‘Isn’t that special”
Do you know what 0.14 divided by 523.77 times 0.17 equals?
I’ll get to the answer in a second.
First, I want to tell you a bit more about the man who lives along the babbling brook who offered me a place to pitch my tent the other night.
His wife and grown daughter joined us for a BBQ on the side porch, and we talked about gas development among the rural communities of the region above the Marcellus shale. My hosts are all for it. In fact, most people I’ve talked to are, and even opponents of fracking in Susquehanna County, Pennsylvania readily confirm they are in a lonely minority. Why all the support for drilling in the Endless Mountains?
People talk about energy independence and gas as a ‘bridge fuel,’ but it all comes back to money. In other words, if you have land to lease – for an up-front, one-time payment and the promise of royalties once production starts – you have a lot of cash to gain from the backyard industrialization.
At least that’s what my host thought. He signed a lease that gave control of his 10 acres to a gas company and received $30,000 up front. He watched as a rig drilled a well on his neighbor’s land, 1,000 or so feet away, but the well didn’t travel under his property. So no royalties. He watched as eight more wells were drilled in the hills all around, but again none extended under his land. So again, no royalties.
Then, a few weeks before my visit, he received a letter from the gas company that leased his land. A well nearly a mile away is going to extend under his property. It will secure the company’s rights to the entire 10 acres indefinitely. But as it turns out, the well will only reach under 0.14 acres of the property. My host’s royalty payment will be based on that. Which brings us back to the math: 0.14 (my host’s land) divided by 523.77 (the total acres of land in the well unit) times 0.17 (the rate of royalty payment) equals 0.00004544 (my host’s share of the value of the gas produced by the well).
As my host told me the morning after the BBQ with an I-had-a-feeling-all-along tone to his voice: ‘Isn’t that special?’