Doug's "Marcellus shale gas Blog"

What Can I Do?

When the surface rights to a property belong to one party and the subsurface and oil and natural gas rights belong to another party, this is often called a “Severed Estate.”  Severed Estates are very common in West Virginia and other gas producing states such as Oklahoma and Texas.  Due to the Marcellus Shale natural gas boom in Pennsylvania, we can expect severed estates to be common place in the future as landowners across the Marcellus Shall region seek to maintain their oil and natural gas rights when they sell their property.  These landowners are understandably looking for potential benefits of future natural gas royalties even after they no longer own the surface rights.

Surface owners who do not own the oil and gas rights for their property often contact my office to inquire as to what rights they have when they receive notification by an oil and gas company of their intention to enter onto the land and install a well site, access road, or other facilities on the surface of the property.

Pennsylvania law provides the oil and gas rights owner the right to develop the subsurface resources.  Unfortunately for the surface owner, they generally will not be able to prevent the natural gas company from entering onto the property to reasonably extract and develop the natural gas resource.  However, there are steps that the surface owner may take in effort to make this process less intrusive and painful to the surface owner.

There are legal options that the surface owner may seek to employ and the landowner should consult a knowledgeable attorney to ascertain their legal rights.  However, these legal options are somewhat limited.  My standard advice to landowners is to communicate as early as possible with the natural gas company to discuss issues of access road and well site location as well as compensation for surface damages.  An attorney can assist the surface owner through this process and seek to negotiate to maximize benefits for the surface owner while also attempting to reach mutually acceptable locations for access roads, pipelines, and well site pads.  

However, the oil and gas rights owner is said to have “Dominant Estate.”  This generally means that the natural gas company is going to have the legal right to have reasonable access to the property for the development of the oil and gas beneath the land.  A basic rule gives the oil and gas company the right to enter upon the property for the purpose of accessing and extracting the natural gas, but the company must exercise these rights while recognizing the surface owner’s rights and take appropriate action to prevent unnecessary disturbance to the owner of the surface. (See Shartiers Block Coal Co. v. Mellon 25A. 597 PA.1893).  Moreover, Pennsylvania courts have held that mineral estate holder’s right to use the surface is restricted to reasonable methods in the orderly removal of the mineral rights.  Factors of consideration will include the customs of the industry and the reasonableness of the activities of the gas company.  

Unfortunately, for surface owners, recent well site locations that I have worked on have recently ranged from eight to seventeen acres.  Obviously, this is a major impact on the surface of the property and certainly something the unsuspecting surface owner does not welcome.  Due to the significant surface impact, it is important for the surface owner to seek to negotiate the highest possible compensation for damage to timber, crops, or any other surface damage that is involved in the installation of any access road, pipelines, or well site.  The surface owner should also seek to negotiate for water testing by a certified laboratory prior to any installation operations on the premises.

As part of the installation process, the surface owner will typically receive a Well Permit Application.  The surface owner does have the right to file an objection with the Department of Environmental Protection (DEP) but these objections are generally very limited (See Section 205 of the Oil and Gas Act).  Typically these objections involve issues such as the proposed well site does not meet the required setbacks from a residence.  In my opinion, these objections are going to be rare as the companies are very aware of the setback requirements and will most likely have planned accordingly before they begin the permitting process.  The best course of action for the surface owner when faced with notice that the gas company intends to enter the property for the extraction of gas, is to immediately contact legal counsel to discuss their options and rights in greater detail.

Quite frankly, another concern that landowners are faced with is evaluating the cost of legal representation in relation to the ultimate benefit.  By no means am I indicating that a surface owner should not hire an attorney to assist them in this regard, but I think it is a disservice to the surface owner not to consider the potential costs involved in challenging this activity versus the potential positive result.  At minimum, surface owners should consult with an attorney to advise them of their rights and potentially to negotiate on their behalf to maximize any damage payments that may be available.  In certain circumstances, surface owners may wish to file objections with the assistance of counsel and any other legal action that may be available based upon the gas company’s intention or plans on the property.

Surface owners who have been notified of oil and gas company’s intent to enter onto the property for the development and production of the oil and gas beneath the ground, should feel free to contact me at: (570) 307-0702.  My approach is to provide surface owners with a realistic expectation and explanation of their rights and explore whether any viable legal action is available.  I stress again that the most important action a landowner can take is to move swiftly upon receipt of notice of a gas company’s intention to access the property.  By quickly addressing this issue, the surface owner may find that there is more flexibility with the natural gas company regarding the location of access roads and well sites and other facilities.  

Douglas A. Clark, Esq. – Protecting Pennsylvania Landowners

Understanding Your Existing Gas Lease

Many Marcellus Shale landowners have contacted my office by telephone and through our websites requesting help and assistance in understanding their currently existing oil and gas lease.  Due to the large number of requests, I have started performing detailed oil and gas lease reviews for landowners across Pennsylvania who have already entered into an oil and gas lease

Unfortunately, many landowners in the Marcellus Shale region do not fully understand the complicated terms of their existing gas lease. This lack of understanding often occurs where the landowner entered into an oil and gas lease years ago without the assistance of a lawyer.  Sadly to say, confusion also occurs where landowners entered oil and gas leases with the help of an attorney, but even their attorney assisting them at the time did not fully understand the often complex terms contained in the oil and gas lease.

Over the past few years, countless landowners have reported to me that they took their oil and gas lease offer to their “regular” attorney and he or she “looked it over” and said it was “okay to sign.”  However, the attorney did not review the oil and gas lease with the landowner and did not explain how the gas lease would apply to their property.  The end result is that there are probably thousands of landowners holding existing oil and gas leases who do not understand the terms of their gas lease and how it applies to their Marcellus Shale rights and property. Landowners are not sure where to turn for answers and sadly many are afraid to ask for assistance.

In my experience the following are common oil and gas lease questions:
1.)  When their oil and gas lease will expire;
2.)  Can their oil and gas lease be extended,
3.)  If the oil and gas lease can be extended, on what grounds;
4.)  What is pooling and unitization and how may it apply to my property;
5.)  What is a top lease, and am I eligible to top lease;
6.)  Should I sell my mineral rights;
7.)  How are my potential royalties calculated;
8.)  What does “shut-in” mean and what rights do I have;
9.)  What does the “Right of First Refusal” term mean and how may it apply to me;
10.) Are natural gas pipelines or water lines permitted on my property under the terms of my current oil and gas lease;
11.) Can the gas company place an access road on my property; and
12.) Will the gas company test my water?

Unfortunately, because many landowners entered into oil and gas leases without the assistance of  qualified counsel, they are unaware of how their gas lease operates with respect to extensions, royalties, pipelines, and many other important issues.  It is necessary for landowners to understand the terms of their existing oil and gas lease as this lease may apply to their property throughout their lifetimes and into the future.  There are also many landowners with gas leases that are set to expire this year or in the near future.  These landowners complain of sleepless nights wondering what the extension term of their gas lease really means and how will the gas lease operate into the future.  Landowners should not accept this confusion.

I am now actively performing oil and gas lease reviews for Marcellus Shale landowners across Pennsylvania.  As part of the lease review process, I answer landowner questions and concerns, explain the terms of the current gas lease to landowners, and discuss how their lease may operate as it evolves into the production phase.

Landowners who are interested in this lease review service can contact my office (570- 307-0702) to make arrangements for a lease review and conference.  To perform a review I ask that landowners provide a copy their oil and gas lease and any other relevant documentation to my office.  We then schedule a telephone conference, or in office conference, to review the oil and gas lease and answer any questions and concerns you may have. 
Landowners have been very pleased with this lease review process and service.  Even if the conference confirms their thoughts with respect to potential problems or weaknesses with their oil and gas lease, landowners still have been pleased to know whether their interpretations and understanding of their lease is correct.  On the brighter side, often landowners have misinterpreted their current oil and gas lease in a negative fashion and have been very pleased to learn after a lease review and conference that the situation is not as bleak as they originally thought.  Landowners have repeatedly indicated that they prefer to know what they have today so that they can plan appropriately in the future and have realistic expectations regarding the oil and gas lease.

Any landowners interested in a detailed lease review of their existing oil and gas lease should feel free to contact my office at any time at (570) 307-0702. This lease review service has been extremely valuable to many landowners and fills a void for landowners who do not understand the terms of their current oil and gas lease and do not know where to turn for assistance.  The lease review process is designed to answer questions and concerns and provide credible information to landowners.

In closing, any landowner interested in this service please feel free to contact my office at (570) 307-0702 and check out the landowner testimonial page where we have posted some recent testimonials from landowners that have used the lease review service.

Douglas A. Clark, Esq. – Protecting Pennsylvania Landowners

Understand the “Option”

Many landowners across the Marcellus Shale region of Pennsylvania are being approached by natural gas pipeline company landmen presenting them with Pipeline Right-of-Way Option Agreements.  These Pipeline Right-of-Way Option Agreements are presented to the landowner in order to provide the pipeline company a right-of-way or easement across their property for the installation of natural gas pipelines and often water line(s).  These Pipeline Right-of-Way Option Agreements are extremely powerful legal documents that involve the conveyance of an easement to the pipeline or gas company and must not be entered into lightly or without the assistance of an experienced attorney.

It is extremely important that the landowner understands what rights they are transferring under the Pipeline Right-of-Way Option Agreement and also for how long these rights are transferred.  I am not going to fully address what the rights are in this blog, but will address these concerns in future posts.  However, my concentration at this point is on making sure that landowners understand the “option” aspect of the pipeline agreement.

Many landowners mistakenly believe that upon signing a Pipeline Right-of-Way Option Agreement they are going to have a pipeline or water line installed across their property.  However, this is not always the case.  It is very important that the landowner understand that when they are presented with a Pipeline Option Right-of -Way Agreement, the “Option” typically provides the pipeline company the ability to exercise the “option” to install pipelines, water lines, both, and potentially much more. In the alternative, the pipeline company can refuse to exercise the “Option,” in which case there would be no activity by the pipeline company under the terms of the Pipeline Right-of-Way Option Agreement.  

Normally a pipeline company will pay the landowner a certain fee shortly after signing the Pipeline Right-of-Way Option Agreement as consideration for the “option” to install natural gas pipelines, water lines, fiber optic lines, and potentially other facilities in the future.  The landowner should always seek to maximize the option payment and minimize the length of the option term. It is obviously more beneficial to the landowner to execute a pipeline option agreement with a two (2) year option term as opposed to a five (5) or ten (10) year option.  The Pipeline Right-of-Way Option Agreement will likely be recorded at the courthouse and will give notice to third-parties that there is a pipeline option that applies to the premises.  This absolutely may negatively impact the value of the property in the eyes of potential buyers.

It is important for landowners to understand that although they have executed a Pipeline Right-of-Way Option Agreement, the option may never be exercised by the pipeline company and there will be no subsequent payment under the terms of the Pipeline Right-of-Way Option Agreement. Unfortunately, many landowners do not realize that even though they executed the Pipeline Right-of-Way Option Agreement, there may not be a subsequent damages payment under the terms of the option agreement.  Again, typically the Pipeline Right-of-Way Option Agreement will have an initial payment shortly after signature which operates as consideration for the pipeline company to have the ability (or “option) to install the natural gas pipeline(s), water lines, etc.  A typical “option” agreement also will normally have either a per linear foot payment for a gas pipeline to be installed, or per disturbed acre payment that covers the area of the right-of-way.  However, if an individual executes a Pipeline Right-of-Way Option Agreement and there is no subsequent installation of a pipeline, there will be no secondary per linear foot or per disturbed acre payment.

If a landowner exercises a “straight” Pipeline Right-of-Way Agreement, the agreement will normally require that damages or per linear foot payment will be due within a certain amount of time (for example 90 days) from the time of execution of the Pipeline Right-of-Way Agreement.  If the landowner is able to enter into a “straight” Pipeline Right-of-Way Agreement, the landowner can be far more assured that a pipeline will be installed upon the property, but more importantly, that they will receive the subsequent damages or linear foot payment.  These “straight” Pipeline Right-of-Way Agreements are usually reserved for situations where the pipeline installation company is certain that they are going to install a pipeline(s) or water lines and the pipeline company already has a planned easement route across the landowner’s property.

Pipeline companies seeking Option Agreements will typically seek to sign up a landowner and their neighbors to allow them to have alternative routes to proceed with the pipeline(s) or water lines prior to installation.  A pipeline route may change for any number of reasons including wetland issues, resistance by neighbors, or other physical characteristics of the property that make the initial path less favorable or impossible.  Landowners should seek to identify if they are “currently” involved in the actual pipeline route, or merely an alternative route. There is no sense spending time or money on an attorney negotiating a Pipeline Right-of-Way Option Agreement if there is no real intention of installing a subsequent gas pipeline or water line on the property.

Landowners in the Marcellus Shale region of Pennsylvania considering a Pipeline Right-of-Way Option Agreement should seek a lawyer experienced in pipeline negotiations as these Right-of-Way Agreements may last many lifetimes and may permanently devalue your property.  These Pipeline Right-of-Way Option Agreements must be negotiated to maximize financial compensation and property protections for this and future generations.  I have negotiated Pipeline Agreements across the entire state of Pennsylvania and continue to actively negotiate Pipeline Agreements daily with many companies all across the Marcellus Shale region. Any landowner interested in pursuing a Pipeline Right-of-Way Option Agreement can contact me any time at 570-307-0702.  

Douglas A. Clark, Esq. – Protecting Pennsylvania Landowners

Not All Terms are Created Equal

Many landowners who have familiarized themselves with the Marcellus Shale natural gas leasing process have learned certain “key phrases” or “key terms” that are valuable to the landowner when evaluating an Oil and Gas Lease Addendum.  However, landowners must be aware that ALL ADDENDUM HEADINGS ARE NOT CREATED EQUAL.

As an example, one of the most important landowner friendly terms to be included in a Oil and Gas Lease Addendum is a “PUGH CLAUSE.”  However, companies and their agents are very wise and recognize that landowners are familiar with key terms and phrases that they want included in their Oil and Gas Lease addendum.  Accordingly, many Oil and Gas Lease Addendums will have “Headings” using keywords and phrases such as “Pugh Clause”, or “Commencement Provision.”  However, there are many different forms that a “Pugh Clause” or Commencement Provision” many take.

Specifically, there is what I call a “Pure Pugh Provision” that would require that any non-unitized acreage reverts back to the landowner at the end of the primary term.  However, Pugh Clauses may be modified in many different ways, but are still presented under the heading of “Pugh Clause” in the Oil and Gas Lease Addendum.  For example, some “Pugh Clauses” may not take effect unless the landowner owns an excess of a stated amount of acreage.

For example, a Pugh Clause may state something to the effect of “if the Leasehold covered by this Oil and Gas Lease covers more than fifty (50) net acres and more than fifty percent (50%) of the Leasehold covered by the Oil and Gas Lease is not included in the production unit established by Lessee, this Lease shall automatically terminate two (2) years (“Extended Term”) after the expiration of the primary term…”  Although this abbreviated example appears under the heading of a “Pugh Clause” this clause would not even apply unless the landowner owns at least fifty (50) net acres.  In other words, if the landowner owned forty-nine (49) acres, this “Pugh Clause” is entirely irrelevant for the landowner and does not operate to offer them any Pugh Clause protection whatsoever.  Also, this modified “Pugh Clause” has an additional “extender” that would allow the company two additional years to seek to unitize the remaining acreage should they meet the other condition precedent.

I have seen modified “Pugh Clauses” that require the landowner to own at least one hundred (100) net mineral acres in order for that “Pugh Clause” to take effect.  The landowner must not merely look at the “headings” and draw a conclusion that they are protected by a Pugh Clause. The landowner must understand the language contained within the “Pugh Clause” provision to determine what exactly is being offered by the gas company.

A situation can occur where the landowner requests that a “Pugh Clause” be added to their Oil and Gas Lease Addendum and the landman advises the landowner that there is in fact a “Pugh Clause” contained in the Oil and Gas Lease Addendum. This may be true, but it is important that the landowner understands whether this “Pugh Clause” will even apply to their situation, or whether the “Pugh Clause” language will sufficiently cover their concerns.  This same issue often arises in respect to “Commencement Provisions,” “Shut-in Provisions,” “Free Gas Clause,” “Clean and Green Provision,” “Timber Clauses,” and of course “Pipeline Clauses.”

I cannot stress enough that just because a landowner has a heading entitled “Pipeline Provision” does not mean that they have the pipeline protection which they desire to be included in the Oil and Gas Lease Addendum. It is extremely important for the landowner to understand their Agreement and seek the assistance of a qualified attorney to fully explain the content and meaning of the terms in their Oil and Gas Lease. A knowledgeable Attorney will advise a landowner where there Lease is strong and where there are weaknesses so that the landowner can make a fully informed decision.

Often a “Pure Pugh Clause” may be unattainable on a particular parcel, but it is important that the landowner understands what they have and what they do not have when assessing whether they want to execute their lease. It is not simply enough to know that the landowner wants a “Pugh Clause,” “Commencement Provision,” “Shut-in Provision,” ETC., but more importantly the LANDOWNER MUST FULLY UNDERSTAND THE LANGUAGE WITHIN THAT PROVISION AND HOW IT CAN BE MODIFIED IN THEIR FAVOR.

The true negotiation skill is to push the language within the Addendum provision to the most valuable point to benefit the landowner but yet still acceptable to the gas company.  Again, this is where understanding the market, the company’s leasing history, and what is available by other companies in the region is a great value to a landowner.  An experienced Oil and Gas Lease and Pipeline Agreement attorney negotiator will understand these issues and negotiate to maximize the terms of any agreement on behalf of the landowner. Any landowner interested in leasing their Marcellus Shale gas rights can contact me at my office at: (570) 307-0702.

- Douglas A. Clark, Esq.

Water Impoundment Pond, Compressor Station, and Pipeline Right-of-Way Negotiations:  Understanding Your Leverage

I am currently in the process of negotiating Water Impoundment Pond, Compressor Station, Pipeline, and Water Line Right-of-Way Agreements on behalf of landowner clients in the Marcellus Shale region of Pennsylvania. I have been contacted by many landowners who have been approached to consider the installation of Water Impoundment Pond, Compressor Stations, Pipelines, Water Lines and other Right-of-Ways on their property.  There are obviously many issues and concerns that a landowner must consider when exploring the possibility of entering into a Surface Use Agreement permitting a Water Impoundment Pond or Compressor Station as well as a Pipeline, Water Line or other Right-of-Way Agreement on their property.

Location and Compensation First
As with most negotiations, with the exception of oil and gas leases, I often talk to clients and landowners about first establishing Location and Compensation in determining how seriously to consider an offer by a gas company, pipeline company, or other Marcellus Shale entity.  Specifically, if the landowner is unhappy with the location of the proposed facility, or pipeline that they have the ability to refuse, the landowner should no longer consider the proposed offer unless the location can be moved to an acceptable area.  Likewise, if the compensation offered for the proposed facility, or pipeline that they can refuse, is insufficient, the landowner and attorney should first attempt to reach an agreement on the compensation figure or else dismiss the offer.

Obviously, an acceptable location for a proposed Water Impoundment Pond, Compressor Station, Pipeline, Water Line, or other Right-of-Way, is easily reviewed by the landowner and evaluated as to whether the proposed location is acceptable.  Prior to signing any agreement for a Water Impoundment Pond, Compressor Station, or Pipeline Right-of-Way, the landowner should seek to obtain a map depicting the proposed location of the facility, pipeline, or other easement.  If the location is agreeable, the landowner may desire to proceed further into detailed negotiations of the proposed agreement.

With regard to compensation, the landowner must understand their position with respect to leverage and the market price of similar facilities or pipelines in their region.  For example, if a landowner is considering a Water Impoundment Pond or Compressor Station Agreement, the landowner will probably have a specific compensation package that they will approve.

However, should the gas company have several alternative sites within close proximity of the landowner’s property, the gas company will look to other landowners  in the region who will accept the lowest compensation package.  In this case, it becomes very important that the landowner understand the market for the Water Impoundment Pond and Compressor Station and what offers the company has previously made, and what other landowners in their region have accepted as compensation for either a Water Impoundment Pond or Compressor Station.

If the landowner’s demand is in far excess of the market price paid for Water Impoundment Ponds or Compressor Stations in their region, the company will most likely look for alternative sites that they may obtain for a cheaper cost.  Of course, if all landowners were to say “No” to the current market prices offered, the company would have no alternative but to increase their compensation offer, or move forward without a Water Impoundment Pond or Compressor Station in that particular area. Remember, the more alternative sites that the company may have for a proposed Water Impoundment Pond, Compressor Station or Pipelines, the more options they will have with respect to landowners who may be agreeable to lower compensation.

Understanding Your Oil and Gas Lease and Leverage
In representing landowners, my first step is always to determine what above ground facilities, natural gas pipelines, and water line installation may be permitted pursuant to the terms of their oil and gas lease.  Understanding what is permitted under your existing oil and gas lease is absolutely crucial, and landowners must not rely on the gas company or landman to inform or advise them what is permitting or not permitted under their oil and gas lease. I often encounter cases where landowners mistakenly believe a certain activity is permitted under the terms of their oil and gas lease, only later to learn that the proposed activity is not permitted or is permitted only in a limited or modified fashion. 

Pipeline Right-of-Way Example
The following is an excellent example of misinterpreting an oil and gas lease involving pipelines:  Perhaps gas pipelines may be permitted pursuant to the terms of an oil and gas lease as long as those pipelines carry oil and gas from a unit in which the landowner is a part of, but the agreement may preclude third-party or foreign gas from being transported through the pipeline.  Thus when a land agent advises the property owner that their oil and gas lease permits pipelines, this may be true, but in a limited fashion. Again, it is absolutely vital that the landowner understand what exactly is permitted under the terms of their oil and gas lease and not rely on the interpretation provided by a gas company, its employees or even neighbors. In many case, the information provided by the company or its employees may be correct, but in certain cases, this information may be misleading and the landowner must have their own independent evaluation performed by a knowledgeable and experienced attorney.  A mistake in this area may be very costly.

Experienced Attorney Required

It is very important that landowners have knowable and experienced counsel to assist them when considering Water Impoundment Ponds, Compressor Stations, Pipelines, Water Lines, and other Right-of-Way Agreements.  Experienced and knowledgeable counsel will provide the landowner credible and reliable information as to a current market price in their area.  The experienced lawyer will maximize the negotiation process for the landowner.

The Clark Law Firm, PC

In conclusion, should a landowner have the ability to say “No” and not be pleased with the location and compensation package offered, the landowner should first seek to reach an agreement as to location and compensation and only then move forward to negotiate the intricate details of the proposed agreement.

I am currently negotiating Water Impoundment Pond, Compressor Station and numerous Pipeline and Water Line Right-of-Way agreements across the Marcellus Shale region of Pennsylvania.  My experience and understanding of the market and history of communicating with and negotiating for landowners has allowed me to maximize compensation and landowner friendly terms in negotiating these types of agreements.  Feel free to contact The Clark Law Firm, PC for potential landowner representation for Water Impoundment Ponds, Compressor Stations, Pipeline and Water Line Right-of-Way Agreement.

Douglas A. Clark, Esq.

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