The Landowner Coalition Model

Introduction

Over the past decade of unconventional natural gas development in the Marcellus Shale region, many of Pennsylvania's mineral owners have joined landowner coalitions to share information and collectively bargain in natural gas lease negotiations. In Pennsylvania alone, nearly forty landowner groups have formed to gain collective bargaining power in negotiations with industry representatives, representing well over 500,000 acres.  Although landowner groups have operated in other shale plays in the past, the concept gained popularity in the Marcellus starting around 2007. Since then, more than forty landowner groups having formed in Pennsylvania alone, representing over 500,000 acres. These landowner coalitions vary greatly in size, scope, and structure, ranging from small groups of community members, to large organized coalitions that cover multiple counties and even cross state borders. Together, landowner groups have played an instrumental role in unconventional shale gas leasing and development. However, there are both advantages and disadvantages to consider when deciding whether to join a landowner coalition. Based on the findings of a research project supported by the USDA's Northeast branch of SARE (Sustainable Agriculture Research & Education), this publication will provide an overview of the types of landowner coalitions, a typical landowner coalition timeline from conception to leasing, advantages and disadvantages of joining a landowner coalition, and finally possible future applications of the landowner coalition model.

Types of Landowner Coalitions

Based on recent research conducted with landowner coalitions in Pennsylvania, there are three main models of landowner coalitions, which are differentiated by differences in their leadership, the role of experts, and how they negotiated leases. These three models will be referred to here as the landowner model, the entrepreneur model, and the hybrid model.

• The landowner model is initiated and led by landowners, from the creation of the group to leasing. Often some sort of informal leadership structure is formed, and the group may choose to consult an attorney during negotiations.
• The entrepreneur model is initiated by a consultant, attorney, or someone with specialized knowledge who recruits landowners to their group and handles negotiations. Consultants are usually paid either a set amount, or a percentage of bonus payments or royalty earnings.
• The hybrid of these two models, the landowner/entrepreneur model, is widely utilized. In this case, the coalition is initiated and formed by landowners, who then hire an attorney or consultant to negotiate for them, perhaps according to a list of agreed-upon goals or terms.

Of course, not all landowner groups fit squarely within these categories. While most landowner coalitions fall into one of these three categories, groups do experiment with other options. For example, some landowner groups choose to focus solely on information sharing and bargain as individuals, while on the opposite end of the spectrum, new groups are forming companies to lease their own mineral rights which can in turn either be sold to other companies or developed.

A typical coalition process

Each landowner coalition goes through a slightly different process, depending on their model, goals, timing, market in the region, and other contextual factors. However, there are typical stages which most groups follow from the creation of the group through signing leases:

• Informal discussion: The creation of a group begins with informal conversations between neighbors and leads to a group meeting, to discuss leasing.
• Formation: Eventually the group is formed, although membership in most landowner coalitions remains fairly informal and unstructured, often only through email lists or phone chains. Some groups charge a set amount of money upon membership to cover legal expertise, administrative costs, or other expenses.
• Negotiation: After all necessary information is collected and the group has in some way created a set of goals or terms, negotiations with natural gas companies begin. In some cases, groups send a "prospectus" packet to potential companies with information about the land that the group has available to lease and ask for bids, while in other cases companies approach the group.
• Lease finalization/signing:  After negotiations are complete and a lease is finalized, a signing day is held, where all landowner coalition members come to sign their own individual leases with the company.

It's important to remember that landowner coalitions go through a collective process but the outcome is an individual contract between a landowner and the company, even if that contract is identical for all coalition members.

Advantages

Landowner coalitions can offer a host of advantages to their members and the surrounding community. Members gain greater negotiating power in negotiations due to increased knowledge and expertise, as well as offering large blocks of contiguous acreage. This increased negotiating power has led landowner coalitions to often receive greater lease terms than those signing as individuals within the same context, including higher bonus payments and royalty percentage as well as protective lease addenda. In some ways, coalitions have served as an equalizer both among landowners, as small and large acreage landowners receive the same lease terms, and between landowners and companies through greater negotiating power.  These benefits also materialize in more diffuse ways, such as creating a new space for relationships and connections between neighbors. The benefits of landowner coalitions have some ability to extend to other landowners in their region. In many cases, coalition leases were used as the new standard in negotiations with individual landowners. Landowner groups have also made donations to their local community collectively, or asked natural gas companies to fund community development projects.

Disadvantages

Despite these advantages, there are downsides to membership in a coalition, and the strategy may not be beneficial for or available to certain individuals. Coalitions are necessarily more focused on group needs than those of an individual. For this reason, if a mineral owner has specific or unique needs in negotiations, then a landowner coalition model may not be in their best interest. Coalitions also often take longer to reach an agreement and sign a lease, which can be prohibitive for those in difficult financial situations or who would like a faster process for other reasons. Lastly, it's important to remember that there are groups of people who are excluded from participating in landowner coalitions, and leasing in general, for a number of reasons including a lack of land or mineral rights ownership.

Variables of success

There are a number of group characteristics that can foster or impede the success of a landowner coalition. The group size is important as large, contiguous acreages are most favorable to leasing companies. However, groups with greater numbers of mineral owners can have a harder time allowing input, reaching consensus, and deciding on goals and lease terms that work for the group as a whole. Trust is also an important characteristic for group success, and often coalition members must place their trust in leadership to negotiate fairly in the interest of the group. Lastly, the success of a group's negotiations depends greatly on the perspective of the company they decide to lease with. While some companies are amenable and even find it advantageous to lease with landowner groups, other are opposed to the idea and even hostile towards their efforts. There are also a number of variables that are outside of a landowner's control, but affect landowner success nonetheless. Variables such as location, timing, and market conditions can determine a large portion of the relative success of landowner coalitions.

Future Applications

In addition to the ongoing use of the landowner coalition model in subsequent rounds of leasing in the Marcellus Shale region, the model has the potential to increase the bargaining power of landowners in a number of other land use negotiations. While landowner coalitions are discussed here in terms of shale gas leasing, the model has also been utilized in other types of energy-related developments such as wind, and may have potential for infrastructure such as power line or pipeline right-of-ways.

About the Study

 This qualitative research study was guided by four main research questions: What are landowner coalitions? How/why did they come about and what process(es) did they go through? What results were they able to achieve? And what are the advantages and disadvantages of membership in a landowner coalition? In addition, a secondary objective aimed to produce useful information that can be disseminated through outreach opportunities to those facing questions about group leasing.

The data for this research were collected from Bradford, Susquehanna, Wyoming, Lackawanna and Wayne counties of Pennsylvania. Twenty-nine semi-structured interviews were conducted from November 2016 to August 2017 with key informants, coalition leadership, and coalition farmers, identified through a combination of convenience and snowball sampling. All interviews were recorded and transcribed, and all personally identifiable information was removed. In addition to the twenty-nine interviews conducted for this project, seven interviews from a previous research project are also included in the data for analysis. The qualitative data generated through this research project (including the seven transcripts from 2013) were systematically coded according to grounded theory coding methods using qualitative data analysis software.

Grace Wildermuth
PhD Candidate, Rural Sociology & Demography
Department of Agricultural Economics, Sociology, and Education
The Pennsylvania State University
gvw5117@psu.edu