The Gas Company Wants to Modify My Gas Lease to Increase the Maximum Unit Size: What Should I Do?

First and foremost, anytime a gas or pipeline company wants you to sign ANY document you must thoroughly understand the document and any and all consequences that may result upon execution of the document.  Unfortunately, I have seen landowners lose hundreds of thousands and even millions of dollars where they blindly executed legal documents without fully understanding their leverage and options.  Please do not repeat these costly mistakes and make certain you understand the document you are signing and the potential consequences of your signature.

In that regard, landowners across Pennsylvania are being approached by the natural gas company holding their Oil and Gas Lease and being asked to agree to a Modification, Amendment, and/or Ratification of their Lease.  Lease modifications can take many forms and while the vast majority of modifications are non-negotiable, some modifications are negotiable and should be negotiated to maximize the landowner benefits.  The key for the landowner is to fully understand the modification request and the likely consequences of their decision to accept or decline the modification.

One common modification request seeks to modify the Oil and Gas Lease to increase the maximum unit size beyond that authorized in the original Lease.  Many active Oil and Gas Leases in Pennsylvania limit production units to a maximum size of 640 acres.  Many gas companies are approaching landowners with 640 acre maximum unit Leases and are requesting that the landowner agree to modify the existing Lease to permit units up to 1280 acres or even more.  As always, quality information is crucial for landowners to make the right decision when facing Lease modifications.  Often there is not an easy answer when asked to increase the maximum unit size established in the original Oil and Gas Lease.  What is known is that the landowner must acquire credible and reliable information in order to make the best possible decision for their particular circumstance.

There are many variables that come into play when considering signing modifications or amendments to your existing Oil and Gas Lease.  There is no “cookie cutter” answer to whether a landowner should sign a Lease modification or amendment.  Common considerations include, but certainly are not limited to:

 

1.) The size and location of the parcel under lease;

2.) The current status of development activity in your immediate area;

3.) The location of the parcel in a “proposed” production unit;

4.) Are you currently in a production unit;

5.) Is there a well bore underneath your property;

6.) Do surrounding leased landowners have the same modification request and similar Lease terms;

7.) What position have your neighbors taken with the same modification request;

8.) The terms of the existing Oil and Gas lease, including, but not limited to, when your Lease is set to expire and whether your Lease contains an extension clause;

9.) The drilling plans and patterns of the natural gas company making the request to modify or amend the natural gas lease; and

10.) The precise modification language requested and proposed language’s impact on the existing Oil and Gas Lease.

 

These are all factors that a landowner must consider when deciding whether to execute any Modification, Amendment, or Ratification of their Oil and Gas Lease.  However, these factors are not exhaustive and do not always carry the same weight. There are almost always specific and unique circumstances facing the individual landowner that will influence the evaluation process. 

Of course, gas companies will also ask landowners to sign modifications to existing Oil and Gas Leases that do not carry a substantial impact for the landowner.  However, on occasion a modification or amendment will significantly modify the existing Oil and Gas Lease to the landowner’s detriment.  It is critical that the landowner understand their options when facing these powerful modifications.  Ultimately the landowner may reluctantly decide to execute the proposed modification or amendment as the consequences of refusing to sign are simply too severe.  The key is to completely understand your options and make the best decision for your circumstances.

Douglas A. Clark, Esq. – Protecting Pennsylvania Landowners

 

 

“For more landowner information listen to Attorney Clark’s weekly radio show, “All Things Marcellus” archived on www.pagasleaseattorney.com

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Comment by Jeffrey L kerr on April 8, 2012 at 9:27am

it depends on your gross for the yr.  every one diff.  you still will pay the same per your state law. only difference is if you take it in 2 seperate yrs you may be able to plan for the taxes for the ladder yr. if you need the cash in one yr take it you will pay the same unless you are in a high tax bracket but you may ask a CPA for some legal advice.  roll it in to a tax safe IRA.

Comment by Bob Moran on April 8, 2012 at 7:26am

Jeffrey, This doesn't relate to your original post but the last couple of comments brought it to mind. How can one guarantee & protect the second installment payment if the bonus is set up to be paid 1/2 this year & 1/2 next year? Is it worth it to do this or should a lessor just take his IRS lumps all in one year? Thank You

Comment by Jeffrey L kerr on April 7, 2012 at 11:26pm

we got ours all at once thru Chesapeak where is the prop. at ohio or pa. ours in pa. marcellus or utica ??

Comment by Jeffrey L kerr on April 7, 2012 at 8:28pm

Lisa you should get it up front all at once

Comment by Jeffrey L kerr on April 4, 2012 at 5:52pm

if the gas co. wants it its bad for you the land owner.  they are getting way more cash than any of us for the gas  oil ect. 

Comment by tomcats58 on April 4, 2012 at 10:27am

The facts are that most horizontal wells can drain a maximum of 80 to 100 acres. based on that number, even 640 acres is too large of a unit unless the driller is putting 6-8 bores per pad. The idea of 1280 acre units is nothing more than greed by the gas companies. Companies are pushing 1280 units so that a single well can hold as much land as possible with a single well. It will cut the landowners royalty by 50%. good for them bad for us.

Comment by jeff shaffer on April 4, 2012 at 10:22am

my uncle has  150 acres  in crawford county  and they want to unitize his acres into  640   i told him

to ask for 1/3 of any bonus money the company may recieve    i think that is resonable  considering they liled to him saying they would drill   3 wells   he did not have it in writing  so they only drilled

one and now offer him  $150  total to sign

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