0 – 15 Minutes
In this opening segment of All Things Marcellus, Attorney Doug Clark of The Clark Law Firm explains the need for Pennsylvania landowners to secure legal representation by an experienced oil and gas attorney.  Attorney Clark explains how gas and pipeline companies are well-equipped with high-quality lawyers and experience landmen who have been trained to communicate with landowners and natural gas right owners in order to obtain the best possible agreements in favor of the companies. There is never a partnership between a landowner and gas rights owner and the gas or pipeline company. The gas or pipeline company is motivated, as they should be, to promote their own self-interest and not the interests of the property owner or Lessor.

Natural gas contract negotiations are an adversarial process and landowners are typically over-matched in oil and gas contract negotiations as they face experience and trained adversary. The companies have well-trained negotiators and contract drafters working on their behalf and the landowner needs to even the playing field and secure an experienced Pennsylvania oil and gas lawyer. A landowner who is not represented by skilled legal counsel has a significantly higher chance of being taken advantage of which can result in losing out on thousands or even millions of dollars over time. We need to stop one-sided contracts and effectively negotiate oil and gas agreements for the benefit of Pennsylvania landowners. Remember, gas and pipeline companies take advantage of the vacuum and void of landowner oil and gas information in order to secure contracts that are very favorable to their side and detrimental to the gas rights owner. We need to fill the void and vacuum with quality oil and gas information and skilled representation for Pennsylvania landowners and oil and natural gas right owners.  Pennsylvania landowners should call The Clark Law Firm to learn more about our oil and gas representation and whether we can help you.

15 – 30 Minutes
In this second segment of All Things Marcellus, Attorney Doug Clark dives deep into how there is no special or fiduciary relationship between oil and gas companies in Pennsylvania landowners and oil and natural gas right owners. Far too often natural gas and pipeline company landmen use a common selling technique by stating that the natural gas right owner or property owner and the energy company are in a “partnership.  This is simply not true. The property owner and oil and gas right owner are not in a “partnership” with the company when they are engaged in oil and gas lease or pipeline agreement negotiations.

The Pennsylvania Supreme Court has specifically stated that there is no relationship of special trust or confidence between the company and a landowner in oil and gas leases. The Pennsylvania Supreme Court has stated that, like all other contracting parties, the company and the landowner deals at arms-length, each with their own interest.  Attorney Clark discusses that the gas and pipeline companies are motivated by profit and their fiduciary relationship and obligations to their shareholders. In contrast, the Pennsylvania landowner and oil and gas right owner is motivated to maximize short-term and long-term profits and gas royalties while simultaneously restricting activity on the property and protecting their land for future generations. These two positions are diametrically opposed. Yes, there can be a byproduct of royalties through the negotiated oil and gas lease which the company often argues is a “partnership”, but the reality is the gas company is always seeking to maximize profits for their shareholders. Do not fall into the trap that you are in a “partnership” with the natural gas or pipeline company, this is a common trick used to leverage the gas right owner to sign an inferior oil and gas lease which will maximize profits for the company, not the natural gas right owner.  Pennsylvania natural gas right owners must become more educated and stop signing bad oil and gas leases and other natural gas contracts. We must not fall into the trap of the landman is our representative, as the landman works for the company not you.  You must protect your own interest and not rely on a gas or pipeline company to protect you.  Why would they?  Have they in the past?  Pennsylvania gas right owners must protect themselves and secure quality oil and gas representation.

30 – 45 Minutes
In this third segment of All Things Marcellus, Attorney Clark discusses a recent Superior Court of Pennsylvania court decision which held that a landowner had to return and pay back $238,500 in per-acre bonus payments following a determination by the gas company that the landowner had bad title in the oil and gas rights he attempted to lease. In other words, after the landowner entered into an oil and gas lease and received a substantial per-acre bonus payment in the amount of $238,500, the Lessee (Gas Company) determined that the landowner did not have good title to the oil and gas rights. The court ruled that the landowner had to refund or pay back over a quarter million dollars they received in their per-acre bonus payment.

The landowner argued that the gas company voluntarily paid him the per-acre bonus money before they checked the title of his oil and gas rights and therefore he should be able to maintain the bonus payment. The landowner also argued that it was the gas company’s fault for voluntarily paying him the per-acre a bonus payment without checking title first and therefore the landowner should be entitled to keep the up-front bonus payment.

The Superior Court found these landowner arguments curious and rejected them.  Doug explains how this per-acre bonus refund issue could have been avoided if the landowner has secured knowledgeable oil and gas counsel. There is typically language that can be negotiated and added to the gas lease by an addendum that limits the “general title warranty” that standard gas leases usually require. A smart oil and gas attorney will negotiate and add language to the addendum such that the landowner is not exposed to returning any of his per-acre bonus payment. There is no guarantee that limiting title warranty language can be added to an addendum to the oil and gas lease, but typically a limited title warranty is one of the easier addendum provisions to negotiate. Although this is only one example, it is an outstanding example of why landowners and gas right owners should consult with an experienced oil and gas lawyer to protect their rights.  A well negotiated oil and gas lease would have eliminated the possibility of the landowner having to refund a per acre bonus payment of over one quarter million dollars to the oil and gas company.

45 – 60 Minutes
In this final segment of All Things Marcellus, Attorney Clark goes into a hypothetical situation where a landowner has an active oil and gas lease that provides for a 12.5% natural gas royalty and the company holding his lease approaches him with a new lease offer for 15% royalty. Remember, gas companies are in business and maximizing profits for the shareholders. In this example, the landowner’s leased property is already designated into a recorded production unit, but the landowner is not yet receiving natural gas royalties.  In this situation, the landowner’s current lease is actually “held by production” and would remain in effect until gas is no longer capable of being produced or until the company releases or surrenders the oil and gas lease.

The question becomes why would a company issue a new lease offer to the landowner who has a current gas lease which is held by the placement of the property into a production unit?  The key most likely exists in the gas lease’s royalty calculation method. Most likely in this scenario, the original 12.5% oil and gas lease would not allow for the deduction of post-production costs from the landowners royalty payments. Because post-production costs are not allowed to be deducted in this case, the landowner stands to maximize their 12.5% royalty payments. Companies do not like paying royalties without the deductions, it is that simple. Accordingly, the gas company may offer you a 15% royalty but significantly change the royalty calculation method to allow the company to subtract or deduct post-production costs expenses from your royalty payments.  The gas company will want you to focus on the increase in your royalty percentage from 12.5% to 15% royalty, but they are simultaneously substantially changing your royalty calculation method so that the gas company can now deduct post-production costs.

Furthermore, the existing gas lease may also preclude gas sales from the well operator to an affiliated company.  The existing lease may also prohibit the gas company from using a local index price as the sale price for the natural gas, but require that the company pay royalties on the actual sale price to a third party bonifide purchaser. Under the new lease for, there is a good chance that the company will now be permitted to sell the natural gas to their affiliated company and then use a local index price as the sale price for the gas that is reflected on the landowner’s royalty statement. In this scenario, the company can, and probably will, sell the natural gas to their affiliated company and use an index price to set the gas price value for royalty payments.  Then, the gas company probably will then take substantial deductions from royalty payments for pipeline gathering, transportation, compression and other post-production costs.

This index pricing with deductions combination can be crippling to the landowners’ natural gas royalty payments.  You should always ask yourself, “Why would a gas company offer me a new lease with a higher royalty percentage when I have a current active lease. The devil, as it often does, lies within the complicated details drafted into the oil and gas lease and the company landman will not explain the motivations of the company in this scenario.

Again, the gas company is motivated to maximize profits for its shareholders and the company is not motivated to maximize royalty profits for the landowner. You can bet that if you are being offered a new lease at 15% royalty to replace your current lease at 12.5% royalty, there is an almost virtual certainty that the gas company and not you will benefit from this arrangement. Do not simply sign these new lease agreements, but get assistance to understand how the natural gas royalty calculation method may be changing to the company’s great benefit. If you are being presented with a new oil and lease offer and you have an existing lease, you should seek legal counsel from an experience oil and gas attorney. Do not rely on the company landman to educate you. They are working for the company’s benefit, not yours.

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