Leasing your property to the gas industry can be a very intimidating process. Without a good lawyer to help you through the process you can find yourself overwhelmed with questions and confusion. Shalestuff.com wants to help you make all the right decisions and empower you to get the most out of your property. However the information we provide at Shalestuff.com is no substitute for working with a lawyer we want to get you started on the right foot with a wealth of information. Below are a few key items to understand before you consider leasing your land or mineral rights to the shale gas industry.
- Length of a Lease – Your lease will specify a primary term, usually 5 years. Many leases are accompanied by royalty bonuses and payments. Depending on the term of the lease, gas production on the land may lead to an extension of the lease. Reviewing the lease with an attorney will prevent any miscommunication or hidden language in the agreement.
- Gas lease payments – There are no set rates or standard rental payments in a gas lease. The amount offered will depend largely on how close or far the property is from the anticipated gas deposit. Educating yourself through learning sessions offered by non-biased parties and neighbors is a good way to discover rates in your area. Before settling on a lease, the landowner should consider what home or farm expenses might relate directly to the lease. Royalties are payments made to the landowner by the energy company when the gas is extracted from your land. Pennsylvania law states that a gas lease is not valid unless is guarantees royalties of at least 12.5 percent. Landowners may negotiate the energy company with their royalties. A shut in royalty is paid where wells are fully developed, but not producing marketable gas. This may be due to lack of pipeline connections, market timing, or other production circumstances. Some leases may include a provision for free natural gas for the landowner. This agreement would entitle you to receive a specified amount of natural gas extracted from your property at no cost.
- Surface rights – It is important to understand the rights you are giving away to the energy company. A standard lease will probably give the energy company very broad rights to use your property’s surface. Exploring the surface might include wheeled equipment in fields and forests, the use of small explosives to create sound waves, equipment storage, and parking for working personnel. If you sign a lease granting surface rights, you can limit those rights. You should also make sure you are protected in the event that drilling causes damage to crops, livestock, buildings, or personal property. If the landowner chooses so, they can restrict any surface rights on their land. Your contract addendum would need to state that the you (as a landowner) do not allow surface rights, but allow subsurface rights. Since the energy companies wish to drill on large pieces of land, they usually request for neighbors to sign into a lease as a joint venture.
- Pipelines – When signing an agreement, be aware of terms that will give blanket access to the gas company for pipeline right-of-way. If gas is being moved from a unit you are receiving royalties from, pipeline access is expected by the company and is reasonable for the landowner to grant. If the right-of-way is transported on a separate unit that is not on your property, it can be negotiated separately. The gas company should pay the landowner for this use.
- Binding Into a Legal Agreement – When you sign a lease with an energy company, the agreement is binding and legal. Before signing the lease, you should know exactly who you are signing into a lease with. Landowners who sign into the lease with a gas company should negotiate a clause making lease assignments or sales subject to their approval. You should make sure you understand everything in your lease and understand who you are dealing with.
- Indemnification Clause – When negotiating a lease, you should also include a provision to require the gas company to indemnify you for any liability you may incur as a landowner. This includes any loss, damage, or injury that happens on your property as a result of the drilling. The clause should be written to address all possibilities and situations.