Doug discussed how mistakes can be made in buying, selling or assigning oil and gas rights and when transferring property. Deeds must be carefully written to avoid any uncertainty and potential enormous problems in the future. Too many landowners have sold real property thinking they were maintaining the oil, gas and mineral rights only later to learn later that they failed to reserve the oil, gas and mineral rights. Agreements for Sale and Purchase Agreements must be drafted correctly and clearly indicate whether the buyer is purchasing the real property with all oil, gas and mineral rights, or whether these rights will be reserved by the Seller. Mistakes in this area are devastating, but these mistakes should be easily avoided by retaining an experienced and knowledgable attorney.
Landowners must not sign any oil and gas contracts or property sale agreements without consulting and retaining a skilled attorney. Doug dives into hot issues facing Tioga County landowners related to new gas leases and pipeline offers. Doug offers his opinion that he feels that Tioga County landowners are being offered the most friendly gas and pipeline company agreements in Pennsylvania. Landowners and gas rights holder must become educated and informed in order to protect themselves from bad offers in Tioga County and other counties across Pennsylvania. Landowners must seriously considering rejecting bad natural gas leases and bad pipeline easement agreements. Just because the gas or pipeline company makes you an offer does not mean you should accept it. Landowners must stop signing bad agreements and must be prepared to bypass overly company friendly natural gas offers.
Doug continues his rant against Tioga County gas lease and pipeline offers. Doug singles out a common Shell, SWEPI, oil and gas lease offer. Doug walks throught the financial terms of the offer, including the per acre bonus dollars, natural gas royalty percentage, and royalty calculation method regarding whether the gas company can take deductions for post-production costs such as gas gathering, transportation, compression, marketing, and dehydration. Doug drills down on the fact that 12.5% royalty is the lowest possible royalty allowed under Pennsylvania law. Quite simply, it is absolutlely impossible for a gas company to offer a landowner less than 12.5% royalty for their gas. Again, it is absolutley impossible for a gas company to offer you less than 12.5% royalty for your natural gas. You cannot do any worse than 12.5% royalty. Of course it does get worse in this case as the Shell/SWEPI is currently taking the position that they will not agree to offer gas rights’ owners leases that eliminate or even minimize the impact of deductions for post-production costs. In other words, if a landowner agrees to this offer they are agreeing to the lowest possible gas royalty percentage allowed in Pennsylvania AND agreeing to full deductions from the lowest possible royalty percentage allowed by law. Given today’s low natural gas market and the fact that gas companies have slashed their leasing budgets, landowners must carefully evaluate any offer they receive and decide whether it is in their best interst to enter into a gas lease at this time.
Perhaps even more concerning than the lowest possible royalty percentage with full deductiuons is that this current offer involves a 10 year lease term! This means that the company has up to 10 years before they need to even file for a driling permit from DEP. A 10 year oil and gas lease form does not require actual drillig within 10 years and does not require that royalties be paid within 10 years. Also, this current standard Shell/SWEPI offer involves at least a 5 year shut-in royalty provision. To play this out, it would be possible for the Lessee Gas Company to file for a permit within 10 years and then drill. Then, after the well is drilled, the company can shut-in the drilled well for 5 consecutive years before ever marketing any gas and paying any royalties. This means a 10 year lease could be developed in a fashion so that the landowner would not recieve a royalty check for 15 or more years! Shell/SWEPI already has many vertical wells sitting in shut-in status in Tioga County and this current offer is very troubling given Shell/SWEPI’s history of shutting in wells for lengthy periods of time.
Given the terms of this current Shell/SWEPI offer and the status of the natural gas market, landowners and gas rights owners must think long and hard if they are considering signing this oil and gas lease offer.
Doug concludes the show by addressing a current Shell/SWEPI’s Pipeline Right-of-Way Agreement and various issues related to the agreement while focusing on the fact that the company has 5 years to elect to use the agreement. Once again, Tioga County landowners must ask themselves why should I sign a Pipeline Easement Agreement for very low compensation relative to other areas of Pennsylvania and provide the company a 5 year term to decide if they are even going to use the agreement and install pipelines on your property. If a pipeline company argues that they want you to hurry up and sign because they want to get the pipelines in the ground and get you royalties, they ask them frankly why they need or want a 5 year term. Also, ask why should I sign for $10 per linear foot when other areas in northeastern Pennsyvlania are routinely signing for $30 per foot per pipeline installed and in many cases for much higher compensation. Bad deals are bad deals and we need to make sure landowners stop signing bad oil and gas leases and pipeline contracts