Ashley Vissing, Cornerstone Research

My paper studies the qualitative attributes of the leasing contracts in the natural gas market while accounting for the effect of signing geographically clustered leases.  A well-negotiated lease benefits the landowner living near well development for up to 30 years, the potential life of an oil or natural gas well.   Firms value leasing a large set of contiguous land parcels so they can apply for permits to drill wells and profit from natural gas extraction.  The paper models how landowners sign natural gas leases with firms as a many-to-one matching problem.  The function firms use to value potential land parcels includes a term that measures the share of leases they sign in a geographic region.  This allows for complementary preferences across the sets of geographically clustered parcels.  The model estimates a value for this complementarity.  Further, in the data, there is a negative relationship between firms’ leasing patterns and how beneficial those leases are for the landowners signing them.  The negative relationship is used to motivate a counter-factual in which there is a uniform leasing standard and contractual terms are not negotiated on an individual basis.