Nestico Druby, P.C.
1135 East Chocolate Avenue, Suite 300, Hershey, PA 17033
Phone: 1(717)533-5406
Fax: 1(717)533-5717
Email: rdruby@hersheypalaw.com
Website: www.hersheypalaw.com


LEASE ISSUES OTHER THAN PAYMENT

There are many other issues not directly related to payments that will significantly impact your property and its value, and your duties and obligations:

  • Insurance and indemnification issues. Who is responsible if someone is injured as a result of the gas drilling, or if there is property damage or environmental damage?

Often times, landowners fail to consider liability issues that may arise with regard to oil and gas leases.

LANDOWNERS NEED TO CONSIDER WHETHER THE LANDOWNER'S INSURANCE COMPANY WILL TERMINATE THEIR INSURANCE COVERAGE BECAUSE OF THE DRILLING OPERATIONS.

Likewise, landowners need to ensure that any lease provides for complete coverage of the landowner (including the cost of defense and attorneys' fees) by the oil and gas company for any injuries that may occur on the landowner's property (either to family members or guests of the landowner or to employees or subcontractors of the oil and gas company itself.) Moreover, landowners need to ensure that the oil or gas company assumes any and all responsibility for damage to property, either of the landowner or others, caused by the company's drilling operations.

  • Subdivision and Land Development

    You may also seek to continue to use or develop your property before, during or after the gas lease term. This raises issues:

    Can you sell your property after you lease it?

    Does your local zoning ordinance permit drilling on your property?

    Can you subdivide your property and/or sell a portion of it during the term of the lease?

    In order to preserve your rights and retain the ability to develop and divide your property, you must negotiate these provisions and include your rights in the lease.

  • Coal Bed Methane

    While the gas companies are interested in exploring and extracting natural gas from the Marcellus Shale formation in Pennsylvania, most form leases include boilerplate references to other resources, such as coal bed methane. This may seem to be a harmless throw-in, but it can create potential problems, particularly in northeastern and southwestern Pennsylvania where the "coal estate" may be owned by some long departed coal company or its successor in interest. Because natural gas and coal bed methane are treated differently under Pennsylvania law, and can be owned by different parties, the landowner must be careful not to inadvertently give something to the gas company that he or she doesn't have. This can be especially troublesome if the gas company reserves the right to withhold payments should ownership or title disputes arise. An experienced attorney can help landowners avoid this potential trap for the unwary.

  • Water and Timber

    With all of the focus on the bonus payment, delay rental and royalties for natural gas, it is easy to lose sight of the value of other natural resources that may be affected. For example, well drilling and production can consume many thousand gallons of water. It is important for the landowner and the gas company to agree where that water is coming from, and in particular, whether the lessee can use surface water or existing wells. Even if the lessee has a new well drilled, the parties should agree on water usage and the cost to be paid for drawing and using that resource. Another important issue relates to the removal and disposal of waste water used for drilling and fracking. Finally, the lease should address the possibility of damage to domestic and agricultural water supplies. Additionally, what about timber that is removed for access and drilling? Does the lease provide for fair compensation and reforestation? These are only a few of the issues that an experienced attorney can address.

  • Well Location and Rights of Way

    Where will the well go? Where will the road go? Form leases will give the gas company broad discretion in locating wells and access roads. But, remember, it's your property, and you will want to have a say about the proximity of the wells and access roads to structures. You may also want to restrict placement that will interfere with pasture use or cultivation.