The following information may be useful for farm owners considering a pipeline easement on their farm. Penn State compiled this information and it illustrates a formula for lost production beyond year 1.

The build out from the gas fields in southwestern Pennsylvania will have a direct impact on many farmed acres. Considering these simple steps for determining crop damage payments is a good place to start negotiations.

During natural gas pipeline easement negotiations, agricultural landowners should be asking for compensation for crops damaged during pipeline construction. This is a quick tutorial for calculating a damage payment. The basic mathematical formula is as follows:

Lost Yield x Commodity Price x Disturbed Acres = Potential Damage Payment

We use the term “potential damage payment” since the final payment will be determined via negotiation with the company land agent.

Some land agents will accept any reasonable crop damage estimate; others may use your damage estimate as a starting point for negotiation. Whatever the agreed-upon damage payment is, make sure the amount is provided to you in writing before signing the agreement.

Determining lost yield

Lost yield — or expected crop yield — is ideally calculated from your farm records. Because you are trying to determine an expected yield, it is reasonable to use a recent running average for the farm.

During pipeline negotiations, it is common to assume full crop loss the year of construction and then some loss (yield drag) over the right of way for several years after the site is restored due to soil disturbance and compaction. Many people have used a “100 percent, 50 percent, 25 percent formula” as described below. For our example, we have a corn field with a documented five year average yield of 175 bu/acre and we expect a full loss during the year of construction, 50 percent loss the second year, 25 percent loss the third year and no loss accounted for in years four and beyond. So our total yield lost is:

Total lost yield: 175 bu + 87.5 bu + 43.8 bu = 306.3 bu/acre

Picking commodity price

Commodity prices are, of course, quite variable over time. It is up to the landowner to pick a realistic commodity price as a starting point for the negotiation with the landman. You could choose to use the current market price for your crop, a futures price for the anticipated date of pipeline construction, an average historical price, or some combination of these prices. Regardless of which price you use, be sure you can provide justification for the price if requested. For our example we will use a current December 2016 futures price of $4.08 per bu.

Impacted acreage

Impacted acreage can be determined by: (length x width) / 43,560. Before calculating impacted acreage, it’s important to understand the difference between the permanent easement and the temporary construction easement. The permanent easement describes the width of the final restored easement on the property. Permanent easements are generally 50 feet wide; although they can vary significantly from pipeline to pipeline. The construction easement indicates the width that will be disturbed by excavation or heavy equipment during construction. For the purposes of crop damage estimates, we want to use the construction easement width as that will be the area initially disturbed (or damaged) during pipeline construction.

Potential damage

So our final potential damage estimate calculation is as follows:

Lost Yield x Commodity Price x Disturbed Acres = Potential Damage Payment

In our example, using the date above, we can calculate a potential damage payment: Potential Damage Payment: 306.3 bu x $4.08 x 4.59 acres = $5,736.14

It is stressed that this is an example “potential damage payment” only.

Luke Fritz is executive director of the Butler County Farm Service Agency.