Exploring the Prospect of Renting Out Your Property for Shale Gas Extraction Projects
If you're a landowner in Ohio considering leasing your property for shale gas development, it's crucial to understand the legal steps and important considerations involved. This guide will help you navigate the process, focusing on lease terms, payments, regulatory compliance, and more.
Negotiating and Signing an Oil and Gas Lease
The first step is to negotiate and sign an oil and gas lease, which grants a company specific rights to explore and produce minerals like shale gas. The lease should clearly specify the minerals included, depth limitations, and any surface use restrictions on your property.
Understanding Lease Terms
Key lease terms to consider include the primary term, royalty clauses, bonus payments, and modern lease additions. The primary term typically lasts 3-5 years during which the company must commence drilling or pay delay rentals, or the lease expires. A fair royalty percentage (usually 12.5% to 25% of production revenue) is vital. Bonus payments can vary significantly, ranging from $10 to over $2,000 per acre. Modern lease additions like Pugh Clauses, depth severance, no-drill zones near sensitive areas, and ESG provisions should be considered to protect your interests.
Regulatory Compliance and Environmental Considerations
Ohio landowners should be aware of regulations from the Ohio Department of Natural Resources (ODNR) and possible local environmental impacts. This includes wastewater management controversies and lawsuits from injection wells, as noted in Ohio shale gas regions. Consulting with legal counsel familiar with Ohio oil and gas law is advisable.
Rights and Liabilities
Lease contracts should clarify your liabilities, surface use rights, and protections. Ohio law provides certain protections to landowners, but leasing for shale gas often involves negotiating terms that minimize risks from drilling operations and environmental impacts.
Consultation with Professionals
Given the complexity, it's crucial to consult oil and gas attorneys and independent landmen to review contracts and negotiate favorable terms.
Additional Considerations
When considering an oil and gas lease, investigate current rates for bonus payments and royalties, the company's reputation, development using horizontal drilling methods, and whether others in your area are leasing. County property records can reveal whether a landowner retained mineral rights, transferred them, or if they were transferred to another party.
If you're subject to a mandatory pooling request, you must receive notice of the request and have a right to testify at the mandatory pooling hearing. If someone else owns the minerals beneath your land, they have a legal right to develop the minerals, even if it interferes with the land's surface, unless agreed otherwise.
Meeting with your attorney, accountant, and financial planner can help determine the tax, estate planning, and financial implications of the lease. If you have a shallow well lease, review the provisions carefully to determine if the deeper minerals are available for leasing.
Protecting Your Interests
If you have concerns about environmental issues related to oil and gas development, learn about horizontal drilling, hydraulic fracturing, and oil and gas regulation in Ohio. Ohio law offers the owner of the land surface an opportunity to force "abandonment" of the mineral rights through the Dormant Minerals Act if the mineral rights beneath your land are inactive.
For more information on the Dormant Minerals Act, see the OSU Extension fact sheet on the topic at [specific website]. A shallow well lease typically covers minerals at a depth of around 3,000 feet and does not include deeper layers like the Marcellus and Utica shale in Ohio.
Seeking Professional Assistance
Professional assistance, such as from educators, attorneys, consultants, accountants, and financial planners, can be extremely valuable when making decisions related to oil and gas leasing. Consider joining or forming a landowner association to leverage land blocks and share resources and costs.
Protecting Your Land
An oil and gas lease might prohibit surface disturbance, or might contain conditions that limit disturbance or require repair or restoration of the surface. An experienced oil and gas attorney can advise on the merits of a situation where there's an old oil and gas lease with no activity or non-compliance with the lease provisions.
Accepting any payments under the lease could affect whether the lease is still in effect or can be terminated. A landowner has the right to say no to an oil and gas lease offer, but Ohio has a mandatory pooling law that allows a developer to force a parcel of land into a drilling unit if the developer has assembled a majority of the unit from willing landowners and there is no feasible alternative for completing the drilling unit.
If you don't want to join a landowner association, have an oil and gas attorney review the proposed lease and develop provisions that address your needs. If you want to enter into a lease, investigate the environmental history of the developer and work with an attorney to insert leasing provisions that address your environmental concerns.
If there's an old oil and gas lease on your land with no activity or the party is not operating according to the lease, the lease might already be void or the landowner might be able to pursue legal options to terminate or forfeit the lease.
Ohio law allows property owners to separate and transfer mineral rights, which can be sold, retained, or split from the land surface.
The first sentence could be: "Understanding finances is essential when negotiating an oil and gas lease, as you must consider factors such as bonus payments, royalty clauses, and potential tax implications, which might be advised by an accountant or financial planner."
The second sentence could be: "Protecting your natural resources is crucial during oil and gas development. This includes understanding regulatory compliance, such as Ohio's mining and drilling regulations, and potentially consulting legal counsel to ensure adequate provisions for environmental protection, surface use restrictions, and lease termination are included in the lease agreement."
