.

Despite respiratory problems, Foster goes to the farm every day to help feed the 60 cattle, repair equipment and check pipelines running through his property.

He never sought legal advice for his lease, he said, because he's leery of attorneys who want royalty percentages.

He and other leaseholders are learning that with a windfall comes complications.

"You get upset by the taxes you have to pay," Foster said. "Then there's the question of what to do with the money. You could put it in the bank, but that's not the safest place because you don't really get it back with interest rates being way below normal inflation. You could put in the market, but depending on stocks, you never know."

Foster used some of his money to buy equipment and build a shed. He plans to leave most of it to his family. He and his wife of 53 years, Ermalee, have two children and three grandchildren.

Charities across the state are hoping for a piece of the pie. Eldon Cummings, a retired Army colonel, hopes to create a scholarship program for college-bound students once he starts seeing royalties from the six wells Phillips Energy built on his 200 acres in Tioga County.

Cummings, 80, whose farm is home to 45 beef cattle, began his education at the University of Pennsylvania after he won an American Legion essay contest that paid for his tuition.

"I want to help in a way so the community gets something out of it, as well," said Cummings, a father of nine. He plans to contribute to programs for veterans and the Deane Center for Performing Arts in Wellsboro.

The United Way of Washington County ties an increase in giving over the past three years to the Marcellus shale boom.

"Where we have seen a benefit ... is through the generosity of some of the companies that have a presence here," Barbara Murphy, the United Way's president, said in an e-mail. "We have received corporate contributions and contributions from employees of some of these companies through United Way campaigns where they work."

Nick DeIuliis, president of Consol Energy, the Cecil-based coal and natural gas producer, said to see the economic impact of Marcellus shale, one needs only to look to Interstate 79.

"Has there ever been a time when you've seen this volume of traffic?" he said. "Then you look at the Meadowlands exit, and you see hotels. Their parking lots are packed."

Mark Scheuerman, spokesman for Talisman Energy, which has an office in Warrendale, helped negotiate a deal involving more than 900 landowners in Northeastern Pennsylvania. It resulted in 32,000 acres of leased land and a $5,500-per-acre signing bonus to landowners — not including the 20 percent in royalties.

A meeting at a high school where terms were finalized opened a lot of eyes, Scheuerman said.

"People were looking at each other and showing their pieces of paper to make sure they did the math right, they were making so much," he said.

Foster said more money doesn't equate to more happiness. Despite his success story, he said, he had "more fun yesterday when we were poor."

"When my generation was growing up, Sundays were spent at grandma's for dinner," he said. "The adults would talk, and money never came up. Nobody had any, and nobody talked about it.

"Today, money comes up 10 minutes into a conversation."

Rachel Weaver can be reached at or 412-320-7948.