Landowners Should Demand Separate Contracts or Agreements

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