This is a story in an occasional series that explores natural-gas drilling in our region.
By Tom Grace
Cooperstown News Bureau
How does a gas lease affect the value of land?
According to local realtors and lawyers, when an owner sells a leased parcel and retains the subsurface (gas and mineral) rights, the land is worth less than if sold with all rights intact.
And then there are some leases _ those that accord a company much latitude for little money _ that diminish property values, even when the seller's rights are transferred to a buyer.
``If it limits the use of the land you're thinking about buying, you aren't happy about it,'' Dick Cavanaugh of ERA Real Estate in Oneonta said.
``This is the situation from our end,'' he said. ``We have a number of people who want to buy property, and if it's used for recreation or a residence, or hunting or whatever reason, when there's a gas lease, they don't want to buy it."
Cavanaugh said he believes a lease definitely has an impact on real-estate value.
"For one thing," he said, "from what I've seen, you need a Philadelphia attorney to understand what the lease gives you as a landowner, and with most of the leases I've seen floating around, the mineral rights remain with the seller of the property. People don't want to buy property where someone else controls the mineral rights. They do that in other parts of the country, but in my opinion it's not going to work around here.''
Forty miles away in Norwich, Realtor Irmin Mody, one of Chenango County's largest land dealers, said he has just one large parcel of vacant land for sale that isn't restricted by a gas lease.
``The owners selling now want to keep the gas rights, but that does make the property less attractive,'' he said.
A couple of years ago, property values rose as word spread that the area is rich in natural gas, trapped in shale thousands of feet below ground, Mody noted.
``But it's hard to say what the effect is now,'' he said.
Customers are looking for unencumbered land, and there's almost none on the market.
Barbara Roberts, an owner of Prudential Fox Properties in Oneonta, said the jury's still out on how leases will affect property values over the long term.
``It really depends on the buyer,'' she said. ``There are buyers who don't care about gas leases on their property, there are buyers who welcome gas leases on their property, and there are buyers who wouldn't buy with gas leases.
``There's so much uncertainty about the whole subject _ whether natural gas will actually be found in this area and what the DEC will do _ it's hard to say where it's headed."
A few years ago, when drillers' representatives began to circulate through the area, they were offering property owners as little as $2 an acre, plus state-guaranteed royalties, to sign a lease. By last year, the price was often a hundred or more times higher.
Right now, though, as the state considers new regulations for horizontal drilling and hydraulic fracturing, it's hard to read the lease market, she said.
Coalitions of landowners have formed and approached drillers' representatives, trying to market mineral rights, but the drillers don't seem to be buying, as all eyes are on the DEC, Roberts said.
Sue Nogaret, who operates RPI Realty in New Berlin, noted that land buyers are increasingly aware of gas leases.
``When we have land for sale, that's one of the routine questions we get now, along with whether or not there's timber,'' she said.
Oneonta lawyer Richard McVinney said a lease's affect on the value of the land depends on terms of the lease. A lease that provides little recourse or recompense for a landowner is sure to be unwelcome by a knowledgeable prospective buyer, he said.
On the other hand, a more favorable lease being transferred at sale, along with the prospect of gas royalties, could make property more valuable, he said.
McVinney noted that a gas lease on one parcel can also affect the value of adjoining parcels. An owner may negotiate a lease that is favorable from his perspective, such as requiring drillers to stay away from his residence, but the same agreement may push drillers to operate closer to the neighbors' houses and land, passing on the downside of drilling without the compensations, he said.
"There's no one simple answer, because every situation is unique,'' he said.
