This discusses the current corporate structure and the various ramifications of a potential influx of income.
We are a non-profit, non-membership Corporation. We're not a 501(c)3 charitable corporation, we're not a 501(c)7 membership club (like a country club or hunting club). We're a regular non-profit corporation just like any other "C" corporation, except we have a mission and a set of bylaws that:
There are no restrictions on income, unlike some non-profit corporations. We are able to accept the bonus money, and royalties from Gas exploration and production. There is no restriction on that, as there would be if we were a "membership" non-profit corporation.
"Membership" non-profit corporations like country clubs must receive 70% of their revenue from member donations. This would mean that for every $1,000 of income to the Manse, $700 of it would have to be from members, $300 from outside sources. If we accepted $50,000/year in royalties we'd have to canvas the members to come up with matching funds of $100,000 or we couldn't accept the $50,000. Again, this does not apply to our corporation.
No matter what we do, Merryall Manse, Inc. is not tax exempt. We get taxed at somewhere around 39 percent of any income. Tax-exemption isn't and never was the issue or the point.
When drill permitting began for the Marcellus Shale two years ago, land parcels with clean and green status had that status revoked only on the 5-acre pad that was used for drilling and all the back taxes were paid only on that portion.
Many people who leased, then got drilled on actually paid more in back taxes to have the drill pad than they received for the lease. Future leases began to include a clause that provided that the gas company pay the back taxes and that is now the norm.
Now the revocation of the clean and green tax status has been revised to the entire parcel on which the pad is located.
However, the clean and green status on our land is not affected by our stipulation of a no-disturbance-lease. It's revoked only if you have drilling actually on the property. That's from the assessor's office in Towanda.
Here's an issue to which I'd like to draw attention: The structure of our corporation dictates a lot of restrictions concerning what we spend our money on. This is not a problem when there's only a little money.
However, because of these restrictions it's not impossible that the royalties collected by the Manse will far exceed the ability of the Manse to legally (and intelligently) spend it and it will sit in an account and boil the brains of the people who know about it.
In addition, the rules about the corporation (rules that we fought hard to make and we should fight hard to keep) say that no individual can financially benefit from the proceeds of the Manse so we cannot distribute it around the community of the Merryall Manse. So, what do we spend it on!
I believe that if there were an excessively large amount of funds in the manse fund these restrictions will make it extremely frustrating to try to spend it within the legal restrictions to which we are bound. I would suggest that we could greatly benefit from a plan to disburse these funds more freely, but still within the tenets of the mission. For example:
In short, we can't use the money for anything that endows any individual with real value, whether we give them money, aid, help, support, whatever. It has to stay within the Manse Corporation.
The Bonus
This is a one-time payment upon lease signing. we've currently been offered as a first offer $3,500 an acre for a no-surface-disturbance lease. I think we can negotiate for more. I want to ask for at least $5,000 and acre. $3,500 and acre gets us 188,000 after taxes. $5,000 an acre gets us $270,000 after taxes. Investing this in even the simplest of financial instruments at, say 2%, gives us around $5,500 annually. This is a really good amount to keep the Manse going in perpetuity.
Royalties:
This is speculation at its most extreme and we should in no way rely on these payments. It's not just how much gas is there, it's how fast it comes out, how much pipeline there is to move it, and what the current gas price is.
Royalties are only paid when they pump gas, and there are lots of reasons why the well won't be producing. However, there are two people, one of which I've met that are currently receiving $1,000 per acre per month on newly operational wells. Wells diminish in pressure in the first year, tending to settle out from a low of around $50 to a high of around $400 per acre per month for an excellently producing well in very good conditions like the Marcellus Shale.
Wells are predicted to last 20 years. However, there are 6 wells permitted on each pad, so they could produce 6 times the income, or the same income for 6 times as long.
With one operational well in a pool that includes all of our 88 acres, that works out to a possibility of at
This kind of activity is predicted to operate for upwards of 80 to 100 years in the Marcellus Shale. I have no idea if it will actually happen nor does anyone else. However, it is happening in the other Horizontal/Fracked gas drilling operations in the US (the Barnett Shale in Texas as well as the Haynesville Shale in Louisiana)
I am suggesting that the current corporation with its current restrictions on what it can spend money on is a very good entity to manage the Manse and its mission, but a poor entity to manage the kind of money that may come to it. It would be reasonable to seek an alternative. If no royalty money comes, no harm is done and very little effort spent. If royalty money does come then the entity is prepared and the precedent is set.
A suggested solution: Two Merryall Manse entities, not one. We separate the control of the bonus money from the control of the royalty money.
The current Manse corporation gets the bonus money in one lump sum and invests it. That money and everything that's generated from that money stays inside the non-profit, non-membership corporation of the Merryall Manse, inc and is subject to all those restrictions. Good because it's just the right amount of money to make the Manse really work properly in perpetuity, but it's not enough to kill anyone over.
The royalty money goes to a limited partnership corporation that we create just for the purpose. Limited partnerships need partners. In this case, Merryall Manse, Inc. would be the sole partner. In effect this makes all the assets of the limited partnership (the royalty money) the private money of Merryall Manse, inc.
The real people who would have to administer the money would be the Board of Merryall Manse, Inc. obviously, but they can't act as individuals - they are bound by the Merryall Manse, Inc. By-laws to behave in accord with the mission of the corporation.
So, the entity that disburses the royalty money is Merryall Manse, Inc. who's behavior is bound by its mission.
This means that, although the royalty income that comes to Merryall Manse Minerals, Ltd can legally (according to the government) be spent on fast cars and caviar, it won't be because the entity that runs it is bound by its own private mission.
The Board members of that entity have to get 9 out of 12 members to agree to change the mission so that it can then go spend its private money on fast cars and caviar for itself. This, of course, is an option, and Merryall Manse, Inc has a good method for the Board to do that.
Now, if Merryall Manse Minerals, Ltd should decide in the future to give money to the Merryall Manse, Inc. for improvements to the Manse instead of fast cars and caviar, it is free to do so. It can do anything it wants with the money. And, of course, it has an interest in the health of Merryall Manse, but is not obligated to do so.
We now have two kinds of money - restricted (from the bonus) and unrestricted (from the royalties).
Once money gets into the restricted part (the Merryall Manse, Inc. bank account) it has to endure the restrictions of that corporation's boundries.
If it gets in the unrestricted part (Merryall Manse Minerals, Ltd) it can be used for any purpose, but of course, the sole decisionmaking entity is the Board of Merryall Manse, Inc. whose personal behavior is regulated by its own personal mission.