J UNE 9, 2008 H OMEOWNER ’ S O IL AND G AS L EASING W ORKSHOP Center for Coalfield Justice, Mountain Watershed Association, and PennFuture

First Speaker- Dick Ehmann Words of advice: “Don’t believe anything a landsman tells you. His job is to get your signature on the lease as cheaply as possible.” Leases are designed to benefit the company, NOT the landowner. You have to spell out EXACTLY what you want to have happen. If it isn’t in the words of the lease, the company does not have to do it.

Specify which sands you want to lease There are 3 types of sands for drilling – Shallow sands – Trenton black river – Marcellus sands You must specify which sands you are leasing. If not specified, the company can drill for all of them. You can write a different lease for each sand and have 3 sources of royalty income.

PAY CLOSE ATTENTION TO THE FOLLOWING ITEMS IN YOUR LEASE:

Gas storage – A company may try to store gas under your property and not pay you for it. – This item should be addressed in your lease

Access roads – The value of access roads and the length of time they may be in operation is based on: the number of access roads, how large they are, and where they go. – If an access road goes from your property to a well on another property, you need to specify how much money you want to allow this continuing access.

Shut-Ins – Be sure to specify that you do not permit the shutting in of your gas EXCEPT when ordered by an outside legal source for the purpose of maintaining the well. – Companies will sometimes try to shut in your gas to wait for better prices before drilling – You have a right to a percentage of the delay rentals. Make sure this is included in your lease.

Second Speaker: Tom Butz “Virtually EVERYTHING in a lease is negotiable”

Lease owners should be aware that: The company must give the owner at least 1/8 (12.5%) Royalties. 2-5 Years is a typical lease term A lease should include that: A well must produce within a specified amount of time or the land reverts back to the landowner

Terms of Land Reclamation A lease should specify that the site will return to its original condition when operations cease.

THINGS TO REALIZE WHEN NEGOTIATING A LEASE:

Horizontal drilling can affect the water table! The lease should always spell out the means of reparation Be careful with the wording in your lease regarding the cutting of timber for right of ways. It should indicate that timber is to be cut and stacked for commercial processing. OR- A better solution is to have your trees cut by a mill and removed BEFORE the well is put in.

Smaller acreage land owners (20-30 acres) should form groups with neighboring landowners to negotiate a lease. Storage and Easement details should be addressed in the lease. Finally, the lease should always include an indemnity clause to make sure the company is legally responsible for accidents on the landowner’s property.

Third Speaker- Harry F. Klodowski

There are Four ways to make money with a lease – Bonus Payment – Make sure that you’re getting that money every year of the lease, not a one time payment – Delay Rental – Be careful of the language on the length of time that a company may want to have rights to your property. Spell out when you expect the well to be drilled and when the lease runs out. Remember, the company wants your land forever. – Shut-in Royalty – The amount you get when the well is not producing. Remember that 12.5% is the legal minimum royalty payment. However you can negotiate for more. Be sure to specify the desired gross amount rather than the net amount. – Actual Royalty on Gas Produced

Make sure you know what your lease is worth Everything in the gas business is variable; some wells hit and produce while others produce poorly or not at all. Shallow sands wells generally cost hundreds of thousands of dollars. A deep well can cost 2-3 million.

Spell out how far from your house you want the compressor station – PA law specifies that a compressor can be no closer than 200 feet from a house, but you can tell them how much further you want the compressor to be placed. – If you don’t specify a further distance, they have the right to place a compressor as close as 200 feet from your house. – Give advanced written permission as to where the company can place their compressors

Every well must keep a log and it is submitted to the DEP. This is PUBLIC information. – You can track how deep they are drilling by the footage of pipe they log. – You can get an indication of how the well is producing by viewing the company’s security files to find out how far they drilled, and if they are still producing. – Shallow wells need acres for a field; deep wells need at least 400 acres

For more information on these issues, please contact the Center for Coalfield Justice: E. Chestnut St., Washington, PA