Gas Royalties

Although signing bonuses generate an enormous amount of interest because they are guaranteed income, royalties can

be significantly higher. A royalty is a share of a well's income. The customary royalty rate is 12.5 percent of the value of gas produced by a well. Higher

royalty rates are sometimes paid by aggressive buyers for highly desirable properties.

The royalties paid to eligible property owners from a well yielding over one million cubic feet of natural gas per day can be hundreds of thousands of dollars per year. Unfortunately, production levels in most wells fall rapidly, yielding much lower amounts year after year.

If the Marcellus Shale holds up to the optimistic expectations of some natural gas experts, Pennsylvania, Ohio, New

York and West Virginia could temporarily have an enormous boost in income that might be sustained for a few decades.

Natural Gas Drilling Activity
Several companies are actively drilling or leasing Marcellus Shale properties. Range Resources, North Coast Energy,

Chesapeake Energy, Chief Oil & Gas, East Resources , Fortuna Energy, Equitable Production Company, Cabot Oil &

Gas Corporation, Southwestern Energy Production Company, and Atlas Energy Resources are some of the companies

involved.

The Pennsylvania Department of Environmental Protection reports that the number of drilled wells in the Marcellus

Shale has been increasing rapidly. In 2007 only 27 Marcellus Shale wells were drilled in the state, however, in 2010 the

number of wells drilled had risen to 1386. Many of these wells will yield millions of cubic feet of natural gas per day in

their first year. However, the yield of individual wells usually fall rapidly over the next few years.

The long term yield of Marcellus Shale wells is uncertain. Some in the industry believe that they will produce lower but

profitable quantities of gas for decades. It is also possible that many wells will be refractured in the future with

improved technologies. The same drilling pad might be reused in the future to drill multiple horizontal wells in different directions. Marcellus Shale drilling pads have many future options.

Pipelines and Right-of-Ways

Hundreds of thousands of acres above the Marcellus Shale have been leased with the intent of drilling wells for natural

gas. However, most of the leased properties are not adjacent to a natural gas pipeline. The total natural gas pipeline

capacity currently available is a tiny fraction of what will be needed. Several new pipelines must be built to transport

millions of cubic feet of natural gas per\day to major markets. In addition, thousands of miles of natural gas gathering

systems must be built to connect individual wells to the major pipelines. Many property owners will be asked to sign

right-of-way agreements that will allow natural gas pipelines and

gathering systems to be built across their land. It the property owner is not associated with the gas production there

could be compensation for granting the right-of-way.Payments could be as low as a few dollars per linear foot in rural

areas to over $100 per foot in urban areas.

The Utica Shale Below the Marcellus

Although the Marcellus Shale is the current unconventional shale drilling target in Pennsylvania. Another rock unit with enormous potential is a few thousand feet below the Marcellus. The Utica Shaleis thicker than the Marcellus, more geographically extensive and has already

shown that it can be of commercial value. A generalized cross-section showing the relative positions of the Marcellus

Shale and the Utica Shale is shown in the right column. When the yield of Marcellus Shale wells start to decline, new

wells might be drilled down to the Utica to continue a stream of natural gas production. Drilling for the Utica will be

more expensive because of the greater depth, however, the infrastructure of drill pads,right-of-ways, pipelines, permit

data and other investments will reduce development costs for Utica Shale wells.

Other Gas Shales in the United States

The events described above are not unique to the northeastern United States or the Marcellus Shale. The horizontal

drilling and hydrofracing technologies were perfected for shale reservoirs a few years ago in the Barnett Shale of Texas. The technology was then applied in other areas such as the Fayetteville Shale of northcentral Arkansas, the Haynesville Shale of northwestern Louisiana, and the Marcellus Shale in the Appalachians. These are just a few of several unconventional gas plays now happening in the United States and Canada. Similar organic shale deposits in other parts of the world might also produce gas as use of the new technologies spread.