For years, I have been reviewing oil and gas lease submitted to landowners. Some times before the lease is signed and sometimes after the lease is already signed and problems have occurred. Unfortunately, my review as an attorney, after the lease is signed is only good as a confirmation of the bad deal a landowner has made. My advice is don’t sign an oil and gas lease without consulting an attorney. The cost is not cheap, ranging usually from $300 to $500, and it can be more since reviews are done on an hourly basis. A bad deal can cost the landowner tens of thousands of dollar, and with the Marcellus and Utica drilling this cost could multiply. Simply consider prior to Marcellus and Utica leases, oil and gas leases in Southeastern Ohio were going for $5 to $10 per acre for the signing, with a delay rental in the same amount, and a 1/8th royalty if a production well was drilled.

A landowner had my office review an oil and gas lease recently. This oil and gas lease is the worst lease I have ever seen from a landowner’s perspective. Here is what the lease said:

1. Title: Oil and Gas Lease (PAID-UP). Paid-up means there is no annual delay rental.
2. Lease amount. $10. THAT’S IS; not even $10 per acre, and this amount would be very low considering Marcellus and Utica leases are going at $2,500 per acre and up. Very old leases prior to Marcellus and Utica were going between $5 per acre to $10 per acre.
3. The lease was exclusive meaning it belongs only to leasing company.
4. Right was given to do vertical and horizontal operations meaning lease included traditional exploration and the new Marcellus and Utica drilling.
5. Landowner’s property could be used for storage.
6. Right was given to construct pipelines, telephone lines power and electric lines, tanks, roadways, plants, equipment, and structures on land without further compensation.
7. Five year lease without delay rental, and for as much long as exploration continues OR PROPERTY IS BEING USED FOR STORAGE.
8. If there is a producing well, Oil and Gas Company can elect instead of paying the 1/8th royalty to sell the landowner’s gas or oil and then subtract costs like gathering, treating, processing, blending, marketing, compression, dehydration, transportation, removal of liquid or gaseous substances, and/or removal of impurities of or from the affected oil and gas, and costs of any activities associated with making the oil and gas ready for movement, sale or use. You can just imagine what net royalty the landowner would receive.
9. If property is used for storage a fee of $5 per acre would be paid in lieu of delay rental or any other fees.
10. If a dry hole is drilled, no delay rental.
11. If a producing well is shut-in, no royalty is paid and only $10 per acre per net royalty acre is paid to keep the lease in effect.
12. Landowner’s property can be pooled with other property.
13. Oil and Gas Company can use water for production for landowner’s property.
14. Landowner must guarantee ownership of oil and gas rights to property; usually a mineral title search is done by Oil and Gas Company. This type of title search can cost thousands of dollars since it is hard to do and usually done on an hourly basis.
15. Landowner warrants that title is clear and will defend Oil and Gas Company from claims against the mineral interest. Could be very expensive for landowner.
16. Oil and Gas Company has right to construct pipeline on property without compensation. This is usually a separate agreement with separate compensation.
17. Oil and Gas Company gets a right of first refusal on Landowner’s property.

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