Gas Leases

This story comes from The Daily Citizen and outlines the results of not getting professional advice when dealing with leasing your land for gas:

Kathryn Hastings of Plainview regrets not exempting her best property from the mineral rights lease she signed with Chesapeake Energy four years ago. As a result, she gave the natural gas giant permission to locate a well anywhere it wanted and that’s just what is happening.

Located near Highway 13 and Hastings Road next to the old missile base, the property is already the site of three two-acre lots and seven one-acre lots sold in 1977. In the 1980s, Hastings planned to use the adjoining seven acres for two 1.5-acre lots and four one-acre lots. That plan has been scuttled now that Chesapeake has notified her it plans to build two natural gas wells on one pad there.

“They say they’re only taking 3.5 acres,” Hastings said. “As far as I’m concerned, that will be a washout. They’re going to ruin the whole seven acres.”
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When Hastings signed the lease, she had the right to exempt any property, and Chesapeake also had the right to not sign the lease if property upon which they wanted to build was exempted.

“I did it because I was ignorant,” Hastings said. ‘I’ve lived out there for 50 years and gas companies came by and paid $1 an acre. When they came by and offered me $50 an acre I took it.”

Hastings leased 79 acres for $50 an acre up-front money, receiving $3,950, and 1/16 royalty. She did not consult an attorney at the time she signed her lease.

“I did not. I didn’t think I needed to,” Hastings said. “I’ve beat myself up over this for a long time. But I’m not the only one that did it. Somebody should have told me.”

Hastings said the land, which fronts the highway and has city water, could have sold for as much as $100,000 if a well is not drilled there. The property is 3.5 miles from the county seat in Searcy and less than five minutes from Highway 67/167, which is a freeway. Hastings said she did not plat the seven acres for lots because her property taxes would have gone up on the land.

“They’ve threatened me with imminent domain and the whole nine yards,” Hastings said. “They offered me $12,000 in surface damages.’

A Chesapeake representative issued a statement on the issue.

“We advise anyone who is presented with a lease agreement to read it carefully and understand it completely before signing,” said Mark Raines, Chesapeake spokesman. “Our team of geologists work with the best, most complete data available to determine exactly where our crews should build a pad and drill in order to have a productive well. We communicate with landowners which sites have been selected and they are well aware early in the process of our intentions.”

Property and business lawyer Steve Jordan said the great majority of landowners in the Fayetteville Shale Play signed mineral leases without legal advice.

“Many times the leases were presented as ‘standard forms,’ but they are not really standard forms at all,” Jordan said. “They are simply the company’s form drafted by its lawyers to favor, protect and maximize the rights of the company and minimize the rights of the land owner.”

In reality, everything in a lease is up for negotiation, Jordan said.

“I have negotiated many, many leases and found that the gas companies readily concede many points,” Jordan said.

Mineral rights leases are much more a sale of minerals than an actual lease, Jordan said.

“The company lease forms give the gas companies virtually unrestricted rights to come upon the land and explore, build roads, drill and extract,” Jordan said. “They give the gas companies rights to the surface that are paramount to the landowner’s rights to the surface. A gas lease can ruin property for development purposes. It is very dirty business and they can do a great deal of damage to your property.”

Jordan recommends property owners never sign a mineral rights lease without good legal counsel.

“If your land is in the right place, the fact is that you have real bargaining power,” Jordan said. “You don’t have to sign a lease at all, and don’t feel threatened by the integration process. There are options there that protect landowners.”

While most property owners in White County have already signed leases, the building of pipelines brings some of the same issues to bear. Jordan said standard form pipeline easement agreements should not be signed.

“At this stage we are seeing more pipeline easement activity than gas leasing, and a great deal is negotiable here as well,” Jordan said. “For example, the easement shouldn’t last forever, but only as long as gas is produced.”

[Via The Daily Citizen]