Looking for energy on your property

NEW YORK (CNNMoney.com) -- Earle Robbins and 119 fellow landowners hope there's a treasure of fuel beneath the 30,000 acres they jointly own in the hills of northern Pennsylvania.

In a scene being played out with increasing regularity across the country, the consortium of property owners bought the land a few years ago then leased it to an energy company to prospect for hidden fuel beneath the surface - in this case, most likely natural gas.

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Over the short term, Robbins and his partners get lease payments of $80 an acre per month for the Tioga County land. But over the long term, with the prospect of a valuable energy resource underground, the payday could be significantly greater.

"Hopefully," said Robbins, who has a broad level of experience with such land transactions as a director at the local office of the Penn State Cooperative Extension, a public education resource for agriculture and a slew of related issues. "It's hard to tell."

The scenario in which a privately owned piece of land transforms into an energy-producing reservoir can play out a number of ways. Many times, though, it's just a simple knock on the door from a company representative wanting to know if you'd be interested in selling the mineral rights on your property - or informing you that his company already owns them and is there to start drilling.

"There's a great deal of activity here. It's pretty much statewide," Robbins said. "We're getting a good number of companies working to lease property, and they're doing seismic work and all kinds of drilling activity."

The already big business of gas and oil exploration has been growing significantly over the past few years as Americans look to become more energy self-sufficient.

From 2002 to 2006 the number of oil wells drilled doubled in the U.S. to 14,000. During the same period, gas well drilling shot up 57 percent, to 28,000 from 16,000. Energy companies spent more than $250 billion worldwide on exploration in 2006, with an increasing portion allocated domestically, as they look to boost the relatively anemic fuel production levels in the U.S..

The Northeast, with its abundance of open mountainous terrain, could cash in big as exploration continues, though much of the activity now seems centered on the South and West.

"Most of the drilling has targeted unconventional reservoirs, with gas in the Rocky Mountain Region, North Central and East Texas yielding the largest growth in gas production," said Philip H. "Pete" Stark, vice president of industry relations at energy consultant IHS. "Drilling, though, is widespread, with increasing activity in essentially all known and prospective producing provinces."

That growth has the Robbins coalition and others like them hoping they can reap the benefits as well. Should the group strike something worthwhile, it'll get 12.5 percent of the royalties, about the standard figure for such transactions.

But the road to that point is fraught with peril.

That the Pennsylvania property owners stand to gain anything at all from the transaction is the result of proper planning. The group hired a consultant for advice, then made sure the mineral rights on the land they bought didn't already belong to somebody else.

And there lies the rub for many property owners not so fortunate. The annals of energy exploration are replete with stories of people who bought lots or homes ignorant of who owned the mineral rights on their properties.

One day someone from an energy company shows up saying they've come to prospect for oil, and the people who thought they owned their entire properties find out they really only own what's on the surface and above.

"Unfortunately, there's not a lot they can do," Robbins said of the unlucky property owners.

Sometimes even property owners who do own their mineral rights get taken. Slick-talking energy company representatives will walk to someone's front door, offer them a bargain-basement price for their mineral rights, then walk away with a potential major windfall.

"They sign a piece of paper and walk away," Robbins said. "There's a lot of heartbreak later when they find the mineral rights are worth a lot more to them. We're trying to get word out about understanding the terminology of these leases, to make people aware of what they're getting into"

The myriad issues posed through mineral and fuel exploration reverberate throughout the country.

In just a few weeks, New Mexico's Surface Owner's Protection Act will take effect as the toughest law in the nation in terms of helping landowners deal with mineral rights issues. Among other things, the law requires developers to post a bond to cover any possible damages done to prospected ground.

Colorado's legislature, meanwhile, has been engaged in fierce debate over proposals that would help protect surface owners from mineral exploration, measures that some energy companies stridently oppose. Count Montana in the mix as well, with two bills pending that more precisely define the relationship between surface and mineral rights while also protecting surface owners from damage due to exploration.

And, in Western Pennsylvania, a state appeals court is weighing a case in which the local government in Oakmont, home of this week's U.S. Open Golf Championship, is trying to restrict oil and gas drilling. Residents in that area found themselves taken by surprise when dormant mine lands opened up again to gas exploration.

"Landowners start waking up when a mine starts moving toward their area," said David Ries, a partner with Thorp, Reed & Armstrong law firm and president of the Energy & Mineral Law Foundation, a non-profit educational organization providing information on legal issues related to the energy and mineral industry. "They find they have rights that they didn't realize they had."

Energy companies, though, own rights themselves in wide swaths across the country.

Anadarko Petroleum Corp. (Charts, Fortune 500), for instance, holds rights to 255,350 undeveloped acres in Pennsylvania, 835,324 in Montana, and 833,610 in Wyoming among the millions of such acres it controls nationwide. Oil giants such as ExxonMobil (Charts, Fortune 500) and BP Plc (Charts) are also active in the trade.

Smaller players, such as Swift Energy Co. (Charts), hold such acreage as well, with Swift owning rights to nearly 50,000 undeveloped acres in Louisiana.

So what to do when an energy company comes calling?

Robbins and the rest of the experts at the Penn State Cooperative Extension arm the thousands of people they've instructed on this issue since 2001 with one simple motto: "Before signing anything, understand everything."

Robbins uses his own case as an example.

When he and the other landowners closed their deal, they made sure certain safeguards were put in place. Their attorney inserted addendums to the lease that protected water quality and timber, and gave the landowners input into where new roads would be placed - details all the way down to the location of any fences the company would have to build.

"Everybody wants to know if there's gas under their property," Robbins said in describing the people he meets at Penn State. "But they don't really understand everything that's involved."