How Low Natural Gas Prices Shrink Landowners' Royalty Checks

Scott Detrow / StateImpact Pennsylvania

A Cabot rig in Susquehanna County

For months we’ve been talking about the big-picture impact of low natural gas prices.
Increased domestic gas production has led to the lowest natural gas prices in a decade, and drilling companies are responding by scaling back production and focusing on “wet gas” regions where they can extract — and then sell — compounds like propane and ethane, in addition to the gas.That means more drilling in southwest Pennsylvania and Ohio, and less in northeast.
But what do cheap gas prices mean for the people who have leased out their land for drilling? As the Post-Gazette reports, they mean smaller royalty checks:

Royalty checks that start to arrive when a gas company drills on your property can make for some very profitable envelopes in the mailbox. But the low natural gas prices that have disrupted industry balance sheets in recent months could start to cut into those checks.
Put it this way: “You could be having filet mignon when they’re high, and Kraft macaroni & cheese when they’re low,” said Craig Tillotson, executive vice president of sales at the Downtown-based Hefren-Tillotson wealth management firm.
…The lowest natural gas prices in a decade also have forced a new industry emphasis on lease terms that allow companies to deduct certain well costs from landowner royalty checks.