Is a 10 year lease too long?

We live in Jefferson county PA.

Eight years ago was the first time anyone was interesterd in the gas under our land. We entered into a 5 year lease for the shellow gas. There was no talk about Marcellus Shale Gas at that time. In the 5 years that passed only 2 wells were drilled close to my land they did not pan out as planed. So all drilling stoped. After that lease expirded we was asked by a different drilling Co. to lease our land again. We opted to only lease it for 3 years. Again no wells were drilled on our land or on adjoning land.

We now have been asked to lease our land for the next 10 years with a one time lump sum payment, but this time they want the rights for oil, gas and coal bed methane by any means.

 

My question is;

Is 10 years to long for a lease? 

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Permalink Reply by Brian on September 17, 2010 at 2:37pm
It wouldn't. If all of their acreage was already in the unit all of the acreage would be HBP (held by production) by the single well no matter which acreage the well was drilled on. Chances are though, even if they only drill one well initially, they will be back again to drill more wells.

The goal of the Pugh clause is to either persuade them to include ALL of your acreage in a unit OR release what they do not include in a unit back to you. Once your acreage is in a unit, and that unit has a well, its stuck there until the well runs dry. By releasing it back to you, you can lease it to whatever company you want. More than likely though, they will try their best to include all of your acreage if you have a Pugh clause so they don't have to pay you another bonus or risk someone else leasing it.
Permalink Reply by 1840 farm on October 3, 2010 at 5:29am
We heard that a nearby farm had over 80 acres and only 40+ were included in the unit, so they only get paid for those 40+ acres, pugh clause should avoid that scenario if we understand this correctly?
Permalink Reply by Two Dogs on October 3, 2010 at 5:34am
Yep. When the lands cross a unit boundary the lands outside the unit are released back to the mineral owner at the end of the primary term of the lease.
Permalink Reply by Carol on October 3, 2010 at 7:54am
1840 - A few of the landowners in my unit have only part of their acreage included but most, if not all of them, will have the remainder of their acreage included in another unit. One landowner has part of his acreage included in the Uschak unit and the remainder in the new
Androstic-Marco unit. He will be getting paid from a total of 17 wells (9 on Uschak and 8 on Marco.) Not sure if that will benefit or harm him - I guess it will depend on which wells produce more.
Permalink Reply by Carol on October 4, 2010 at 1:10am
Janice - I am in Westmoreland County, PA - Derry Township. Most of the leases in my unit and the surrounding units were signed in 2007 - 2009. Most of the larger landowners signed when the bonus payments were really low and they signed "standard" leases. My lease expired in February 2010 so I was able to negotiate a better lease with all of the addendums I wanted.
Permalink Reply by Carol on October 4, 2010 at 4:00am
Janice,
I'm not aware of any landowner groups in this part of Westmoreland County. That doesn't mean there weren't any - I just haven't heard of any. I negotiated my lease individually (with an attorney.) I stayed away from the groups because I don't think the landmen and gas companies are really interested in dealing with them unless they are in a really hot area. I knew they wanted my land to complete a unit and I had a bad experience in the past with another company, so I used an attorney - it was well worth the cost.
What part of the county or state is Coprise located?
Permalink Reply by Brian on October 4, 2010 at 4:33am
I live near Carol and I am not aware of any land owner groups in our area either. Our area is pretty much dominated by one company and no other companies are attempting to come into it yet because most of the property was already signed like Carol said. There was one small landowner I group I heard of after I signed near me, but it was only maybe 4-600 acres.
Permalink Reply by 1840 farm on October 4, 2010 at 2:10pm
We're in westmoreland too, and haven't heard of any groups either. Seems everyone is negotiating individually, though that's not to say we don't get together with the neighbors and share information...
Never heard of Coprise either
Permalink Reply by Tom F on October 4, 2010 at 6:01am
I am wondering if the dominate company is Range Resources? I have read where they have a large presence in SW PA and have been seeing some TV commercials here in Elk County. If RR is the company how are they to deal with? There is limited activity here with EOG doing some of the drilling.
03jpvyh6t086hPermalink Reply by 03jpvyh6t086h on October 6, 2010 at 3:31am
Yes that is way too long. Especially if they want basically EVERYTHING. hold off and keep negotiating with the land man.
Permalink Reply by Sinclair on October 6, 2010 at 5:07am
definitely too long. The price of gas is only going to go up. Texans were paid 25,000 an acre.
Also, consider your neighbors, will it be ok with them to live next to an industrial operation. Will their children be breathing diesel fumes 24/7? Will they be ok if they decide to put a compressor station on your property? Compressor stations are very loud and release VOC's.
Consider too, that your property value may decline dramatically, if you decide to sell, wiii your land still be desirable with wells, pipelines, condensate tanks and possibly a compressor station on it? Or if the water is contaminated and undrinkable/ If you do find a buyer , a lot of banks are not giving loans on properties with wells( for liability reasons0 FHA is one of them.
if you still decide to sign that lease make sure you have the ability to decide what happens where on your property. here are some other questions to find the answers too.
LEGAL —WHAT ARE THE LEGAL RAMIFICATIONS OF SIGNING A LEASE?
• If I lease my “minerals”, what does that include? Would I be leasing more than just natural gas?
Can I lease only my natural gas? Only in certain formations, say excluding Marcellus?
• Once I sign a lease, when do the terms of my lease expire? Isn’t a 5-year lease that can
automatically extended by the gas company, really a ten-year lease?
• If the gas company chooses not to produce the gas in this well for market reasons, or any
other, will that automatically extend the term of the lease?
• Does the lease specify which layer or formation, or does it give access to all
underground layers?
• Can the gas company drill wells into each of the geologic formations beneath my property?
• Don’t the terms of the lease mean that the lease can be held in perpetuity, so long as any
company leasing any one of the layers is searching for or producing gas, or storing it on my
property?
• Can the gas company drill a second well on my property before the original one plays out,
and thereby extend the lease indefinitely?
• If the company is out of compliance with the terms of the lease, how will I enforce it? Has the
company put money in escrow? Will they pay for my legal expenses or will I pay for theirs?
• If a spill occurs, and the company is sued but evades liability, will I become liable? Do I have
an adequate insurance policy in place?
• Signing a lease now may mean the lease will be active for generations. How do my children
feel about my leasing the land?
• Do I have a plan for how I will monitor the company and how I will enforce the lease? If I don’t
have the time and expertise, will I have to hire a consultant? If the gas company goes
bankrupt, will its insurance clean up open pits, partially drilled wells, land in development or
partial reclamation? Has my local governments been bonded against that eventuality?
• If the production of this well ceases for a period of time, will the well be capped and the pad
site restored? What period of non-production will trigger capping and restoration?
• As the mineral owner, am I protected from legal action in case of an accident?
• Is there a “hold harmless” clause in my contract? How do I enforce it?
• Would I be responsible for the loss of my neighbors’ water wells? Do my neighbors have the
right to sue me, the landowner, for the loss of their water?
• Will my leasing affect my neighbors who choose not to lease? Can you give me a copy of the
DEC Program Policy DMN-1: Public Hearing Processes for Oil and Gas Well Spacing and
Compulsory Integration?
• Doesn’t ECL § 23-1303 (Authority to acquire property) mean that if gas is stored on my
property, that the company can use Eminent Domain to put a pipeline through my land?
TAXES —WHAT ARE MY TAX OBLIGATIONS IF I LEASE MY MINERALS?
• Is it true that any signing bonus and royalty checks would subject to regular federal income
and state income taxes, and not the lower capital gains tax?
• If I become a non-participating operator, will I also have to pay both the employer’s and
employee’s share of the Self-Employment Tax (15.3%) on any bonuses and royalties?
• Would I be taxed annually on the potential value of my minerals, through property and school
taxes?
• Would I be obligated to pay this tax even if the gas company decides to curtail production
from a well on my property?
• If my Town taxes gas infrastructure/equipment on my property the same as any other
“improvement”, will the gas company reimburse me for those higher assessments?
FINANCIAL —WHAT ABOUT MY HOME VALUE, INSURANCE COSTS AND OTHER COSTS?
• In Franklin and Clinton counties, mechanics liens totaling more than $10 million have recently
been filed against property owners who hosted industrial wind turbines, when the operator,
Noble Environmental Power, defaulted on payments. How will my gas lease protect me from
such an outcome?
• I may be responsible for fees associated with my mortgage in the event I sign a lease. Is the
gas company willing to negotiate subrogation fees with my mortgage company?
• Would I be responsible for paying additionally for a title search?
• Would the gaswell’s production costs (legal, transportation, advertising, insurance and other
business-related costs) be taken from the top before I receive my royalty payment? How
about payments to shareholders, and corporate bonuses?
• Are there studies that report the impact on the market value of my home if I am party to a gas
lease? Or if there is a wellpad near my house on a neighbor’s leased property?
• I expect a rise in homeowner’s insurance if my home is near a gas pad site. Is the gas
company willing to defray that increased cost?
SITE — HOW WILL THE PAD SITE AFFECT MY HOME AND MY NEIGHBORHOOD?
• Where will the pad site be?
• How big will the pad site be?
• Is there potential for additional pad sites on my property?
• Will the company agree to limit the # of pads on my property to the spacings allowed by law
at the time the lease is signed?
• Have I seen drilling operations similar to the largest ones allowed by my lease, or only those
shown by the gas company?
• Will the gas company grant more than the 100' set-back from homes required by current law?
• Besides the “Christmas tree,” what other equipment will be permanently installed on the pad
site?
• Will there be a compression station associated with this pad site? Will there be a compression
station within one mile of my home?
• Is there an existing pipeline associated with this pad site? Will the Right-of-Way be over 66’
wide? Can I put limits on the pipeline company’s access to my surface property?
• Is the anticipated life term for pad sites in the Marcellus shale really 30-50 years?
• When will the pad site be restored to its original condition?
• Fresh (potable) water be trucked in and wastewater trucked out from this pad site. How many
trucks will access the pad site during the drilling and the fracking each day, and for how many
days?
ENVIRONMENT — HOW DOES GAS DRILLING AFFECT MY ENVIRONMENT?
WATER
• Does the lease offered include water-supply pre-testing done by an agreed-upon third party,
and paid for by the driller? Will they be required to pay for a retest by the same company if I
think my water is polluted?
• Where can I find a reliable report that illustrates how much water is used during drilling and
fracking?
• Where can I find a third-party report that estimates the number of times, and how often, the
gas wells on my property will require fracturing?
• Does drilling production stop during drought conditions?
• Is the gas company willing to exempt water withdrawals on my property from the lease?
• Do energy companies pay for water usage?
• How is water usage metered when it is taken directly from rivers, ponds, and wetlands?
• Are drill sites exempt from the storm water run-off ordinance in my town?
• How are watercourses protected from storm water runoff on sites with reserve pits?
• Will the company agree to more than the 50’ setback from watercourses required by current
regulations?
• Is wastewater regulated as a toxic by-product?
• Can I get a lease to require that drilling muds and “produced” fluids coming up from the
boreholes be removed from my property?
• Will the lease guarantee that deep well injection of wastewater will not be carried out on my
property?
AIR QUALITY
• Where can I find a government report that shows the effects of gas drilling on quality of air?
• Does my town have air quality standards for ozone that gasdrillers are required to meet?
• Who monitors drill sites for air pollution violations?
• What is flaring and how does it affect air quality in my neighborhood?
• Has there been a study to gauge how the impact of increased truck traffic will affect my air
quality?
INFRASTRUCTURE
• Is there a county infrastructure impact study for the gas drilling planned by the company?
• How will the county and town measure the impacts on infrastructure?
• Who bears the financial burden of road repair? Wastewater treatment plant expansions and
maintainance? Increased use of emergency services?
SOIL / FARMLAND
• How is soil surrounding the drill pad site protected from contaminants used during drilling? From
herbicides used to keep pads weedfree?
• Who monitors reserve pits at a drill pad site? How?
• How is the soil protected from reserve pit run-off, leaks or spills?
• How are reserve pits cleaned up?
• Are companies required to submit a soil remediation plan for a drill site in the event of soil
contamination?
• How is contaminated soil disposed of?
• Will there be a reserve pit associated with this pad site?
• How many gas wells are planned for this pad?
SAFETY — HOW IS MY NEIGHBORHOOD PROTECTED?
• Have you talked to your neighbors? How do they feel about gas development in your
community? On your property? On theirs?
• How has the [village, town, city, county] prepared for a drilling accident?
• Is there an evacuation plan available for the neighborhood in case of accident?
• Has my [village, town, city, county] fire and police departments trained for disasters related to
gas drilling, possibly in an urban environment?
• What is a typical blast radius for a gas well explosion?
• What training, protocols and resources are in place to protect medical first responders, as well
as secondary responders such as ER staffs, from the drilling/fracking chemicals that the gas
company will not reveal?
• Does my town have a fully-functioning, quickly-responsive ambulance service?
• Who is responsible for damage to my property in case of an accident involving gas wells?
• How do neighbors contact the company with complaints of excessive noise, obtrusive lights
and dangerous truck activity?
• What are my legal rights to preserve a reasonable quality of life during the life of the well?
Permalink Reply by Jeffrey L kerr on October 7, 2010 at 12:11am
look out the term by any means scares me ?

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