Pipeline Right-of-Way Option Dilemma

The abundance of Marcellus Shale natural gas throughout Pennsylvania has required natural gas and pipeline companies to seek “Option” Right-of-Way Agreements for the installation of thousands of miles of natural gas pipelines. As any regular listener of our weekly radio show “All Things Marcellus” knows, my first rule in assessing whether to enter into a Pipeline Right-of-Way Agreement is to determine whether the landowner has the ability to say “No,” or if the gas pipeline is permitted under the terms of the existing Oil and Gas Lease.

In most cases, my experience is that the landowner often has the ability to say “No” to the proposed natural gas Pipeline Right-of-Way Agreement. The initial assessment of the landowner’s rights and leverage is critical in the negotiation process for a Pipeline Right-of-Way Agreement. Pipeline Right-of-Way Agreements must be carefully negotiated to maximize present benefits with an eye towards potential future compensation and crafted carefully to protect and preserve your valuable property.

Most landowners are approached to sign a Pipeline Right-of-Way “Option” Agreement. The “option” language is very powerful as it gives the company the “option” to install a pipeline pursuant to the terms of the Pipeline Right-of-Way Option Agreement. A Pipeline Right-of-Way Option Agreement often presents a common dilemma for the landowner. The “dilemma” is that the landowner wants to use an experienced lawyer to maximize the Pipeline Right-of-Way Option Agreement, but the landowner understandably does not want incur more expenses in legal fees than compensation they receive under the terms of the Pipeline Right-of-Way Agreement.

Generally, the Pipeline Right-of-Way Option Agreement presented to the landowner requires a small upfront payment upon signing with a larger “per linear foot” or “per disturbed acre” payment due at or around the time of installation of the gas pipeline. Again, the dilemma facing the landowner is that the landowner does not want to incur legal expenses that exceed their initial signing payment without the promise of the more significant future payment due at the time of installation. However, many times there is the opportunity for the landowner to hire an attorney to increase the benefits and terms in the Pipeline Right-of-Way Option Agreement, while reducing or eliminating the concern of losing money by hiring an attorney.

I negotiate regularly with several Pipeline Right-of-Way companies who have agreed to pay increased non-refundable compensation to the landowner at the time of signing and in many cases this non-refundable payment exceeds the legal expenses for the landowner. The pipeline companies are often willing to increase the signing compensation for the landowner so that the landowner reduces or eliminates their risk of incurring greater legal expenses than Pipeline Right-of-Way Option Agreement compensation. However, typically the pipeline right-of-way company will ask for the additional payment to be deducted from the subsequent per foot or disturbed acre damages payment that is due at or around the time of construction.

For example, the pipeline right-of-way company may be willing to increase the signing payment by One Thousand ($1,000.00) Dollars or more, but should the company execute the “option” and install a pipeline, the company will deduct the thousand dollars from the subsequent damages payment. In other words, if a landowner was due Fifty Thousand ($50,000.00) Dollars at the time of construction, the payment to the landowner in this example would be Forty-Nine Thousand ($49,000.00) Dollars since the landowner already received the non-refundable One Thousand ($1,000.00) Dollars upon signing the Pipeline Right-of-Way Option Agreement. This arrangement has worked very well for client landowners who are concerned about incurring legal fees, but realize the significant importance of having an experienced attorney negotiate the Pipeline Right-of-Way Option Agreement their behalf.

I have negotiated Pipeline Right-of-Way Agreements with approximately a dozen pipeline companies across the state of Pennsylvania. This experience and history with multiple companies has yielded great benefits to our landowner clients. If you are presented with a Pipeline Right-of-Way Option Agreement, or any water line agreement, contact our office today and we will discuss the negotiation process and the potential to increase the upfront signing money to offset legal fees. Our goal is to make sure that landowners across the state are properly represented and I negotiate all Marcellus contracts to insure that the landowner is not leaving any benefits on the table and that their property is protected for generations.

Douglas A. Clark, Esq. – Protecting Pennsylvania Landowners