Valuing Leases for Shale Gas Development

Abstract

With the growth of shale gas in the U.S., lease negotiations have become an important part of the energy landscape. Royalty payments are a potential source of benefit to homeowners and restrictions negotiated directly in leases are an important tool by which the industry is regulated. Using a unique combination of data sets, we adapt the dual-gradient hedonic model to measure the capitalization of lease clauses into housing values. Results provide a measure of the benefits to homeowners from the regulations negotiated in leases, and suggest that factors affecting the outcomes of lease negotiations will have pecuniary impacts on homeowners.