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UTICA SHALE REGION || Effects could be stressful on land values
By Karl Henkel
LISBON
Thousand-dollar-an-acre leases and double-digit royalty rates from natural oil and gas leases are expected to bring joy to thousands of Mahoning Valley residents.
Some landowners have scored $5,000 bonus payments per acre, and that’s before any drilling has taken place.
But the long-term effects could be stressful on land values, according to industry experts. Values could become artificially inflated.
And the result? Property-tax hikes for acreage sitting above prime oil and gas deposits.
By the same token, property values could become deflated if oil and gas companies determine those same acres hold no production value.
In other words, a dry well could mean a dry pocketbook for some landowners.
“The problem is there’s no real knowledge of this,” said Dan Heck, owner of Heritage Title Agency Inc. in Columbiana and Carroll counties, who previously worked in the oil and gas industry for seven years. “No place has real estate been affected so quickly and greatly in value as this area.
“The dollar amounts [for contracts] here are higher than [they] were in Texas or Colorado or other oil producing states.”
Heck says he thinks the artificial changes in property values — which mostly will be determined by gas and oil found on that property — is something landowners aren’t considering and something for which auditors may be unprepared.
“I fear [county auditors] are going to start taxing based on values of mineral rights,” Heck said. “I think it’s a huge mistake to jump — despite being a revenue generator — because everything could come to a screeching halt.”
Heck said a dry well or a drilling moratorium could be a doomsday-like scenario for landowners.
WHOLE NEW BALLGAME
Nancy Milliken, Columbiana County auditor, and Mike Smith, the county’s chief real-estate manager, agree with Heck that those involved in real estate in the Utica Shale region are in uncharted territory.
“We’re not really going to know what happens for a while,” Milliken told The Vindicator. “This is going to be all new to us.”
Milliken knows this: It doesn’t appear as if property values now are suffering from artificial increases or decreases.
Property sales in 2011 have averaged $89,830 compared with the county valuations of $90,149, a small difference.
Milliken also said that even if there are artificial increases, the county cannot unilaterally raise property taxes until the next tri- annual reappraisal update, set to occur in 2013 for the 2014 tax year. Any increases would come from the state.
“If they are selling higher, [the state] can come in and tell [us] to raise the value a certain percentage on large-area,” Smith said.
Some properties are in fact selling higher, or at least making an attempt.
An 80-acre property off state Route 170 near Calcutta is being shopped at $900,000, nearly four times its valuation. The property has drawn much interest because of its proximity to the Utica Shale boom in Columbiana, Carroll and Jefferson counties.
But Heck thinks there’s a good chance county auditors could increase property taxes at any time, if there are enough inflated sales to warrant it.
According to the Ohio Revised Code, “the auditor shall revalue and assess at any time all or any part of the real estate in such county ... where the auditor finds that the true or taxable values thereof have changed.”
“There’s no way they are going to sit there when land is selling for 40 to 50 percent more,” Heck said. “They’re going to tax that.”
REAL-ESTATE BOOM
With oil and gas lease signing bonuses as high as $5,000 per acre in some parts of Ohio, landowners know the value of owning prime real estate as well as the land’s mineral rights.
But the two don’t necessarily go hand-in-hand.
Mineral rights are separate from the actual land itself, meaning that a person can sell one or both. Today, most landowners who sell their property choose to sell the land and keep the mineral rights lease — and the royalties that come with it.
That’s why so many interested buyers are asking about mineral rights before making land purchases.
“It’s almost like a new inspection,” said Dennis Clunk, a partner at Heritage. “People are asking: ‘Do I have my minerals?’”
Clunk said that in “90 to 95 percent” of real-estate transactions involving vast acreage — as opposed to residential lots — it’s the most-asked questions among potential land buyers.
Five years ago, the question rarely surfaced.
“I’m seeing contracts now where buyers will say, ‘If I don’t have my mineral rights, I’m not buying,’” he said.
Not gaining mineral rights through a land purchase could devalue the property by as much as $3,000 per acre, Clunk said.
Farming-only acreage could sell for around $1,000 or $1,500 an acre compared with acreage that comes with full mineral rights ownership, which could net around $4,500 to $5,000, he said.
“It becomes a negotiating tool between the buyer and the seller,” Clunk said. “If I’m buying the land, I’m probably only paying for what it’s going to be used for.”
NOT EASY TO TRACK
The problem for real- estate agents and landowners, however, is that unless a mineral rights lease or purchase has occurred in the last few decades, it becomes an expensive and time-consuming process to track down the proper documentation.
Agents may have to search back as far as the late 1700s, when government patents were first distributed, to determine with authenticity the status of a land’s mineral rights.
Oftentimes a land owner will find out their mineral rights were leased or sold under a previous agreement, which have dealt with coal mining from decade’s past, leaving them with few options.
There are ways to sever ties with lessees, but Clunk said that process is timely and expensive.
And on the occasion that mineral rights were sold, a landowner is out of luck.
The owners of those rights can now lease or sell them without landowners’ knowledge to another party or to an oil or gas drilling company.