Ohio’s Attorney General, Mike DeWine, offers the following tips for landowners when they are presented with an offer to lease their land for oil and gas drilling. Although Mr. DeWine is addressing Ohioans, these common sense tips apply to anyone in any geography.
Landowner tips about leasing land for gas and oil drilling
- Get to know the company. Request credentials, contact information and references from the representative of the company who contacts you. Remember that the person talking to you may not be from the oil and gas company itself. Make sure you know what company will do the actual oil and gas exploration.
- Ask for names of other landowners where the company has drilled wells or sought leases and check them out.
- Research the company and check for lawsuits or other problems.
- Check with neighbors. Find out if your neighbors have been contacted and presented with similar proposals.
- Get everything in writing and review everything before signing. It’s best not to sign anything on the day it is presented to you by the company representative. Take the proposed lease, read it and think about it before signing.
- Consult with an attorney knowledgeable in oil and gas law. You may want to pool resources with your neighbors if you don’t think you can afford one. If you don’t know of an attorney, contact your local bar association for the name of one in your area.
- Understand what you are leasing. Make sure you are clear about what rights the company wishes to lease. Are they asking for oil rights, gas rights, coal rights or other rights? You do not have to lease them all of your mineral rights if you do not want to do so.
- Understand all the other terms. Make sure you understand if the well itself, or any of the other equipment used to conduct the drilling — including above ground or underground storage tanks, storage ponds or pipelines –are going to be actually located on your property, and for how long they will be there. Know where the access roads are to be located. Discuss and be clear on all of these issues, and get a location approval clause incorporated into the agreement.
- Discuss the lease payments. If your property is part of the active drilling activities, a higher rental, royalty payment and/or spud fee are reasonable requests.
- Know exactly when payments will be made. Some payments may be contingent on certain events occurring or may change in amount if certain events happen. Also check closely for expiration dates and renewal clauses.
- Discuss potential damages. In the event crops, fences, trees, buildings or other assets on your property have to be removed or are damaged during drilling operations, understand what the drilling company will do. Also discuss potential damage to or impact on your drinking water and/or your septic system. Make sure the terms of who will pay for those damages are in any lease you sign. Do not agree to be provided with a second document or “a side letter” to address those concerns. Make sure any agreements to pay you for damage to your property are not qualified with terms like “direct harm” or “proximately caused.” You should be protected from any damages to your property.
- Don’t get pressured into any deal. Don’t sign the proposed lease just because the company representative tells you it is “a standard lease.”
*Attorney General Mike DeWine Blog (Jun 21, 2011) – Oil and gas exploration and drilling