With the development of the Marcellus and Utica Shale play in eastern Ohio, it is important that landowners and mineral right owners have legal assistance. As a former member of the Ohio House of Representatives Public Utilities and Energy Committee and the Agriculture and Natural Resources Committee, I know the importance of a dependable reliable source of domestic oil and gas. I am hopeful the wet liquids and gas found in the Marcellus and Utica will be an ongoing source of economic development for our region. As an attorney, I know it is important to be well represented when negotiating a comprehensive lease.
So when a number of landowners contacted me about potentially leasing their mineral rights, I got involved and discovered the top vehicle for a landowner to achieve the best result is a Landowner Association.
What is a landowner association? A landowner association is made up of a group of property owners who come together with a common goal as to the use of their properties with respect to oil and gas production. Landowner associations are organized with a board of directors. Basically, the purpose of the association is to aggregate acreage of landowners who have their mineral rights, and negotiate a better land owner protection lease achieving the best result for the landowner and their land.
The association's board of directors hires a team to negotiate a common lease agreement for a large block of property. This team is usually made up of attorneys and a petroleum engineer or geology consultant who prepares a landowner protection lease and puts out a request for proposal (RFP) to the large energy companies. Next, the energy companies bid on the acreage and the lease and the team hired by the association recommends the best lease to the association and assists in the execution of the agreement on behalf of the associations' members.
The landowners reap the benefits of being a part of a larger group that will provide: educational meetings to inform members; have stronger negotiating power in the writing of a lease agreement between landowner and driller; and receive more landowner friendly oil and gas terms.
The more acreage represented by the association, the more leverage the association has in negotiating leases. Consider how likely a landowner with 100 acres is to obtain changes in a lease with a company the size of Chesapeake Energy or Exxon. Then consider how likely an association with 20,000 acres is to obtain changes in the lease terms.
Participation requirements to join an association are:
1. Own your mineral rights.
2. No existing valid lease for the deep well minerals on your property.
Grabbing the headlines regarding Marcellus and Utica leasing is the up-front bonuses and royalty payments. Up-front signing bonuses should be stated in the lease as well as royalty percentages, opposed to a separate document. Royalties for the Marcellus and Utica Shale have been higher than the normal 1/8th.
Other very important terms include: restoration of disturbed surfaces (including crops); water use and water quality; surface disturbance provisions; fencing and gates; limitations on locations of wells, compressors, pipelines, roads; removal of timber; liability insurance, and lease terms requiring landowner consent on assigning the mineral rights to another entity.
Marcellus and Utica leases require a unitization or pooling clause term. Unitization is the combining of tracts of land or leases for drilling well(s). For a horizontal well drilled deeper than 4000 feet energy companies typically require 640 acres in a unit or pool.
Remember you are the enforcer of your lease. Your lease will be the law of your land for a very long time if a drilling unit is producing oil or gas. Be careful in executing your lease.
Jennifer Garrison represents the Southeastern Ohio Landowners Association which is a non-profit organization represented by Jennifer Garrison, Attorney at Law and the Columbus based law firm of Brickler & Eckler. Dr. Bob Chase, chair of Marietta College's Petroleum Engineering Department, is the technical consultant to the association. Garrison can be reached at (740) 373-2414.