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Before signing with broker, get facts
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Atty. Alan Wenger of Harrington, Hoppe & Mitchell, representing a group of landowners who have formed an informational group/bargaining unit to negotiate with gas and drilling companies, explains lease details during a meeting at Armstrong Saddlery Arena in Salem.
By Karl Henkel
Before nearly 100,000 acres of land was leased earlier this year for oil- and gas-drilling purposes, landowners in southern Mahoning Valley negotiated with as many as 10 entities.
But by the time the T’s were crossed and the I’s were dotted, all of the land had been scooped up by oil- and-gas giant Chesapeake Energy Corp.
Chesapeake worked through subsidiaries and brokers, but in the end, the results were the same.
With another big land grab waiting on the horizon in Trumbull County, residents now are faced with even more options when it comes to leasing land, selling mineral rights and potentially cashing in on a natural-resource bonanza.
But some new business players — known as for-profit lease brokers — could negatively impact a landowner’s bonus payments and royalties.
For-profit brokers don’t drill for oil or gas. They sell the rights to drill to oil and gas companies.
And much like other drilling-related sectors in Ohio, brokers aren’t regulated.
Some may offer the potential of $2 million-dollar paydays, which, while possible, are far from guaranteed.
These for-profit brokers often equate themselves with nonprofit landowner- advocacy groups, but on top of providing information and resources, they expect monetary gains on their end of the bargain.
Meeting attendees are told the path to their rags-to-riches scenario could be navigated for as little as a $50 startup fee and some personal information, depending on the company.
Landowners sign up at community meetings conducted by for-profit brokers. One such meeting last month left many eager to sign with the group known as Your Shale Team, which works under the name Tri-State Energy Holdings, a limited-partnership oil- and gas-lease broker based in Butler, Pa.
“Our goal is to make money; I’m not going to lie,” said Mike Gibson, Your Shale Team vice president of marketing and a managing partner. “We’re a business.”
Participants at a recent shale informational meeting weren’t told, however, which drilling company the organization is connected to.
“They’ll know when they get a check,” he told The Vindicator.
That statement concerned Bob Hart, president of the Appalachian chapter of the National Association of Royalty Owners.
“That bothers me,” he said. “Especially if their intention is to buy the land rights and flip them.”
Your Shale Team also didn’t give any indication of past success.
The Ohio Attorney General’s Office urges residents to ask questions and request past references from a company.
The AG’s office also informs residents to do their own background searches. In the case of Tri-State, information is difficult to find.
A call to the Marcellus Shale Coalition, a Pennsylvania business-to-business organization with more than 124 members, revealed nothing. Industry insiders had not heard of the company.
An extensive search of the Articles of Incorporation database in Pennsylvania came up empty.
A call to the Pennsylvania Department of State yielded nothing.
“I don’t know if that’s the most relevant thing,” Gibson said.
The business did, however, incorporate as a limited- liability corporation under the name Your Shale Team — but only in October, after it already hosted at least two other meetings in the area.
Bob Rae, president of Associated Landowners of the Ohio Valley, said that businesses such as Your Shale Team are common.
“People need to understand what they’re signing up for and what they’re giving up,” he said. “Some of those groups are notorious for getting people to sign a letter of intent.”
The letter of intent may restrict what companies a landowner could sign with if they decide to back out of a brokerage agreement.
The practice isn’t illegal — in fact, it’s just like any other real-estate brokerage — but it’s not entirely transparent.
“I’m not insinuating that anyone is doing anything illegal,” said Atty. Alan Wenger of Harrington, Hoppe & Mitchell. “There’s a lot of ignorance out there, too,” among landowners, he said.
During a meeting in Bazetta, Gibson offered to help the landowners craft a deal for a percentage but also used phrases such as “timing is everything” and that Your Shale Team could make “each and every one of you a millionaire.”
Wenger warns that with potentially millions of dollars at stake, landowners should proceed with caution.
“These are major transactions,” he said.