Lease Extension Question

2 years ago most members of my family signed a new oil & gas lease with EQT.  Several members did not sign the lease.  

The terms of the lease are terrible.

The lease is written for 4 years with an option for EQT to extend the lease for an additional 4 years.  When the first 4 year term expires, since several family members did not sign the lease, will EQT be able to extend the lease for the additional 4 years?

Thank you!

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Permalink Reply by evan on January 1, 2015 at 2:00pm
Did the people who didn't sign have an interest in this property , if so that may help
Permalink Reply by Marcus Huey on January 1, 2015 at 2:55pm

Yes, 17 family members have mineral rights, 15 signed, 2 did not.

Permalink Reply by Cicero on January 6, 2015 at 6:39am

I don't know about WV and don't want to guess. In PA the 15 owners who executed the lease are bound by it's terms and held to them, including the Lessee company's right to exercise the extension as it pertains to their specific leased fractional interests. Based upon your description of the lease as a "terrible" one, the E&P Lessee company will almost certainly be allowed to enter upon the premises, unitize them, and drain the property. The fractional interest of the unsigned landowners, as it translates into royalties, will be accounted for and escrowed. It only takes one leased co-owner to establish the right of the Lessee company to develop the entire property without leasing the other owners. However, the unsigned owners do get their share of production set aside for them in escrow. The two that didn't sign did not prevent development of the leased premises. They just don't get paid directly for their share of production without being leased. If the lessee company plays its cards right and the property is anything they believe is promising, I doubt they will allow 6 years to elapse without engaging in sufficient activities to hold the lease by operations or production. Again, the above is PA law, not WV.

Permalink Reply by Jeffrey Beunier on January 1, 2015 at 4:26pm

Marcus,

It depends on how the interests in the property are held - based on your description, essentially 15/17 of the ownership interests have been leased.  The 2 hold outs, can lease under different terms to EQT or someone else, but the 15 of the 17 that signed are tied to the contract they signed. 

In certain states, when minerals are fractionalized, only 1 owner has to sign a lease for an operator to drill a property - it prevents the ability of 1 person to hold out and deny others of an economic benefit by preventing a property from being developed.  What state is your property located in?

Permalink Reply by Marcus Huey on January 1, 2015 at 5:08pm

West Virginia.

The lease is for 12.5% with deductions. 

I would like to hold out until the lease expires in another 6 years.

Permalink Reply by evan on January 2, 2015 at 2:48am
My guess would be that the lease would be valid. At least if it came down to a court case the court would side on behalf of the company that has the lease
Permalink Reply by Marcus Huey on January 2, 2015 at 4:44am

That is also what I was thinking Evan.  I guess our best course of action is to wait out the lease and let it expire in 6 years.  Hopefully by then NG prices will be significantly higher and we will an opportunity to accept a lease much more favorable to our family. Thanks for your time :  )

Permalink Reply by Dexter Green on January 2, 2015 at 5:46am

Marcus, I don't know how WV does it but in Ohio the lease would be valid and enforceable for those who signed.  For those who did not sign the operator would need to either get them signed or ask for a forced pooling order from the state.  I suppose they could drill a well, escrow the pro rated share of the unsigned owners, and then sort it out after the well is online.  But that opens them up to a lawsuit for mineral trespass.  I'd call a lawyer if I were in that position.

Permalink Reply by Cicero on January 6, 2015 at 6:47am

I don't think any compulsory pooling order would be required concerning the unsigned owners. In most jurisdictions, the law is well settled regarding this issue. Having 15 out of 17 co-owners leased basically eliminates the need for a compulsory pooling order involving the two unsigned owners because the lease or leases already executed allow the Lessee company to develop the entire property. That would be the situation in PA. Naturally, check your own state laws.

Permalink Reply by Jim White on January 12, 2015 at 6:51am

Marcus

I am pretty sure that in WV, while the 15 are bound by the agreement, the O&G could not drill the property without the other two. I am in the same situation. That is why O&G companies want forced pooling and would/might resort to a partition suit to force the hand of the other two. Our lawyers researched that a long while ago. 6 owners, need six signatures to drill. If one of my nephews refused to sign? The only thing we could do was to partition him which would generally suck.

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