Gas Leases Affecting Land Values
Natural gas leases and the uncertainty over New York State’s rules for hydraulic fracturing (hydrofracking) have nearly bound up the land market. The overriding issue is what the DEC is gong to do and when. Where land values are going now is a crap shoot!
In Chenango County, where Norse Energy has been buying land, leasing mineral rights and drilling vertical wells, unleased land is in short supply.
In Otsego County, with its areas of affluence, the pace of drilling has been far slower and the prospect of drilling is negativily affecting land values in the Cooperstown area which are normally higher priced than other communities. Customers shopping for homes or land near Cooperstown are worried about the viewshed, privacy and their well water.
With thousands of acres in the county under lease, some land shoppers are avoiding leased areas.
But, in other areas the prospect of gas drilling and big royalties has increased land values in the past couple of years. Investors are carefully scoping out large tracts that may be potential gas drilling windfalls.
A local attorney in Chenango County stated, “Here, we have people just trying to hang on and pay their taxes until the DEC issues new regulations. These people, often land rich and cash poor, look at gas drilling as a way to survive financially, It’s also hurt some people, especially those who don’t want gas drilling,”
Because the drilling frenzy has driven up land values, those with land are seeing their taxes rise.
But in recent months, land values in Chenango County have declined a bit as people are unsure how soon the area will be developed by drillers. The prospect of drilling drove up the value of some large parcels to nearly $3,000 an acre. Now they’ve settled back to about $1,500 an acre as long as the mineral rights are still attached.
However, in many cases, Norse Energy and private owners are trying to sell their land but retain the mineral rights, and those parcels are selling for perhaps $1,000 an acre. Even at greatly reduced prices, land stripped of mineral rights are not selling quickly, partly because lending institutions are not eager to finance those buys, Lending institutions will finance 75% on land and often the buyer doesn’t have the financial resources to come up with the rest.
In Chenango County and other areas, the land market is slow because landowners don’t want to sell until they know what the DEC is going to do. They don’t want to miiss out on a potentially large cash cow if NYS ever approves the hydrofracking permits
So, even when they’re selling, they’re keeping the mineral rights, hoping for those royalties.
The long-term effect of widespread gas drilling on land values is hard to predict because the phenomenon is new to the area.
In places like northern Pennsylvania, where drilling is going full bore, banks are reluctant to finance gas-leased properties. After all, the banks must protect their iinterests. They need to assure themseles that the borrower pay the loan without anticipated royalty income?
And with land values out of sight in the gas rich Marcellus region, there is no guarantee that property will strike it rich. Lenders and realtors are not geologsts and can’t say with any degree of certainty whether the parcel will be productive. A major drilling company just recently abandoned 2 wells in PA after drilling with no success.
It really is a crap shoot!
Kellie M. Place “The Land Expert”
“Upstate New York’s Real Estate Development Expert”
Century 21 Chesser Realty