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Drilling Down to the Details: Making the Most of Marcellus Shale Natural Gas Royalties

Imagine someone offering you $10,000 per month for access to your property, so that they could extract a valuable natural resource deep underground. Sounds like good news, right? That’s an additional $120,000 in annual income! Your first instinct might be to sign whatever was put in front of you and wait for the money to start flowing.

Your next instinct might be to start asking questions: what should I do with the money – spend, invest? How much will I have to pay in taxes? What expenses might result from this process?

This good news – and the related questions – are becoming reality for some landowners in parts of Pennsylvania and other states that lie above the Marcellus Shale. The underground rock formation is drawing interest from drilling companies seeking access to up to 500 trillion cubic feet of natural gas within the Marcellus Shale.

Being involved in natural gas exploration is an exciting and complex process that might leave you feeling overwhelmed. A company interested in drilling rights on your property will want to complete a lease agreement. You might encounter terms and techniques such as “irrevocable transfers”, “trusts”, “limited partnerships” and “gifting”. Proposed changes in federal tax law could impact the decisions you make about income from natural gas royalties.

Before making financial decisions, invest some time to be well informed and understand your options. Here are initial questions to consider:

  • Have I met with my attorney to review the details of the lease agreement?
  • Do I have a team of professional advisors guiding me in this process?
  • When should I receive payments and how do I report them?
  • Have I discussed the tax aspects of lease payments with my tax advisor?
  • How shall I prudently invest my royalty payments?

One critical point to remember is the importance of speaking with a qualified financial representative before you make decisions regarding what you will do with royalties. When you are feeling the pressure, just stop for a moment. Take a deep breath and realize it is not necessary to make a snap decision regarding your financial future.

Be aware that some financial representatives may suggest arrangements that benefit themselves or their companies but may not be best suited to you. Be sure you are working with a financial advisor who has a fiduciary obligation to represent the best interests of you and your family. Here are a few attributes to look for in a Financial Advisor:

  • Demonstrates interest in your circumstances and fully evaluates your financial goals and expectations
  • Explains any suggested investment vehicle and its costs  in a manner that you can understand and verify
  • Provides timely reviews of your financial plan
  • Provides proactive and responsive communication
  • Offers ongoing reviews of performance and updates personal goals
  • Remains flexible to your changing needs and circumstances
  • Demonstrates high ethical standards and maintains your privacy and confidentiality

Susquehanna Trust & Investment Company has been working to advise landowners in the Marcellus Shale region and has established an online Resource Center with more information and contacts.

Armed with the right advisors and appropriate information, you may make your own informed decisions concerning the road you will travel to your financial future.

This guest blog submission was written by Bill O’Connor, a Vice President at Susquehanna Trust & Investment Company, who is working with families in the Marcellus Shale region to help them make the best use of natural gas royalties.

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Posted in Financial Education, In the Community, Reaching Retirement.

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