The Pennsylvania Gold Rush

The Marcellus Shale drilling boom has brought with it the hope for lucrative profits to Pennsylvania landowners and drilling companies alike. Some Pennsylvania landowners have already benefited from this and we will see many, many more benefit in the near future as the gas companies who have already entered into agreements with gas and oil companies begin to more aggressively approach those landowners in the Marcellus Shale regions of Pennsylvania. Although Marcellus Shale underlies approximately two-thirds of Pennsylvania, it was only recently – in the past few years – that gas companies began drilling to extract natural gas from the Marcellus Shale in these regions. Previously, doing so was simply too expensive; however, significant advances in technology have now made such drilling possible. And, currently, not only is such drilling performed in Marcellus Shale regions throughout Pennsylvania; it is being performed so often that it has been referred to as the “Pennsylvania Gold Rush.”

Chances are, with this “Gold Rush,” if you are a Pennsylvania resident, and especially if you are a landowner in Western Pennsylvania, you may be approached by a representative of the drilling company who is seeking to extract such resources from your land in exchange for monetary gain. What should you do?

First things first, remember that the company is seeking to enter into a legal contract (a leasing agreement) with you. Therefore, anything that you sign will have legal consequences. Moreover, the lease that the “landsman” gives you will be more favorable to the gas (or oil) company than to you, as the company is, after all, looking to benefit itself. For this reason, it is strongly recommended that you immediately contact an experienced gas and oil attorney so that you are not taken advantage of and to ensure that you receive the best possible deal.

Second, as with all legal contracts, whatever the representative or “landsman” may tell you orally runs the risk of being unenforceable if not in writing. Do not rely on these oral assurances. Make sure that what the landsman tells you is accurately reflected in the contract you are provided to avoid any potential problems and save yourself much hassle in the future.

Third, because what you are seeking to sign constitutes a legal contract, you should treat it as such. Do not simply sign the contract without fully and completely reading all terms and provisions of the contract. And, more importantly, make sure that you understand the contract in its entirety. What may seem like a harmless provision to you may in have legal consequences of which you are not even aware. Again, it is vital that you contact an experienced oil and gas attorney prior to entering into such agreement.

In addition, keep in mind that, as a legal contract, there is much potential for negotiation. For instance, while Pennsylvania law requires that you be paid a minimum of 12.5% of the gas company’s royalties (and is likely the amount offered by them), you can negotiate for a higher price. It is also important that you are aware that gas companies may permit royalty payments to be reduced based on post-production costs regarding the gas taken from your property, as this can significantly reduce the amount of money you receive. You may also negotiate regarding lease payments as well. Again, with the help of experienced attorneys like us here at Tibbott & Richardson, not only will we negotiate the contract in the most favorable way possible but we will fully explain all potential consequences so you are never, ever left in the dark regarding the implications or consequences of the agreement.

Furthermore, here at Tibbott & Richardson, we have the knowledge, experience and insight to favorably negotiate the terms of your lease agreement far beyond what is stated the gas company’s standard lease agreement to provide you a greater benefit. In addition to obtaining for you a favorable agreement regarding the “boilerplate” provisions provided by the gas companies, we will also address issues that are frequently (and purposefully) absent from the gas companies boilerplate agreements. For example, we will address and favorably negotiate issues for you such as the effect that drilling will have on the other natural resources in your property and will provide for proper repayment or restoration that goes beyond the limited protection that Pennsylvania law provides to landowners, as well as the location of any wells, roads or pipelines that potentially may be located on property, adequate protection for your livestock, crops and personal property, and a limitation of liability should any accidents or incidents occur on your land, among other things.
Remember, the gas and oil companies do not keep your best interest in mind when negotiating contracts, no matter how polite they may seem. When entering into these leasing agreements, it is extremely, extremely important to contact an experienced gas and oil attorney like us here at Tibbott & Richardson to negotiate issues for you on your behalf and to make sure that the contract you sign is as favorable to you as possible. We promise to keep your best interest in mind at all times, because we understand.
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1. Paul Carpenter, Marcellus Shale Gas Drilling Critics Get Whammied, THE MORNING CALL, Sept. 09, 2010, available at https://articles.mcall.com/2010-09-09/news/mc-paul-carpenter-gas-drilling-20100909_1_marcellus-shale-coalition-gas-drilling-double-whammy.

2. 58 P.S. § 33.
3. See Kilmer v. Elexco Land Services, 990 A.2d 1147 (Pa. 2010)(holding that an oil and gas lease agreement, which contained language that permitted a one-eighth royalty to be calculated by first deducting any post-production costs, is permitted under Pennsylvania law regarding minimum royalty payments).
Specifically, if the well operator pollutes or diminishes a public or private water supply the operator must restore or replace said water supply. 58 P.S. § 601.208.