Pennsylvania landowners are often presented with oil and gas leases that appear straightforward—but in reality, these agreements are complex, highly technical contracts drafted to benefit the operator.
Over the past 18+ years representing landowners across Pennsylvania, I have seen the same critical mistakes repeated—mistakes that can significantly reduce long-term income, restrict property rights, and create legal complications that last for decades.
Here are the five most common mistakes landowners make when signing oil and gas leases—and how to avoid them.
1. Focusing on the Bonus Instead of the Royalty
One of the most common mistakes is prioritizing the per-acre signing bonus over the royalty structure.
While a higher bonus may feel like a win, it is a one-time payment. Your royalty, by contrast:
- Lasts for the life of the well
- Can generate income for decades
- Typically represents the majority of total value
A lease with a slightly lower bonus but a properly structured royalty clause will almost always produce significantly greater long-term income.
2. Failing to Eliminate Post-Production Deductions
Many landowners assume that their royalty percentage reflects what they will actually receive.
In reality, without proper lease language, operators may deduct costs for:
- Gathering
- Compression
- Processing
- Transportation
- Marketing
These deductions can reduce royalty payments by 20%–40% or more, depending on the structure.
A properly negotiated lease should clearly state that royalties are calculated:
- On gross proceeds, and
- Without deduction of post-production costs
3. Overlooking the PUGH Clause (and Losing Control of Your Property)
One of the most overlooked—but critically important—provisions is the PUGH clause.
Without a properly drafted PUGH clause:
- A company can drill a single well on a s mall portion of your property
- Then use that well to hold your entire acreage under lease indefinitely
Why This Matters:
This can prevent you from:
- Renegotiating better terms
- Leasing undeveloped portions of your property
- Benefiting from future market improvements
What You Should Require:
A strong PUGH clause should:
- Release non-producing acreage at the end of the primary term
- Include depth severance below the deepest producing formation
4. Ignoring Pipeline and Surface Use Provisions
Many leases grant operators broad rights to:
- Install pipelines
- Build roads
- Use water sources
- Access and occupy the surface
These provisions can significantly impact your:
- Property value
- Use and enjoyment of the land
- Future development potential
These issues are often better addressed through:
- Separate surface use agreements, and
- Carefully negotiated pipeline and easement terms
5. Assuming the Lease Is “Standard” or Non-Negotiable
Perhaps the most costly mistake is believing that the lease offered is:
- “Standard,” or
- Not subject to negotiation
In reality:
- Oil and gas leases are highly negotiable
- Initial offers are often heavily weighted in favor of the operator
- Key terms—including royalty language, deductions, and property rights—can often be significantly improved
Landowners who negotiate these provisions typically achieve:
- Higher effective royalties
- Better property protections
- Greater long-term flexibility
Why These Mistakes Matter More in Pennsylvania
Pennsylvania’s oil and gas development—particularly in the Marcellus Shale—has created substantial opportunities for landowners.
However, it has also resulted in:
- Increasingly complex lease structures
- More sophisticated operator strategies
- Greater long-term financial stakes
Once signed, these leases often remain in effect for decades, making early mistakes extremely costly to correct.
Oil and gas leases are not routine agreements—they are long-term contracts that directly impact your property rights and financial future.
Avoiding these five common mistakes can mean the difference between a lease that works for you, and a lease that works against you
Before signing any lease, Pennsylvania landowners should fully understand the terms—and ensure those terms are properly negotiated.
If you are a Pennsylvania landowner considering an oil and gas lease, the most important step you can take is having the lease reviewed before signing.
Douglas A. Clark, Esq. represents landowners exclusively in oil and gas matters throughout Pennsylvania.
- Over 18 years of experience
- No representation of gas or pipeline companies—ever
- Proven track record of negotiating stronger lease terms
Contact The Clark Law Firm, PC today to protect your property, your rights, and your long-term royalty income.
