0 – 15 Minutes
In this episode of All Things Marcellus, Attorney Doug Clark of the Clark Law Firm, PC breaks down specific oil and gas lease terms and explains how gas lease documents are carefully drafted to provide the company maximum operational flexibility and operational rights often to the detriment of the property owner. Attorney Clark discusses how the Clark Law Firm, PC represents Pennsylvania property owners and natural gas right owners, regardless of their location in Pennsylvania or across the country. The Clark Law Firm works and fights for Pennsylvanians and Doug Clark has never and will never represent natural gas or pipeline companies. Doug encourages people to learn more about the Clark Law Firm’s oil and gas services by visiting www.pagasleaseattorney.com and www.pipelineattorney.com to learn more about our property owner and gas rights owner representation. Remember, Attorney Doug Clark does not, has not, will not, represent oil and gas or energy companies. Doug also explains how he not only represents gas right owners located across Pennsylvania, but also located across the country, and even in other countries. If you have property in Pennsylvania or oil and gas rights in Pennsylvania, make sure to call The Clark Law Firm to see if they can assist you. Doug works with his clients schedules and locations and conducts single or group telephone conference calls and in-office meetings. The Clark Law Firm PC has found that a client’s distant location from their offices very rarely ever presents an obstacle, but if location is an issue, Doug will identify the issue immediately and recommend that the property owner secure more local legal counsel. As evidence of distance not presenting an issue, The Clark Law Firm, PC has represented oil and gas right owners in Canada, California, Alaska, Texas, London, Wyoming, Montana, Micronesia and many other distant locations.
15 – 30 Minutes
Attorney Clark takes All Things Marcellus listener’s deep into the oil and gas lease terms offered presented to Pennsylvania and Tioga County area landowners. Doug explains the importance of the granting clause of an oil and gas lease and how the granting clause sets forth the rights that the property owner and gas right owner provides to the gas company. The granting clause is a critical provision in every oil and gas contract and must not be overlooked or misunderstood. Landowner/Lessors must carefully study the granting clause in their gas lease to determine what rights they are providing to the gas or pipeline company. Granting clauses exists in all oil and gas agreements, not just gas leases and pipeline agreements. From this sample gas lease, Doug reads two important clauses within the overall granting clause which provide the company the ability to have ingress and egress rights across the entire landowners property and to use the landowner’s property to access other nearby properties. These ingress and egress rights are exceptionally powerful as they provide authority to not only allow access to the landowner/Lessor’s property, but they also allow the gas company to travel across the landowner/Lessor’s property to access unlimited properties anywhere in the area.
Another powerful provision in this sample gas lease’s granting clause allows the gas company to have a perpetual easement that survives the expiration and termination of the gas lease. This perpetual easement allows the gas company to have the right to travel to and from the perpetual easement and allows the company to construct pipelines, power lines, roads, waterlines, telecommunication lines, tanks, ponds, pits, power stations, structures, facilities, improvements, compression equipment, meters, houses and buildings within the easement area. Most landowner/lessors do not think when they sign in oil and gas lease they are conveying such powerful easement rights to the gas company. Usually people signing gas leases simply think they sign the lease and they may or may not see drilling activity on their property. However, the granting clauses in gas leases provide substantial operational authority to the gas company and some leases provide exceptional operation authority far beyond what the landowner/lessor would think possible. Oil and gas lease granting clauses must be carefully studied, dissected and negotiated to limit the authority granted by the Lessor to the gas company. Although this particular granting clause relates to an oil and gas lease, there are also very powerful granting clauses in pipeline agreements and other surface use agreements and property owners must undertake the same detailed analysis with all oil and gas contracts.
30 – 45 Minutes
Attorney Doug Clark continues to discuss the granting clause from a sample oil and gas lease offer. Under the granting clause in this gas lease, the company has the rights ingress and egress rights for not only your property, but for a “any other lands”. This is a very powerful lease provision that must be carefully reviewed and negotiated if possible. Doug explains the natural gas royalty provision in this sample gas lease and how the words “revenue realized” or “net proceeds” are used as a code for authorizing post-production cost deductions from royalty payments. Royalty provisions in oil and gas leases can be extremely confusing and convoluted and are typically drafted to inconspicuously allow for post-production cost deductions. Natural gas royalty provisions are often written with grand canyon sized loopholes which are difficult to detect and allow companies to take substantial cost deductions from future royalty payments. The landowner/lessor should never sign an oil and gas lease without seeking individual and specific advice from a knowledgeable oil and gas attorney who can explain the royalty provisions and other important terms of the oil and gas lease. Landowners must not rely on the company landman to explain complicated royalty provisions and the royalty calculation method contained in various Pennsylvania gas leases. More and more in Pennsylvania, gas companies are using affiliated sales and index pricing as a way to maximize company profits and reduce landowner royalty payments. This is a very disturbing and concerning trend that everyone must be aware of and royalty owners must fight to a eliminate or at minimum to understand how the royalties will be calculated and factor the royalty calculation method into their decision whether to enter into an oil and gas lease. Remember, an informed and educated royalty owner will always make the right decision.
45 – 60 Minutes
Attorney Doug Clark concludes this episode of All Things Marcellus by explaining how natural gas royalties are calculated based upon gas production from a declared unit. Doug walks through the pooling and unitization process and explains what pooling and unitization means for the royalty owner. Doug discusses how pooling and unitization works and how neighboring properties are pooled together to form production units. Gas companies officially designates a production unit by recording a Declaration of Pooling and Unitization (“DPU”) at the Recorder’s Office in the county courthouse. The recorded unit declarations, DPU’s, are available at the courthouse or on-line and landowners who are unitized should acquire a copy of all recorded production units that contain their property. DPU’s are extremely important documents for gas right owners.
Doug also addresses how gas companies calculate a royalty owners’ decimal interest and their individual share of natural gas production from a designated unit. Doug walks listener’s through the decimal interest calculation formula and how this formula is generally used to pay natural gas royalties to Pennsylvania landowners. However, in this sample oil and gas lease form, the gas company has provided an alternative royalty calculation method based upon what the company determines as fair and appropriate, as long as this royalty calculation method does not violate the Pennsylvania law. This type of royalty calculation language is extremely rare and thankfully this odd language is rarely found in Pennsylvania leases. This type of royalty language is very concerning and must be addressed in the oil and gas lease negotiations. It is impossible to know what a gas. company main deem fair and appropriate and how this type of royalty calculation language may negatively impact future natural gas royalty payments. Whenever landowners see oil and gas leases with unusual language, red flags should rise and this language must be carefully scrutinized to identify loopholes. Potential Lessors must ask themselves why the questionable language is not typically presented in the oil and gas lease offers.
This particular lease that Doug reviewed during this episode has many company friendly provisions that should be very concerning to the landowner. These troubling lease provisions must be identified, reviewed and thoroughly discussed with an experienced oil and gas attorney. Royalty owners must negotiate the gas lease language and add valuable addendum terms to the lease to minimize the negative impact of the and gas lease offer. This sample lease that Doug reviewed in the episode of All Things Marcellus is exceptionally aggressive in favor of the company and must be negotiated. Whether its an oil and gas lease, surface use agreement, pipeline easement agreement, or any other company offer, the same concerns apply. All oil and gas contracts and offers must be negotiated to make certain that you are receiving the highest possible compensation and limiting the authority you are granting the company under the terms of the agreement. Remember property owners and gas right owners must stop signing a bad oil and gas agreements that strongly favor the company. Do not rely on the gas or pipeline company landman to educate you, but seek specific advice from a qualified oil and gas lawyer.