Bonanzas that end badly: Cautionary tales from Marcellus Shale windfalls
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Stuart "Buzz" Hutchison III, an estate and trusts lawyer at K&L Gates, has advised families who have sold or are considering selling Marcellus Shale drilling rights.
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Farmers who used to barely get by are now collecting sizable royalties from natural gas producers that have purchased drilling rights on their land. But in some cases, the sudden wealth has created a whole new set of challenges and unintended legal consequences.
"None of my clients had even heard of Marcellus Shale until a few years ago. It simply wasn't on the radar screen," said Stuart "Buzz" Hutchison III, an estates and trusts lawyer at K&L Gates who advises several families who either have sold, or are considering selling, drilling rights.
With millions of dollars potentially at stake, family disputes over Marcellus Shale drilling rights can get downright ugly. While working with many of these Western Pennsylvania landowners to create estate plans, Mr. Hutchison said, he has seen enough strained family relations to know the windfall riches can be a blessing and a curse.
"We don't know the ramifications of this kind of income being paid to people who may not have the financial sophistication to know how to handle the money, because it's so new," he said.
"Like a lottery winner suddenly showered with wealth, history has shown it often ends badly."
Complicating matters is that many of the farms in this area are inherited over decades or even centuries, with several heirs owning fractional shares of the land. Lease agreements often involve getting several family members to sign off.
In one case he is familiar with, Mr. Hutchison said a family member who lives outside the state owns a 1/32nd (about 3 percent) share of a 300-acre farm south of Pittsburgh and is objecting to Marcellus Shale drilling on the property for environmental reasons, although everyone else in the family wants to move forward.
"What is this family going to do?" Mr. Hutchison asked. "While she has objections to the Marcellus Shale drilling, she has suggested she might be willing to sell her interest in the farm to the other owners. But the figure she has suggested for the sale price is considerably more than the other members feel her interest is worth.
"I find it somewhat amusing that while she is opposed to the drilling, she is not opposed to the money," Mr. Hutchison said.
First Published May 30, 2011 12:00 am
