Owning property in Pennsylvania means you may receive offers from energy companies interested in leasing your mineral rights. Natural gas development has been active in the region for over fifteen years, and landowners continue to receive lease proposals as companies expand their operations. Handling these offers properly protects your interests while allowing you to benefit from the resources beneath your land.
What a Gas Lease Means for Landowners
A gas lease grants an energy company the right to explore for and extract natural gas from your property. In exchange, you receive a signing bonus paid upfront and royalty payments based on production if a well is drilled and produces gas.
The lease is a legal contract that binds you and the company for years, sometimes decades. Once signed, the terms cannot be changed without both parties agreeing. This makes reviewing the lease carefully before signing extremely important.
Many landowners assume the lease presented by the company is standard and cannot be modified. This is not true. Nearly every provision in a gas lease can be negotiated. Companies expect negotiation and often include terms that favor them heavily, knowing that informed landowners will push back.
Key Terms Every Landowner Should Know
Bonus Payment
The bonus is the per acre payment you receive when signing the lease. Amounts vary based on location, market conditions, and how much the company wants your particular property. In active drilling areas, bonuses can reach several thousand dollars per acre. In areas with less activity, they may be much lower.
Research what other landowners in your area have received before accepting an offer. Talking with neighbors, checking public records, and consulting with an attorney can help you understand fair market value.
Royalty Rate
Pennsylvania law guarantees landowners a minimum royalty of 12.5 percent of production. However, many landowners negotiate higher rates, sometimes reaching 18 or 20 percent in active areas.
How the royalty is calculated matters as much as the rate itself. Some leases allow the company to deduct costs for transporting, processing, and compressing the gas before calculating your royalty. A gross royalty provision ensures you receive your percentage based on the full value at the wellhead without deductions.
Primary Term & Extensions
The primary term is the initial period during which the company must drill or the lease expires. This typically ranges from three to five years. Shorter terms give you more flexibility if the company does not act.
Some leases allow the company to extend the primary term by paying additional bonuses. Others include provisions that hold the lease by production once a well begins producing, meaning the lease continues indefinitely as long as production continues.
Protecting Your Surface Rights
While the lease focuses on minerals beneath the surface, drilling operations affect the surface of your property. Roads must be built, well pads constructed, and pipelines installed. The lease should address how these activities will be conducted and what compensation you will receive.
Consider negotiating setback requirements that keep wells and equipment certain distances from your home, barns, water wells, and other structures. Surface damage payments can compensate you for disruption during drilling. Restoration provisions require the company to return your land to usable condition after operations end.
Water Testing & Protection
Drilling operations can affect groundwater if not conducted properly. Your lease should require the company to test your water before drilling begins and periodically afterward. This creates a baseline that protects you if contamination occurs.
Pennsylvania regulations already require some water testing, but your lease can specify additional requirements. Protecting your water supply is one of the most important considerations for rural landowners.
Working With Professionals
Gas leases involve significant money and long term commitments. Having professionals review any offer before you sign is strongly recommended.
An attorney experienced in oil and gas law can identify problematic provisions, suggest modifications, and negotiate on your behalf. The cost of legal review is small compared to the value of a well drafted lease. Law firms like Kostrub Law Firm, PLLC in Pittsburgh have worked with landowners throughout Western Pennsylvania on mineral rights matters, helping them understand their options and negotiate fair terms.
A landman or lease consultant can also provide valuable assistance. These professionals understand industry practices and current market terms. Some work independently while others are employed by companies representing landowner groups.
Common Mistakes to Avoid
Signing too quickly is the most common mistake landowners make. Companies sometimes pressure landowners by claiming an offer will expire or that neighbors have already signed. Take your time, ask questions, and do not sign anything until you fully understand the terms.
Failing to read the entire lease leads to surprises later. Provisions buried in dense legal language can significantly affect your rights. Having a professional explain each section helps you understand what you are agreeing to.
Not considering future plans can create problems. If you intend to sell your property, subdivide it, or pass it to heirs, the lease terms will affect those transactions. A lease that seems acceptable today may complicate your plans years from now.
Making an Informed Decision
Leasing your mineral rights can provide significant income with relatively little effort on your part. However, the decision deserves careful consideration. Knowing what you are giving up, what you will receive in return, and how the lease will affect your property helps you make a choice that serves your long term interests.
Taking the time to educate yourself, consult with professionals, and negotiate fair terms puts you in the best position to benefit from the resources beneath your land while protecting what is on the surface.
