Gas Leases

Gas leasing and the rumors about it are more talked about in country circles than today’s sky-high corn prices. But Pennsylvania Ag Secretary Dennis Wolff points out in his weekly column, “While natural gas development presents a tremendous economic opportunity, it also comes with the potential for many unconsidered issues.”

Knowing those issues, and planning accordingly, can mean the difference between prospering from a good opportunity and having to live with a decision made in haste, he warns. “I urge farmers to plan ahead and consult with knowledgeable professionals before signing a lease. The relatively small cost of planning properly will pay dividends throughout the life of the lease.”

A gas lease is a legally binding document that may have implications extending beyond the average lease period of five years. Written well, it can provide the landowner with protections and the terms under which the landowner will be paid for his gas.

Before signing any document, a landowner should have it reviewed by an attorney who is experienced with gas lease terms. There are financial, practical and environmental considerations to be decided.

Determine how the lease would impact the ability to farm. It needs to include provisions for access to the property and potential damage to crops, soil and water.

Ask: What infrastructure changes will be made to my farm, and how will it affect my daily operations? How will this impact my farmland, and will it be permanent? How will the changes affect my livestock? How will this impact my future plans for the farm?

How long will the land be tied up in a lease before royalties begin? Although the up-front per acre payment may seem enticing, it pales in comparison to the potential long term income associated with royalty payments should a productive well be drilled.

If landowners feel pressured to sign a lease, they should ask why? They should always make sure the timing and decision works for them. No decision impacting the farm should be made in haste. Landowners are ultimately in charge of when, where, and how gas can be developed.

For more gas leasing information, see American Agriculturist’s July cover story and the resource list on page 5. It can also be found by clicking on this Web site’s “Magazine online” button.

[Via American Agriculturalist]