Shale Leasing: Gushing in deals

By Karl Henkel | December 26, 2011 at 12:05a.m.

Standard Lease Agreements

Attorney Alan Wenger of Harrington, Hoppe, & Mitchell explains the shortcomings of standard lease agreements.

YOUNGSTOWN

After settling in Columbiana County for most of 2011, the oil-and gas-leasing binge now is in full swing throughout the Mahoning Valley.

The land rush is happening almost everywhere.

Hundreds already have signed leases in Boardman, Poland, Austintown and Canfield.

With that binge comes the prospect of big paydays for area landowners.

But before a landowner signs on the dotted line, knowledge is necessary to protect the property and legal rights of landowners.

“It’s a huge decision that can have a lot of ramifications for generations to come,” said Alan Wenger, an attorney with the Youngstown law firm Harrington, Hoppe & Mitchell.

This land rush is different from those of the past. New horizontal drilling allows for exploration under lakes, subdivisions, golf courses, malls and other high-traffic areas.

The monetary terms, which in the Valley have ranged at or north of $2,250 per acre in one-time bonus payments, clearly is at the forefront of landowners’ minds.

But the bigger financial gain could come years down the road — most leases are five years in length with a three-year renewal — from the production of natural gas and oil, should drilling actually take place on a specific property, which is no guarantee.

It’s that aspect, plus the potential environmental hazards and the post-lease signing ramifications, that are ignored by many landowners but are some of the most important, Wenger said.

In fact, many landowners believe that if they don’t accept an offer the day it is presented by a landman, they’ll lose out on thousands of dollars of monetary benefit.

Landmen negotiate deals and trades with other companies and individuals, draft contracts (and administer their compliance), acquire leases and ensure compliance with governmental regulations.

“The landowner has options to sign the lease as given to him or her or they can take the lease, talk to consultants, consider it and try to make a prudent decision whether to lease or not,” Wenger said. “But they should never sign a lease that is given to them without a lot of consideration.”

Wenger said that landmen often present “standard leases,” which are formulated by drilling companies or their subsidiaries and often don’t favor a landowner.

They often don’t stipulate maximum-unit sizes, water-contamination clauses and property-usage provisions, all of which could surprise a landowner months or years down the road.

Ohio Attorney General Mike DeWine is investigating a notebook found by Southwest Ohio residents detailing how landmen can deceive landowners into signing leases.

Thousands of leases have been inked so far in the three-county area, but the leasing action is far from over.

Sean Moran, co-chairman of the energy section and oil and gas practice at the law firm of Buchanan Ingersoll & Rooney PC in Pennsylvania, said that Ohio’s drilling frenzy appears to be following a similar course to Pennsylvania’s.

“The dynamics are very similar,” he said. “My guess is that it will happen more rapidly on a number of levels because people had a front-row seat to what happened in Pennsylvania.”