Beware of financial liabilities when purchasing a gas well

Landowners who take ownership of gas wells on their property need to make sure the benefits outweigh the financial liabilities, said Dale Arnold, Ohio Farm Bureau Federation Director of Energy Policy.

Arnold has been working with Farm Bureau members in eastern Ohio on whether purchasing wells on their property makes financial sense. Arnold said farmers have been buying these exempt domestic wells over the past few decades, particularly for enterprises such as dairy farming, greenhouse production or crop conditioning.

Owning the wells gives landowners access to a low-cost supply of energy, profit from oil sales and exemption from certain regulatory and tax requirements. But Arnold cautioned that for the average user of natural gas, there are significant questions to consider before working with an oil and gas company to transfer ownership of a well.

“When you take a look at this well, how much natural gas are you going to use a year?” he asks, noting that a domestic well could save a typical farm owner between $1,500 to $2,500 annually. Oil from the well could generate another $800 to $1,200 per year.

However, landowners will incur new costs for maintaining and, eventually, decommissioning the well. The basic price for decommissioning a well, plugging it and making sure it’s environmentally sound is $25,000, Arnold said.

Landowners also have typically been covered for liability through their relationship with the oil and gas company. That may not be the case for exempt domestic wells, which are often not covered under farm and ranch policies.

“Buying a specialized insurance policy for a domestic well will be something you look at, too,” Arnold said.

Add to that responsibilities for filing production reports with the Ohio Department of Natural Resources and required emergency management planning information. Arnold also notes that the natural gas from an exempt domestic well may not be sold or used for rental properties.

“You need to weigh the income with the expense, and for many smaller landowners, that could be quite a challenge,” he said.

To hear more from Arnold, watch a video on this topic at https://www.youtube.com/user/OhioFarmBureau.