By Burton Speakman
Now that leases have been signed with BP in Trumbull County, the question is: What comes next?
A full room of leaseholders who signed deals with BP listened to attorneys from the Youngstown law firm of Harrington, Hoppe & Mitchell Ltd. as they explained issues that will come up over the next few months, such as seismic testing, drilling, pipeline development and other parts of the oil-and-gas production process get under way.
The session was Tuesday at the Magnuson Grand Hotel and Conference Center, the former Avalon Inn.
The key is to read each new item carefully and to make sure they do not impact the terms of the original lease, said Alan D. Wenger, the attorney who discussed general issues. Wenger helped write the leases for the Associated Landowners of the Ohio Valley.
Trumbull County is about a year behind Columbiana County and areas in southern Ohio in the oil-and-gas play. The issues that have occurred in those areas eventually will come to Trumbull, he said.
There are companies making offers to buy future royalties from leaseholders in lump-sum payments, but at this point, there is a problem with how those potential royalties are valued, Wenger said.
“I would be very suspicious of smooth-talking salesmen who make promises of instant wealth,” he said.
Companies have begun sending letters asking people to amend their leases, Wenger said. The companies are seeking to increase the unit size from the 640 acres allowed in the ALOV leases. They first asked for unlimited unit sizes and then to increase to 1,280 acres.
“I suspect the real reason they’re asking is to increase the value of the units for when they flip them to other companies,” the lawyer said.
One of the next issues leaseholders face occurs during the due-diligence process currently being done on the BP leases, said Atty. Stephen P. Kocon. BP has contracted companies to look through land records to ensure there are no problems with the leases. The records in Trumbull County go back to about 1800.
“From what we’ve found, about 10 [percent] to 15 percent will be returned,” he said.
Property owners, if their leases are rejected, have 60 days to fix whatever problem exists under the current arrangement, Kocon said. The most-common issue is an old mineral-rights lease that is still attached to the property. There also could be issues where the mortgage specifically bans the leasing of mineral rights.
“Most companies will still lease the property if issues are resolved a little after 60 days, but they’re not obligated to,” he said.
This process has to be completed before bonus payments are sent, Kocon added.
Royalty payments are expected to begin arriving by July, and they should all be received by the end of October, Wenger said.
There also are practical issues for leaseholders to consider, such as if they try to sell the land while keeping the royalty interest and how much they have to discount the property, Atty. Thomas G. Carey said.
At this point, there is no way to know what the value of the surface property will be in this area, he said.
The remainder of the meeting focused on tax and planning issues.
Atty. George Millich informed the group about changes coming in federal estate-tax law that potentially would increase liability, and on the state level, that would reduce it.
The attendees also were told about the possibility of removing some ownership burdens through family limited partnerships, limited liability companies, corporations and trusts.
In both taxes and planning, the lawyers advised leaseholders to consult with a financial or tax expert before making any decisions.