Setting the Record Straight on Oil & Gas Leases
by Mark Green
New, detailed analysis of last week's New York Times story on shale natural gas leasing by Jerry Simmons, executive director of the National Association of Royalty Owners, is up on the Energy In Depth web site. It's well worth the read. Main points - bearing in mind that Simmons' organization represents millions of mineral and royalty owners across the country:
NYT: Not all leases require companies to compensate landowners for water contamination after drilling starts, and not all have language requiring payment for damages to livestock or crops.
"All the protections that the Times laments aren't included in a standard lease are included in a different kind of contract - called the law. No oil and gas lease I've ever seen includes anything banning a producer from, let's say, hitting me in the head with a shovel. According to the Times' logic, though, I guess that means it would be legal for him to do it - since it wasn't mentioned in my lease. Can you see why this entire premise is flawed?"
NYT: Most leases give natural gas companies broad rights on cutting down trees, storing chemicals, building roads and drilling. Companies also are allowed to run generators and spotlights near homes through the night while drilling.
"In most cases a surface-use agreement is required by the state, but if not, we've always recommended that the mineral owner (even if not surface owner) include one as part of the deal. In that agreement, you will negotiate compensation for roads, tree removal, crops, livestock, etc. But drilling itself is permitted by the state, and proximity to structures is determined by the appropriate state regulatory agencies. Distances may differ, but the principle does not."
NYT: In leases drilling companies rarely describe potential environmental and other risks to landowners that federal law requires them to disclose in filings to investors.
"Mineral and surface landowners are protected from liability by state and federal regulations. If you believe a lease clause or addendum is needed to spell out potential risks and liabilities, then you should negotiate that into your lease - as most folks have done for years."
NYT: Most leases are for three or five years, but at least two-thirds reviewed by the Times allow extensions without additional landowner approval.
"Oil and gas leases for decades (perhaps always) have allowed for the option to extend at the end of a primary term. The reason is that the company may not get to all drilling locations within the primary term and wants the ability to maintain its acreage position in an area. If you sign a lease with an option to extend, you have given your approval to extend the lease if certain stipulations are met. ... Leases are serious contractual instruments that one should not enter into without proper knowledge and professional advice."
Here's something worth noting: Even though Simmons, whose organization has vast experience with royalty leases, spoke with the Times article's author, none of the information Simmons provided made it into the newspaper. All the news that fits we print?
Which gets to a final point, that the Times is trying to "manufacture a narrative" of landowners pitted against energy companies. That's not to say that every operator has done right by every property owner - just that the newspaper's story line is misleading. Simmons:
"It is too bad this article did not attempt to emphasize the need for mineral and surface land owners to accept their responsibility and become educated on the process of mineral leasing and mineral/royalty income. If it had, the Times could have done a real service to the citizens facing decisions on leasing instead of trying to generate fear in a process that could (and does) pay off a mortgage; send kids or grandkids to college; keep elderly folks off state assistance; keep the family farm in the family; build new fences, barns, houses; supplement retirement; and on and on. The point is, of the millions of oil and gas leases in effect in America today, the vast majority are held by folks who are very happy with the process and benefit greatly from the income that this partnership produces. Too bad the Times doesn't consider that much of a story."
It doesn't fit the narrative, and yes, that's too bad.
This is a cross-post from TheEnergyCollective.com.
The Energy Collective is the web's premier site for sophisticated energy policy discussion. TEC is an independent, moderated community of professionals focused on the complex challenges of meeting the world's energy needs sustainably.
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