Your Oil and Gas Lease is the Rulebook for the Gas Company’s Operations on your Property
I often hear the natural gas companies and their Landmen preaching to Landowners that the company is in a “Partnership” with the Landowner. This “Partnership” word typically comes into play when the company is requesting the Landowner agree to something that the company is not authorized to do under the existing gas lease. “Partnership” is a nice buzz word that invokes a feeling of working together for a common goal, but are you truly “Partners” with the gas company? The simple answer is, “No”. The true relationship is that of Lessee/Lessor under the terms of the executed Oil and Gas Lease.
The Oil and Gas Lease serves as the foundation, blue print, and operating rules of the Landowner’s
relationship with the gas company. It is the gas lease and negotiated Addendum that defines how the gas company and its contractors operate on or under your property and also sets the terms of royalty payment calculations. The gas company looks to the Oil and Gas Lease as the “rulebook” defining what they can or cannot do on or under your property.
Over the past years I have worked on many Surface Use Agreements, Well Site Agreements, Pipeline Agreements and other developmental contracts with natural gas and pipeline companies. A statement that I hear all the time in negotiations for surface development of a Landowner’s property is, “We do not have to agree to what the Landowner is requesting since it is not in the gas lease.” This is generally true. Landowners must remember that the friendly Landman that sat at their kitchen table is not going to be part of the work crew involved in constructing the well site, pipeline right-of-way, compressor site, impoundment pond or any other surface development project. The construction foreman and project managers are not going to go back to the Landowner to ask what they talked about with the Landman. Instead they look to the signed gas lease in order to identify any limitations on surface operations on the property.
It is important to remember and understand that virtually all Oil and Gas Leases have an “Integration Clause” that essentially indicates that everything you have agreed to with the gas company is contained within the four (4) corners of the document and no other verbal or even written representations are binding unless written into the gas lease that you ultimately sign. In other words, any statements that the Landman made to you during the negotiation process are not binding unless they are contained in the final written agreement. Verbal statements or promises made by the Landman will not matter unless expressly written in the final lease document.
Many times Landowners request that a gas or pipeline company limit surface operations on their property for a number of reasons. However, if the requested limitation is not present in black and white in the final agreement, there is no obligation for the company to comply with the request. The typical response from the gas company is that, “They [Landowner] should have put it in the Lease if they wanted it. If it is not in the lease, we do not have to do it.” In fairness to the company, this is a true statement. However, the Landowner must remember that this position works both ways, and the Landowner is not obligated to comply with any requests that are not contained in the gas lease. I find that the gas or pipeline companies like to talk about a “partnership” with the Landowner when they ask the Landowner to make concessions, but Landowners never get far by reminding a company they are in a “partnership” whenever the Landowner is making a request not contained in their gas lease.
Landowners must understand that in order to preserve their rights and requests relating to future surface operations, they must include these terms in the Oil and Gas Lease, Pipeline Right-of-Way Agreement, or other contract. Remember, although a company may not currently plan to do something, such as building a 20 acre well pad, widening a right-of-way, or adding additional gas or water pipelines within an easement, circumstances often change and the only limitations facing the company will be the terms expressly written within the four (4) corners of your existing agreement. In other words, the “Partnership” concept works wonderfully when both “partners” agree, but if not, the “partnership” relationship will be dictated by the gas lease, pipeline agreement, or other signed contract.
Douglas A. Clark, Esq. – Pennsylvania’s Landowner Lawyer