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Pipeline

Landowners: Are You Prepared? Oil and Gas Industry ready to ramp up production in OH, WV

Photo of author, Teresa Michaels, CFP®.
Teresa Michaels, CFP®
Regional Manager and Financial Strategist

Many of our communities felt the positive impact of the oil and gas industry boom, as well as the jolt in our economy when the industry experienced reduced production and lower prices. While production in our area temporarily declined, the natural resource remained in the ground waiting for market conditions to improve. As our region prepares for the impending up-swing of Marcellus shale activity, landowners should prepare as well.

According to a Columbia Pipeline Group release, https://www.cpg.com/current-projects/leach-xpress-project, improved transportation of natural gas from the Appalachian supply basin to consumers is about to get better. The completion of the Leach XPress pipeline is scheduled for the second half of 2017. The construction of this 160+ mile pipeline will help ramp up production of natural gas in southeastern Ohio and the northern panhandle area of West Virginia.

Just as the oil and gas industry has experts on its side to help prepare budgets and forecast income received from productions of each lease (or, more specifically, of each well), so too should the landowner. But who should a landowner turn to when seeking financial advice on lease agreements and income projections?

McKinley Carter Wealth Services, in collaboration with oil and gas industry experts, has created a tool called the “Oil & Gas Royalty Analyzer” to assist clients in addressing their concerns related to oil and gas lease agreements. This tool is especially helpful for landowners who have multiple lease agreements because it organizes lease agreement information and captures key data in order to properly structure the landowners’ anticipated income. The Oil & Gas Royalty Analyzer is designed to specifically address the primary concerns of today’s landowners:

  • What is the estimated stream of income from each lease?
  • What is an estimated depletion rate of gas from each well?
  • What is the estimated regional pricing received from future production?

Historically, landowners received a relatively large initial royalty check from the oil and gas company leading them to believe that checks of similar amounts would continue for many years in the future. However, that was not the case and, as a result, many landowners found themselves financially ill-prepared when they realized a drastic decline in their royalty payments over the course of the drilling period on their land.

During the recent production downturn, the oil and gas industry as a whole reflected on their global and regional experiences, taking a step back to better prepare for the next opportunity when pricing would rebound and demand would increase. Likewise, we suggest the same type of reflection should occur among landowners, reviewing some of the important lessons learned from their previous experience with the oil and gas industry and using that knowledge to better prepare for the expected upturn in production. We offer these considerations to landowners:

  • Prepare for your future armed with similar knowledge that the oil and gas experts are using. Do your research and due diligence so you are ready to ask the right questions.
  • Understand that, although you will see higher royalty check amounts in the initial “flush phase” of production, the drastic rate of decline in production will be reflected in much lower royalty checks as drilling continues on your property over the long-term.
  • “The devil is in the details,” so surround yourself with professionals, such as the McKinley Carter Wealth Services advisory team, who are familiar with trends in royalties received with oil and gas lease agreements. A professional advisor can help you organize all the information about each lease agreement so you can properly — and successfully — plan for your financial future.

The McKinley Carter team is well-prepared to assist individual landowners, community organizations, and municipalities who may be considering lease agreements with oil and gas companies. There is no better time to get ready for the next wave of production in our region. We look forward to lending our expertise and helping landowners where we can so that we can continue “Investing in a Good Life” within the communities we serve. Call us today for more information about the Oil & Gas Royalty Analyzer at 866.306.2400.

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