Oil, Natural Gas Leases Often Vague, Offer Landowners Few Protections

Property owners considering leasing their mineral rights to oil or natural gas drilling companies need to proceed with caution. According to a report published in The New York Times last week, many landowners who have entered into such leases in recent years are finding out – usually when it’s too late – the drilling leases they signed offer them little protection should something go terribly wrong.

For its report, the Times reviewed 11,000 natural gas leases and addenda from Texas, Maryland, New York, Ohio, Pennsylvania and West Virginia. What the review discovered was shocking:

• Less than half require drillers to compensate landowners for water contamination after drilling begins, while only about half had provisions that required companies to pay for damage to livestock or crops.

• The majority allow drillers to cut down trees, store chemicals, build roads on property, and operate generators and spotlights through the night near homes during drilling.

• Potential environmental and other risks are rarely described to landowners, even though federal laws require drillers to disclose the same risks in filings to investors.

• While most leases last for 3 to 5 years, many have provisions that allow drillers to extend the leases with getting approval from property owners.

Many landowners and lawyers complained to the Times that energy companies are intentionally vague in their contracts and use high-pressure sales tactics on landowners:

“‘We’re in town until tomorrow,’ the landmen typically say, according to interviews with more than two dozen landowners in Ohio, Texas and Pennsylvania. ‘We have already signed up all your neighbors.’ ”

The landmen then claim that if you do not sign right away you will miss out on easy income because other drillers will simply pull the gas from under your property using a well nearby.”

In Pennsylvania, Colorado and West Virginia, where some landowners incurred substantial costs to buy bottled water or maintain large tanks for drinking water in their front yards, many told the Times they learned only after the fact that their leases did not require gas companies to pay for replacement drinking water when water wells are contaminated. And even in states were regulations required action on the part of gas drillers, not all costs were covered.

In some of those states, landowners have also joined class action lawsuits claiming that they were paid less than they expected because gas companies deducted costs like hauling chemicals to the well site or transporting the gas to market, the Times said.

Lawyers contacted by the Times warned that drilling leases are not like other contracts, especially since once a well is drilled, it can produce gas for decades, locking landowners into the lease terms.

“With a gas lease, you’re permitting industrial activity in your backyard, and you’re starting a relationship that will affect the quality of living for you and your grandchildren for decades,” one attorney told the Times.

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