Forest
Stewardship News Release
January
25 , 2008- For Immediate Release
Contact: Allyson
Muth, Phone: 814-865-3208, E-mail:
Oil, Gas, and Mineral Leasing: Some Important Considerations for Forest Landowners
Written by: Tim Pierson, Extension Educator and Forester, 814-887-5613, tgp2@psu.edu
Reprinted from Forest Leaves Winter 2008
Oil, Gas, and Mineral (OGM) leasing, exploration and production activities are increasing in Pennsylvania with rising oil and natural gas prices. Brokers and oil and gas companies are approaching forest landowners to lease OGM rights. Prudent forest landowners can avoid some of the pitfalls associated with OGM leases and their impact on forest resources.
Pennsylvania’s Department of Environmental Protection (DEP) enforces oil and gas laws, including well construction and waste management practices. However, they do not regulate lease agreements between owners and oil/gas producers. Since they are contractual law, lease issues are typically handled in local courts.
Forest landowners should learn if they own the minerals under their property. Often OGM rights are held by others. If others hold the rights, a landowner often has little recourse but to watch development as it occurs. To learn if there are any OGM leasing agreements on your land, check with the County Recorder's Office on your deed; this may require a title search back into the 1800s. During your title search, learn if an OGM lease broker or company holds your rights.
The standard OGM lease rarely protects a forest landowner. The standard lease is full of legal jargon that protects and benefits the lessee (the company leasing your property) and not you. A broker typically assembles large land blocks and buys individual leases to sell to an oil and gas company. Oil and gas companies are usually more open to amendments or addendums to the standard lease on an individual basis and they are not as likely to transfer leases to other companies. In general, a landowner should request separate leases or contracts and payments for: shallow oil and gas; deep oil and gas; minerals; and any rights-of-ways for roads, pipelines, or utilities. The standard lease usually lumps all oil and gas (shallow and deep), all minerals, and all right-of-ways into one agreement.
Recently a forest owner in north-central Pennsylvania received an inquiry to lease her OGM rights. As with many forest owners, the aesthetics and natural resources on her land are very important. Prudently, she investigated oil and gas leases and companies before signing. She reflected, "You'd best investigate the ramifications of leasing your forestland before you have to live with the results." She also emphatically said, "Money is not worth the change in the beauty and aesthetics on my property." Working with her lease holder, she is developing a standard lease addendum that includes acceptable well and pipeline locations to achieve the least amount of site disturbance and to protect her timber value.
A forest owner in Potter County recently leased oil and gas rights on 585 acres of his land. He says, "It is important for forest landowners and their neighbors to educate themselves on the terminology and all aspects of proposed oil and gas leases." He recommends inviting oil and gas companies to a neighborhood or community meeting so people can ask questions. He believes strongly that, "Landowners should insist on having the final say on the location of wells, roads, tanks, gates, fences, pipelines, and other aspects of drilling and production." Obviously, the landowner wants the gas company (lessee) to find and produce gas efficiently, but you have to live with the effects on your land for long time. Use due diligence and review your forest stewardship goals and objectives and fully agree with and understand the lease which is a recorded legal document.
Annual lease payments are usually negotiable and vary widely from five to hundreds of dollars per acre. The lease rate may link to existing leases with others in a "block" of land with proven or probable gas potential. To learn how your land lies relative to existing leases and suspected well fields requires investigation. Talk with your neighbors and others and learn what they know. Have they have been approached or leased OGM rights and what rates have they heard mentioned or received. You may even cooperate with your neighbors to assemble a block of land and work together to negotiate leases and annual payments. The royalty rate for gas is set by the state at one-eighth, or 12.5 percent of the yield value. Typically metering is done at the wellhead. DEP ensures distribution of minimum royalty payments.
A landowner's trees are important for long-term income and for meeting other objectives. OGM producers often consider trees a nuisance when clearing well sites, access roads, and pipelines. Once cleared, disturbed areas will not produce forest income for many years. Pipelines and roads may be 30 to 50 feet wide. Negotiate their location to avoid highly productive forest stands or "special" places. Establish the value of your trees in the lease agreement; otherwise you will typically receive minimal compensation for them. The rate will not include consideration for future value or lost potential income. Sometimes forest owners negotiate double compensation for present and future hardwood sawtimber values. Use the Timber Market Report produced by the Penn State School of Forest Resources as a guide.
Finally, protect your soil -- leases seldom address this issue. Have your soil stockpiled for site reclamation. Leases usually only require returning the land to its original contour and seeding with a conservation mix. You may specify the disposal of tree tops and stumps, topsoil replacement, permanent erosion and sedimentation structures installation, fertilization and liming, seed mix composition, and tree planting, including species selection and spacing. Water quality protection is a very important consideration and protecting it usually requires addendums to the standard lease. Insist that water wells and developed springs be tested prior to any activities and again after all development and production activity is in place. DEP will provide some assistance on these issues during the permitting process.
Some wells require daily tending, sometimes for 5-10 years or more. You may wish to establish guidelines and timeframes for well tending during hunting seasons or throughout the year to limit intrusion.
Before signing an OGM lease, forest owners have many issues to consider. Working with neighbors in this learning process and in the subsequent lease development can benefit everyone. Take the time to understand the agreement -- it is a long-term legal obligation. The standard oil and gas lease rarely provides forest landowners with adequate protection for their forest resources and little control over environmental impacts once OGM activities begin. Therefore, develop acceptable addendums to the standard OGM lease. Negotiate your lease to meet your forestland goals and objectives including timber value and site reclamation. A well developed written lease assures the best outcomes on your land.
Additional Sources of Information:
http://www.dep.state.pa.us/dep/deputate/minres/oilgas/oilgas.htm
http://naturalgaslease.pbwiki.com/
http://scnyat.cce.cornell.edu/gas/SCNY-CCE-gas-information-sheet.pdf
The Pennsylvania Forest Stewardship Program provides publications on a variety of topics related to woodland management for private landowners. For a list of free publications, call 1-800-235-WISE (toll-free), send e-mail to , or write to: Forest Stewardship Program, Forest Resources Extension, The Pennsylvania State University, 320 Forest Resources Building, University Park, PA 16802. The Pennsylvania Bureau of Forestry and USDA Forest Service, in partnership with the Penn State's Forest Resources Extension, sponsor the Forest Stewardship Program in Pennsylvania.
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