I have noticed a strong trend whereby natural gas companies and pipeline companies are seeking to combine multiple projects, installation activities and rights in the same Marcellus Shale contract or agreement.  Many Oil and Gas Leases presented to Pennsylvania landowners also serve to establish a potential pipeline right-of-way across the property.  Gas companies are also seeking to combine Compressor Station and Meter Station Agreements with Pipeline Right-of-Way Agreements.  It is also common for a Water Impoundment Pond Agreement to permit an easement for the installation of temporary and/or buried water lines.  Landowners should look to separate the various Marcellus Shale contracts and agreements so that each agreement is as specific and limited as possible.  Limiting and carefully defining Marcellus Shale agreements is typically going to benefit the landowner during the life of the contract.

Oil and Gas Leases and Pipeline Right-of-Ways

As any regular listener to the radio show (“All Things Marcellus”) knows, I often preach the importance for landowners to limit the pipeline power given to the natural gas company during the leasing process.  Generally speaking, all Oil and Gas Leases will permit pipelines across the landowner’s property, provided that the pipeline will transport gas from the landowner’s property, or from a unit in which includes the landowner property.  However, more and more I am seeing gas companies developing creative ways to introduce powerful Pipeline Right-of-Way Agreements within the terms of the Oil and Gas Lease.  The landowner and their representative must carefully scrutinize and fully understand the pipeline and right-of-way language contained in the Oil and Gas Lease prior to execution.

Landowners who have effectively eliminated “third-party” or “foreign gas” pipelines from their Oil and Gas Lease are pleased to have the power to say “no” to future third party pipelines.  These landowners also have the option to negotiate separately for “third party” or “foreign gas”  pipelines if they are approached by a pipeline company seeking a right-of-way or easement across their property.  Landowners should always negotiate their Oil and Gas Lease to exclude “third-party” or “foreign gas” pipelines whenever possible.  

Compressor and Meter Station Agreements and Pipeline Right-of-Way Easements

Landowners should seek to separate a Compressor Station or Meter Station Agreement from a proposed Pipeline Right-of-Way Agreement.  There are numerous reasons to separate these activities into separate agreements.  Many times compressor station and meter station sites can be negotiated with renewal payments and provide for future termination of the agreement.  Similarly, Pipeline Right-of-Way Agreements should be negotiated to maximize compensation and damage while avoiding a permanent right-of-way across the landowner’s property.  Landowners should have abandonment and/or termination provisions within the Pipeline Right-of-Way Agreement that will ultimately allow the easement to terminate and the property to revert back to the landowner.
 
Also, a well negotiated Pipeline Right-of-Way Agreement will limit the activity that can occur within the easement or right-of-way.  However, most “combination agreements” provide the company extensive power with respect to the size or number of pipelines within the easement provided the company does not exceed the total width of the area granted.  A carefully negotiated Compressor Station or Meter Station Agreement will require a separate Right-of-Way Agreement to maximize current compensation and future opportunities.

Water Impoundment Ponds and Water Pipelines

Landowners should seek to create separate agreements for water pipelines when negotiating a Water Impoundment Pond Surface Use Agreement.  Typically natural gas companies are willing to provide a per linear foot compensation or damage payment for installed water lines.  Landowners must be very mindful when negotiating a Water Impoundment Pond Agreement that they are not also permitting the installation of water pipelines through an easement, unless provided separate compensation.  The water impoundment pond’s “limits of disturbance” should be specifically delineated in the Water Impoundment Pond Agreement.  This should allow the landowner the ability to negotiate a separate Water Line Agreement to allow the company to transport water from the impoundment pond to the well site or other destination.

Separate Roadway Agreements

Landowners should request separate Access Road or Roadway Agreements whenever possible.  Companies will typically pay a per foot compensation or damage payment for the privilege to install a roadway that will allow the company to have access to a compressor station, meter station, impoundment pond and pipeline project.  A careful negotiation should result in separate payments for each activity and maximize profits and protections for your property.

The Possibility of Multiple Signing Bonuses

Another potential benefit of separating Marcellus Shale agreements is the ability for the landowner to collect multiple signing bonuses.  Many times companies are willing to offer a “signing bonus” or a payment for the “option” to allow the company to install a compressor station, meter station, water impoundment pond or pipeline right-of-way.  The company will typically pay an upfront compensation fee or a fee in exchange for the “option” to operate or right to install a production facility on the property.  By requiring separate agreements for each activity, the landowner can potentially collect multiple signing bonuses and/or option payments.  

Conclusion

The above are only a few examples to quickly illustrate the potential value of separate agreements for Marcellus Shale contracts.  The primary point to drive home is that every landowner Marcellus Shale agreement must be carefully negotiated and drafted to limit the gas or pipeline companies’ authority.  We will never get everything we want, but we need to maximize each and every proposed agreement while still allowing the company the ability to operate.  Landowners must fully understand the terms of any agreement before they sign, and landowners must maximize compensation and property protections.

Douglas A. Clark, Esq. – Protecting Pennsylvania Landowners

Am I in a “Partnership” with the Gas Company?

I often hear the natural gas companies and their representatives preaching to landowners that they are in a "Partnership" with the landowner.  "Partnership" is a nice buzz word that invokes a feeling of working together for a common goal, but are you truly "Partners" with the gas company?  Well there may ultimately be a  type of "partnership" formed, unless you have negotiated a 50% royalty payment, you are certainly the minority "partner" once you have entered into an Oil and Gas Lease with the gas company.  

I acknowledge that once you have signed your Oil and Gas Lease you have formed a "partnership" with the gas company to some degree.  Of course it is critical for landowners to understand that this "partnership" does not form until the gas company accepts your executed Oil and Gas Lease and pays you your signing bonus or similar payment.  For this reason it is absolutely crucial that the landowner negotiates the best possible Oil and Gas Lease or any other Marcellus Shale contract prior to signature.

The Oil and Gas Lease serves as the foundation, blue print, and operating rules of the "Partnership."  It is the Oil and Gas Lease and negotiated Addendum that will dictate how the gas company and its contractors operate on or under your property and also set the terms of royalty payment calculations.  We have seen firsthand time and time again that the gas company will look to the Oil and Gas Lease as the “rule book” as to what they can or cannot do on your property.  Virtually all Leases have an "Integration Clause" that essentially indicates that everything we have agreed to is contained within the four (4) corners of the document and no other oral or even written representations are binding unless contained in the Lease that you ultimately sign.  In other words, any statements that the landman or company agent made to you during the negotiation process is not binding unless it is contained in the final document in writing.  

I have worked on many Surface Use Agreements and other developmental contracts as well as hundreds of other negotiations with natural gas and pipeline companies.  A statement that I hear all the time in well site negotiations is that, "we do not have to do that, it is not in the Lease."   Landowners must remember that the landman that sat at their kitchen table on many occasions and maybe even ate dinner with the family, is not going to be part of the crew involved in building the well site, pipeline right-of-way, compressor, impoundment pond or any other physical development project.  The construction foreman and gas company project managers are not going to go back to the landowner to ask what they talked about with the landman, but instead they are going to look to the actual final agreement signed by the landowner to identify operational limitations.  

In developmental contract negotiations companies routinely provide me with the original Oil and Gas Lease, or applicable agreement, with areas of limitation internally highlighted to identify any operational or construction restrictions that apply to the project.  If an operational limitation is not present in black and white, there is simply no such limitation.  The typical response from the "partner" gas company is that, "they [landowner] should have put it in the Lease if they wanted it."  

Landowners must understand that in order to preserve their rights and requests relating to operations and construction, they must include these terms in the Lease, Pipeline Right-of-Way Agreement, or other developmental contract.  Although a company may not currently plan to do something, such as widen a right-of-way or add additional gas or water lines, circumstances often change and the only limitations facing the company will be the terms expressly stated within the four (4) corners of your Lease, Pipeline or other agreement.  In other words, the "Partnership" concept works wonderfully when both “partners” agree, but if not, the "Partnership" terms will be dictated by the Lease, Pipeline or other signed agreement.  Landowners must fully understand any document they sign, and must make certain that they are satisfied with the terms and language included in the final agreement.  The final Oil and Gas Lease, Pipeline or other Agreement will be the ground rules and framework upon which the "Partnership" is formed.
 
Douglas A. Clark, Esq. – Protecting Pennsylvania Landowners

Great Qualities, but Not During Marcellus Shale Contract Negotiations

Growing up in rural Western Pennsylvania my parents instilled in me many values and characteristics that I am very proud of today.  Since moving to Eastern Pennsylvania about seventeen (17) years ago and meeting and working for many landowners across the state, I have seen firsthand that kindness, loyalty and a person’s word serving as their bond are qualities shared throughout the state, especially in rural areas.  

When a farmer agrees in a conversation to sell two hundred fifty (250) bales of hay out of the field for Two Hundred Fifty ($250.00) Dollars, both parties have "given their word" and the deal is done.  These gentlemen do not need formal written contracts with attorneys drafting terms and an integration clause.  Many landowners have unfortunately learned the hard way that handshake agreements  are a thing of the past when dealing with natural gas and pipeline companies.  Oil and gas industry is big business and often involves complex contracts and agreements that are negotiated often over a lengthy time period.  Landowners must unfortunately realize that gas  and pipeline company negotiations are complex and adversarial.  

Remember, natural gas companies have secured gas leases, pipeline right-of-ways, and many other landowner contracts across the country for over one hundred (100) years.  The gas companies and their representatives have tremendous experience dealing with rural landowners and understand how landowner’s admirable character traits may be used by the company to their advantage during the negotiation process.  Traits like kindness, loyalty and trust are often manipulated in the negotiation process to secure a more favorable company agreement.  

Far too often landowners tell me that the landman is "a really nice guy" and that they have reservations in asking for certain terms or do not want to rock the boat.  I have heard many times that the landman told the landowner that he or she were "going to lose their job" if they could not get the landowner to sign the oil and gas lease, pipeline agreement, or other Marcellus Shale Agreement.  Of course if this type of guilt negotiation does not work, you may hear a subsequent fear tactic that the company "will just work around you" or "we will just take your gas from your neighbor's property."  Landowners should not enter into agreements out of guilt or fear.  Landowners should reach agreements because they are fully informed and feel that the ultimate agreement is in their personal and family's best interest.  Just as the gas or pipeline company will always act in their best interest, so should the landowner.  

Landowners must be very careful not to allow landmen or other company representatives to use the landowner’s admirable character traits to their disadvantage during the negotiation process.  Over the past four plus years I have seen many landman and company representatives come and go.  Many landmen that I worked with in 2007 and 2008 are now working as brokers on behalf of different gas companies in Pennsylvania and other states.  I always enjoy the opportunity to question these landmen about how a few years ago they told me Company A was "the best" and "committed to the landowner," and now apparently Company B is suddenly "the best company they have ever worked for" and they are shocked how Company B is "dedicated to landowner fairness and protecting the environment."  

The transient nature of the landman position is a clear indication that their ultimate job is to "get signatures" and move on to the next landowner or project.  I have developed many positive relationships with landmen over the years and many are truly nice people.  However, they have a job to do in working for the gas company to support themselves and their families.  At the same time you have the job to protect your land that is often the most valuable and fundamental asset of the family.  

Landowners must understand that the Oil and Gas Lease negotiation process may be a once in a lifetime opportunity and we must make the absolute most of this opportunity to maximize financial gain and continue to preserve your family's precious land.  Negotiations should always be respectful and almost always negotiations are a friendly and courteous process.  However, the landowner cannot allow kindness, loyalty and trust to result in an inferior Oil and Gas Lease, Pipeline Right-of-Way Agreement, or any other Marcellus Shale contract.  Always remember that the gas companies and pipeline companies are loyal to shareholders and profits and you must do what is best for you, your family, and your land.
 
Douglas A. Clark, Esq. – Protecting Pennsylvania Landowners

As rural landowners know, the Clean and Green Act (72Pa.C.S. §5490.1 et seq.) provides landowners a tax break where their property meets certain requirements and is dedicated to agricultural and forest reserved use.

Landowners who are enrolled in the Clean and Green program will face seven years of “rollback” taxes and a six percent (6%) per year penalty if their use of the property is changed to an ineligible use under the Clean and Green program.  Due to inconsistencies in the way in which counties across Pennsylvania applied and enforced the Clean and Green Act relative to gas developments, an amendment to the Clean and Green Act was passed in the fall of 2010.  This amendment has clarified how oil and gas development will impact the Clean and Green program.

Prior to the amendment, landowners who own large acreage parcels could be penalized with seven years of back taxes for their entire property, even though only a few acres may have been impacted by oil and gas development.  The amendment to the Clean and Green Act provides that rollback taxes are only imposed only on the portion of the land devoted to the oil and gas production. This is a great benefit to the landowner as there were several cases where landowners with hundreds of acres had only a few acres impacted by gas exploration but were charged seven years of back taxes for the entire parcel.  Further compounding the problem in this scenario is where the landowner originally signed for Five to Twenty-Five ($5.00-$25.00) Dollars an acre, and received a tax bill for tens of thousands of dollars which greatly exceeded their signing bonus. Fortunately, this situation should no longer be a problem for Pennsylvania landowners.

With respect to natural gas pipelines, THE CLEAN AND GREEN AMENDMENT CLARIFIED THAT PROPERTY DEVOTED TO GAS PIPELINES IS NOT SUBJECT TO ROLLBACK TAXES. The amendment provides that a pipeline right-of-way and easements should not remove landowners’ property from Clean and Green.  However, it is a practice of our office to cover all bases and include an addendum provision to the Pipeline Right-of-Way Agreement that requires the pipeline company to pay any and all rollback taxes for Clean and Green and other agricultural and tax beneficial programs.  Companies have typically been very quick to permit such an addendum.
 
Of course, the Clean and Green addendum is only one of many addendum terms that landowners should seek to have added to any Pipeline Right-of-Way Agreement.  Pipeline Right-of-Way Agreements are significant contracts that typically seek to give the gas company or pipeline company the ability to transport gas and potentially other substances indefinitely, and often without limitation. Pipeline Right-of-Way Agreements should be carefully scrutinized and negotiated with the assistance of qualified legal counsel.

Douglas A. Clark, Esq. – Protecting Pennsylvania Landowners