Many Oil and Gas Leases throughout the Marcellus and Utica Shale regions of Pennsylvania are on the verge of expiring due to the Lessee’s (gas company) inability to “hold” the property under the terms of the existing gas lease. In other words, if the gas company does not conduct drilling operations by the end of the term of the existing Oil and Gas Lease, the lease will terminate for lack of activity. Natural gas companies that own expiring leases often approach Landowners requesting that the Landowner sign an “Oil and Gas Lease Extension” in order to extend the end date of the existing lease and provide the gas company additional time to conduct drilling operations. Gas Lease extensions typically range from six (6) months to two (2) years, but the extension time-frames can vary.
Landowners, who receive offers to extend their existing Oil and Gas Lease should contact an experienced oil and gas lawyer to fully evaluate their lease extension offer and determine whether extending the existing lease is in the Landowner’s best interest. In certain cases it is better for the Landowner to allow their existing gas lease to expire, but this can be a tricky situation. In some case allowing a lease to expire can have substantial negative consequences for the Landowner. The key is to understand your options and how to evaluate the extension offer in order to make the right decision in your specific situation.
Landowners should act quickly to obtain credible information and fully evaluate any lease extension offer and the potential consequences. Acting quickly to obtain information and evaluate the extension offer is critical as lease extension offers are temporary. If the Landowner does not act, they may not have the option to agree to a lease extension and their decision will be made for them. Also, acting quickly to gather quality information allows the Landowner additional time to fully and properly evaluate the offer to make the best decision for their particular circumstances. Experience is also crucial in these circumstances as an experienced oil and gas lawyer will provide valuable insight and guidance to a Landowner weighing this important decision.
A Landowner considering an Oil and Gas Lease Extension must fully understand the potential benefits and detriments of signing the lease extension. As always, there is no set answer for every Landowner and each gas lease extension offer must be examined and evaluated on an individual basis. An effective evaluation process will include, but is not limited to:
(1) considering past experiences and history in lease extension matters involving the gas company holding your existing lease as well as actions by other gas companies under similar circumstances;
(2) reviewing and studying your gas company’s past and current operations and development tendencies in general and under similar circumstances;
(3) reviewing and studying the status of past, current and anticipated future local and regional drilling operations that may include the development or unitization of your leased property; and
(4) analyzing your current lease terms and the anticipated local leasing market should your existing gas lease terminate.
I have seen far too many times Landowners who decide to “ride it out” hoping to obtain a more favorable gas lease in the future only to have the existing gas lease “held” at the last minute by the gas company. This is yet another situation where Landowners must not listen to their neighbor or friend offering them advice as a self-dubbed oil and gas “expert”. There are few individuals with extensive experience in working with and evaluating expiring gas leases and extension offers. This is not an area for the “first timer” as mistakes can costs hundreds, thousands and possibly even millions of dollars over the lifetime of a gas lease.
If you are presented with an Oil and Gas Lease Extension offer for your expiring gas lease you should obtain and experienced oil and gas lawyer to assist you and offer counsel for this very important decision. Immediate action will ensure that you will gain as much information as possible to make the best decision for the property and your family. Remember, time is crucial as gas lease extension offers are by nature only available for a short period of time.
Douglas A. Clark – Pennsylvania’s Landowner Lawyer
