Big crowd learns about gas leasing

By CHERYL R. CLARKE cclarke@sungazette.com
MANSFIELD — About 350 people nearly filled Straughn Hall on the campus of Mansfield University to hear several “experts” discuss gas leasing on Tuesday.

Ross Pifer, director of the Agricultural Law Reference and Resource Center, shared the legal ins and outs of leasing property to gas companies.

The landowner has more rights than he or she probably realizes when approached by a gas company or “land man,” Pifer said.

“As you deal with them, first of all, it’s important to understand who you are dealing with and what their interests are,” he said.

An energy company will present the landowner with a standard lease, protecting the interests of the company, Pifer said, “but the lease should include an addendum with terms important to you.”

The landowner should consider his or her goals and concerns and should focus more on those than the initial figure presented as a “bonus payment” for signing the lease or on the potential royalties that might be accrued.

Royalty payments must be at least 12.5 percent, according to law, he said.

“But, the bonus payment, which is a one-time payment to the landowner, is negotiable by the landowner,” Pifer said.

Other concerns are the length of the agreement, whether it is automatically renewable and when a “secondary term” of the lease could begin.

“It is never to your benefit to have a renewal clause,” he said.

Instead, the landowner should negotiate a “right of first refusal,” meaning he or she can take advantage of price increases in the market and not be locked into a low rate because of the automatic renewal clause.

The rights granted to the lessee (gas company) by the lessor (landowner) can be negotiated in the lease agreement, Pifer continued.

“They will seek unlimited use of your property, but you should try to limit it. Consider the difference between what is convenient and what is necessary for them to acquire the gas,” he said.

If the lease says whatever is convenient, it basically gives the company unlimited use of the land.

Landowners can define permitted activities on their land, require that they approve well sites and access roads, define how the land will be reclaimed after the well is no longer in use, and require installation of fencing or gates.

“Property damage provisions should be included, along with a method for assessing the damage,” Pifer said.

If there are disputes, an arbitration clause should be there, rather than a litigation clause, because, he said, “they have far more resources than the average property owner to pursue litigation.”

Water issues are a concern of some landowners and to address that, a clause should be included that states all water needed to do fracturing of the shale should be obtained off site and disposed of properly.

“The fracture process takes an enormous amount of water, between three and six million gallons,” Pifer said.

In some cases, a “no surface rights” lease can be negotiated but usually only with smaller tracts of land.

The landowner should be compensated in a separate agreement for any storage or transportation rights requested by the company, he said.

An indemnity provision also should be included in the lease.

“The landowner should be paid for any damages to well water, liability if someone is injured on your property, a hold-harmless provision for liability and environmental harm should be included,” he added.

“Leasing your property to an oil or gas company is a complicated legal procedure, and you should consider hiring an attorney experienced in that field to help you understand it,” he said.