0 – 15 Minutes
In this episode of All Things Marcellus, Attorney Clark starts the segment off with discussing why landowners must not sign oil and gas leases, pipeline, or other documents presented by the company without obtaining a legal review by an oil and gas lawyer. Gas lease and pipeline agreement amendments and changes to pipeline route maps can present great opportunities for the landowner for additional compensation and possibly to alter the original document that was not in their favor.
Doug explains a recent example where a landowner was presented a new map for a pipeline route which the company was seeking to change. After a very short period of time of negotiations by Attorney Clark, the landowner obtained over six times the compensation offered in the agreement offer. By calling the Clark Law Firm and understanding their rights through an initial review and consultation, the landowner significantly increased their payments for the proposed pipeline project. Doug also walks through an example of a landowner who signed quickly when presented the pipeline route change map and did not wait for Doug to return from vacation to review the route change.
When Doug returned from vacation, he found that the landowner did not wait and sign a new map that allowed a lengthy access road across their property. The access road to the pipeline surface structure was not permitted in the original documents, but by signing the new map, the landowner mistakenly authorized a major access road across their property. The landowner did not obtain any additional compensation for this access road. The landowner will now have a major roadway that they did not want on their property, without any additional compensation, and virtual certainty of increased taxes due to an oil and gas access road on their property and violation of Pennsylvania’s Clean and Green Program.
This all occurred because the landowner felt pressured by the pipeline landman and believed that they needed to sign the new map immediately and they could not wait a week for Doug to return from vacation. Do not repeat the mistakes of other landowners and learn your rights before you sign any oil and gas agreement or modification or amendment to the agreement.
15 – 30 Minutes
All Things Marcellus dives deep into oil and gas law that applies to production from the Marcellus Shale formation and Utica Shale formation. Doug specifically Pennsylvania’s Oil and Gas Conservation Law in detail. Doug explains how this law applies to natural gas extraction from the Onondaga formation and deeper geological formations. Doug explains how the Oil and Gas Conservation Law applies to the Utica Shale formation and how landowners may have great unknown leverage when negotiating oil and gas leases for Utica shale development.
Doug walks through how natural gas companies can drill horizontal gas wells around landowners in the Marcellus shale formation who are not under lease. Landowners in the Marcellus shale formation who are not under lease can be located within a production unit and not receive any royalties. A natural gas company can drill around a landowner and avoid their property in a Marcellus Shale unit and still develop the area.
However, because of the applicability of the Oil and Gas Conservation law, the Utica Shale formation presents a whole different set of obstacles for a gas company. It is critical that landowners understand the increased negotiation leverage when dealing with proposed natural gas extraction from the deeper Utica shale formation. No one is talking about the Oil and Gas Conservation Law, and we need to talk about it as Utica shale development increases.
30 – 45 Minutes
All Things Marcellus dives further into the oil and gas conservation act and how it impacts Utica Shale natural gas development in Pennsylvania. Doug offers a breakdown of how property in Marcellus Shale development areas may have less negotiation leverage then properties located in areas of Utica Shale gas development or proposed Utica Shale development. Natural gas development from Utica Shale production units have different laws that apply to the development of the Marcellus Shale geological formation. Doug explains how a client recently was offered $3500 per acre and 18% royalty for a 2 acre parcel at the very edge of a natural gas production unit. Doug explains that the reason that this offer was so substantial for a parcel that would not be drilled under and was located at a remote area in the production unit, was most likely because the gas company wanted to avoid the procedural processes required under the oil and gas conservation act.
To date, not a single natural gas producer in Pennsylvania has used the oil and gas conservation act to include an unleased landowner in production from the Utica Shale formation. Doug explains how the Utica shale landowner can be subject to “forced pooling” and be included into a Utica Shale production unit even though they did not sign a gas lease. This is unique to geological formations below the Onondaga formation, such as the Utica shale formation. The oil and gas law does not apply to the Marcellus shale formation and Pennsylvania landowners cannot be forced into a natural gas production unit if they do not sign in oil and gas lease.
However, under the oil and gas conservation act, a landowner can be subject to forced pooling if the company goes through the complicated and expensive process set forth in Pennsylvania’s oil and gas conservation act. The same 2 acre land owner who is offered $3500 per acre bonus and 18% royalty for Utica Shale development, would probably receive a state law minimum level offer at possibly 12 1/2% royalty with virtually no bonus payment if the company was targeting the Marcellus shale formation. Areas such as Tioga County and western Pennsylvania where Utica Shale development is occurring, or will occur in the future, must understand the oil and gas conservation act and how it may apply to them.
45 – 60 Minutes
All Things Marcellus further develops oil and gas law issues and Doug reads from and paraphrases important provisions from the oil and gas conservation act. Doug explains the process of how a Pennsylvania oil and gas rights owner can be subject to forced pooling for Utica Shale development. However, there is a procedural process that requires the company to go through public hearings and that the landowner must be paid just and reasonable compensation. There has not been a case yet to determine what just and reasonable compensation is if a royalty owner is forced pooled into a production unit. Also, the landowner has extensive rights and there are required public hearings to determine just and reasonable compensation which should address a per acre bonus and royalty percentage for gas productions. It may also include whether royalties would be paid with or without deductions for pipeline transportation and gathering fees or other post-productions costs.
The question arises that if there are extremely productive Utica wells drilled, should the landowner receive a higher royalty percentage than the minimum 12 1/2% provided by the guaranteed minimum royalty act. At this time, no one can possibly predict what the commission will do in determining what just and reasonable compensation and the gas producers may be very concerned about this fact.
Upfront compensation and royalty percentages will be a major issue if a company uses the oil and gas conservation law procedures to force pool a landowner. It is completely possible that royalty owners could receive higher upfront bonus compensation, and/or a higher royalty percentage, or a better royalty calculation method without deductions, if a company goes through public hearings with the commission then what the royalty owners was offered by the company for the oil and gas lease for their parcel. This is an enormous area of uncertainty.
Gas companies producing natural gas in Pennsylvania do not want to expose themselves to the requirements and procedures of the oil and gas conservation act. Landowners have to recognize that they may have great negotiation leverage, even very small acre land owners, if their property is located in areas where gas producers want to develop the Utica Shale formation by way of horizontal drilling. However, Doug cautions everyone that All Things Marcellus is for general information purposes and a thorough and detailed review on an individual basis is required for specific legal advice. However, royalty owners should be asking their attorneys about Pennsylvania’s Oil and Gas Conservation Law and how it may apply to their property.
