A number of additional structures, including a pig launcher for cleaning and maintaining pipelines, could be part of a leasing agreement for oil and gas. Photo by Clif Little.

Use care when negotiating oil and gas leases

By Matt Reese

Interest and activity in eastern Ohio’s oil and gas leasing has been picking up again in some new areas.

“Oil and gas have a long history in eastern Ohio dating back nearly 100 years. If you have a farm over here in eastern Ohio, likely you had an oil or gas well on it at some point in the history of that farm,” said Clif Little, Ohio State University Extension educator in Guernsey County. “Around the 2010 timeframe, the Utica-Marcellus craze went through and there was a lot of leasing activity, but most of the development was further east of Interstate-77. Even portions of land here in Noble and Guernsey County weren’t highly sought after. But recently, oil prices have gone up and there’s been renewed interest in leasing in some of these areas.”

Little specializes in beef, sheep, forages, grazing systems, and oil and gas leasing. He is also the author of “Important aspects of an oil and gas lease” at: https://ohioline.osu.edu/factsheet/anr-88. He said the history of oil and gas production in the region has seen both benefits and drawbacks for communities and landowners.

“It can be a blessing and a curse. It seems like today you see a lot more responsible use and development of the resource than perhaps we did early on, so I think it can be more of a blessing,” Little said. “One of the first things you need to find out is if you are leasable. Maybe you’re held by production on an old lease. Maybe you haven’t seen a check for a while, but you’ve still got an encumbrance on your title work at the recorder’s office. The county recorder’s officer is a good place to go and do some research and find out whether you’re leasable or not. Digging into those files will let you know. I’d hate to see somebody negotiate an oil and gas lease when they’re not even leasable. You’ve wasted your time and the company’s time as well, so do a little research first.

“Then I hope, whatever you decide as an individual landowner, you’ll do it wisely to protect your resources the best you can. Landowners learned a lot in the 2010 to 2012 timeframe. If you’re looking at a lease agreement, it’s coming to a landowner purely from a one-sided perspective to begin with — and that is oil and gas company perspective. They’re offering something sometimes that needs to be adjusted and negotiated from landowner standpoint. That process can take months to revise those documents, get them in a format that’s fair to both the developer and the landowner. It really takes a knowledgeable person working with an attorney to do it. So, I think the No. 1 piece of advice is find an attorney.”

There was plenty of opportunity for attorneys to gain valuable experience working with oil and gas leases in recent years to help them better assist landowners in new leases.  

“Attorneys in this region of the state have some experience now that maybe they didn’t during the earlier time frame,” Little said. “Farm Bureau keeps a listing of attorneys that they know of. At OSU Ag Law, at farmoffice.osu.edu, Peggy Hall has a listing of attorneys who have attended her classes. And don’t rule out people in your local community who have used the local attorney and gotten a good deal. That’s a good way to get started. You can learn a lot from word of mouth from people that went through it.”

Personal experience with previous leases can also be very helpful.

“Some farmers have a very long history of experience with oil and gas and they’ve kept good track of the things that have gone wrong and things that have gone right and they’re able to work out a lot of those things and then have their attorney review it before it’s signed,” Little said. “But don’t ever sign anything before you get it reviewed.”

Landowners need to be patient and take the proper time to review all of the details of potential leasing opportunities.

“I don’t want our rural property owners to ever feel pressured — and some of them do. You may be at a point where you need some money and when you’re at that state and you feel afraid, stop, take stock and call an attorney. Don’t feel ever feel pressured to jump into something just because you need a few dollars. Take your time to do it right. You’ll be glad you did,” he said. When you sign an oil gas lease document, it’s likely going to outlive you. That production trickles on for a long time and could be passed on down to smaller producers later on like many of the old Clinton wells have in this area. Once you sign it, you could be giving up a bundle of rights that may not likely come back to you.”

Also, it is important to note that the current “boom” in oil and gas is a much different situation than a decade ago.

This is what a developed well pad could look like. Photo by Clif Little.

“In the 2010 to 2012 timeframe we were bombarded — speculators, investors, oil and gas drilling companies. Today we’re dealing with a few companies looking to lease, so you don’t have the same kind of competition and it’s a different sort of process negotiating,” Little said. “We’ve got a couple of major drillers expanding their leases further to the west, and because of that you can’t get the same prices in most cases that you got back during that time frame in 2010 to 2012. You can’t always expect to get the same kinds of terms and dollar values and there is always quite a range. A year ago, some leases went for $250 an acre to now over $4,000 an acre for oil and gas leases.”

Along with price variability come a wide range of other factors to be considered.

“We’ve got companies coming in trying to determine where that resource is and how to best develop those properties. Some property owners are getting hit up for trespass fees to have those companies come in who then take that data sell it to an oil and gas developer. Then you can have compressor stations, pipelines, pig launchers, perhaps even storage of oil and gas related drilling byproducts or storage for oil and gas itself,” Little said. “All of this comes along with oil and gas leases, so you need to be careful what you negotiate. Initial offers are going to have the rights to put whatever kind of structures companies need, maybe even the right to sell other rights.”

Little also suggests landowners consider working with neighboring landowners in some situations to negotiate better terms and the future land use plans for the farm.

“As we develop a farm, we take time to think about where we’re going to put the finishing barn or maybe where we’re going to put our hay storage or machinery storage. It’s developed over time,” Little said. “So, when we’re talking about oil and gas leases in terms of structures, they can potentially impact those things on the farm. If there is a gathering line, a pipeline or pig launcher, where are those going to be positioned? Can you put a water line across that area for your livestock? Maybe you could negotiate getting some PVC buried at the time of construction so you could drop a line across that pipeline later on for electric. You really have to give some thought to the how all these things will impact the future of that farm.”

By taking a cautious, well-thought-out approach, landowners and communities can continue to enjoy the booms from Ohio’s oil and gas resources and avoid the unfortunate drawbacks of the past.

“We see the economic benefit. We’ve had oil and gas companies generously invest in communities and purchase 4-H and FFA livestock from county fairs. They can be very community-minded,” Little said. “In addition, because of signing bonuses on some of those oil and gas related leases, we’ve had a lot of farms paid for so you’ve got something to inherit. You’ve got something that will attract a young person to go back on and work on the farm. So, yeah, it’s been a blessing economically to our area.”

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