Group Questions & Answers

landowner group

– QUESTIONS & ANSWERS ABOUT LANDOWNER LEASE GROUPS –

IS A GROUP RIGHT FOR ME?

The short answer a majority of the time is, “yes!” Unless you own a few thousand acres of contiguous land by yourself, or you need that bonus money right now, or else you will lose your house or farm, a group is probably right for you. If you have neighbors contiguous to your property or in your township who have not leased yet and who are like minded, a group can be right for you. If you like negotiation instead of taking what is offered, a group can be right for you. If you have a little patience and want to try to get the best lease possible, a group is usually right for you. Everyone’s situation is different, but we’ve found that in most cases, working together with professional help works best for landowners.

One of our big goals as attorneys representing landowners in regard to oil and gas lease and contract negotiations is to put our clients in the best possible position to maximize their opportunity to gain financially from their natural resources, and to make sure that drilling has as little impact as possible on their land. What we’ve found in this booming new business of Marcellus and Utica Shale oil and gas contract negotiation is that the gas companies often hold most, if not all, of the cards. We have the knowledge and experience to understand and advise our clients on what should be in a good, landowner-friendly oil and gas agreement, but often times our clients just don’t have the bargaining power by themselves to get terms that are going to be financially and legally beneficial to them and that are going to adequately protect their land and water.

Under most circumstances, landowners can gain more power and negotiating leverage by working together with their neighbors as a “landowner group”. This is not our invention – other groups have been successful in the past with negotiating very landowner friendly contracts in other states and in Eastern Pennsylvania. We, ourselves, have been successful in the past leasing our clients in “groups” – small groups of about 1,000 acres at a time, and over the past 18 months with much larger landowner groups exceeding 10,000 acres. While this is a very new and extermely rare area of representation, Morascyzk and Polochak has answered the call of our clients and has begun to represent larger groups of landowners in various counties in Western Pennsylvania, and has assisted attorneys in Ohio with their large groups of landowners. Overall, Morascyzk and Polochak has helped landowners lease over 100,000 acres of land in Pennsylvania, Ohio and West Virginia in 2011 and 2012.

We’ve found in a very short matter of time that many landowners are willing to work with us and with one another to form groups with the goal of the groups to be to secure the best possible terms in the landowners’ oil and gas lease. These “best terms” encompass many different areas which include top bonus-money and royalty payment, better land use compensation and protections, increased production burdens placed on drillers, and legal liability protections for landowners.

By joining a group, landowners simply make the commitment to work with one another, and the group leaders and the attorneys heading negotiations.  They pledge to stay united while seeing the leasing process through to the end. A successful group negotiation takes patience – it could take several months or more than a year to get a deal done right. It takes fortitude and faith – the gas markets rise and fall, and so do leasing pushes and budgets of the gas companies. It also takes people with similar goals, but we find that most group members are by nature willing to be patient and want to do things the right way. Yes, the money is important to them, but even more so may be how their property is used and impacted by oil and gas drilling. No oil and gas agreement is ever perfect, but our philosophy is that a better agreement can be had by landowners by working together with their neighbors.

If you think a group may be right for you, please read the brief descriptions of our current landowner groups listed below. Each group has its own webpage on our site, some of which are password protected for confidentiality purposes. If you would like to join a group or are interested in starting your own landowner group, please call us at (412) 564-5695.

 

WHY DO I NEED A BETTER GAS LEASE?  The old saying in Texas is “Sell the land, but keep the oil and gas.” This is because Texans appreciate the financial value, scarcity, and power of oil and gas rights. Pennsylvanians are only recently discovering that oil and gas has this great financial value, and like any valuable asset, oil and gas needs to be managed carefully. Folks need to know that an oil and gas lease is a contract that while signed today, can remain in effect for 1 year, 5 years, 100 years, or longer. Believe it or not, that one contract signed today can bind the current landowner, their children, grandchildren, and great-grandchildren in the future. That is why it is very important to negotiate the best lease that you can and maximize the value of your oil and gas right now while you have the opportunity. We feel that in most cases, using a group negotiating strategy can help to attain this goal.

 

HOW DOES THE GROUP LEASING PROCESS WORK? Similar to a labor union, a leasing group is a coalition of landowners who pledge to negotiate the leasing of their acreage together as part of a large package deal. This is commonly referred to as “collective bargaining”. The oil and gas leasing industry centers around drillers acquiring large tracts of land in certain geographic areas. For Marcellus and Utica shale drilling technology, drillers look to lease hundreds or even thousands of adjoining (or “contiguous”) acres together in order to form “drilling units” before they can begin to operate. Traditionally, drillers have preferred to go door-to-door in order to bring acreage into their units one lot at a time in a “divide and conquer” type strategy, attempting to essentially to form local leasing monopolies and eliminate leasing competition. In a group leasing effort, the landowners put together their own units and use the leverage of collectively bargaining their acreage to many companies, increasing competition. Instead of everyone negotiating on their own with little negotiating leverage and competition among drillers as an individual, they become part of a large, united, highly desirable block of land, which creates competition and leverage, big advantages when negotiating lease price and terms.

 

DO I HAVE TO SHARE MY OIL AND GAS PROFITS WITH OTHER LANDOWNERS IN THE GROUP?  The answer is no. The idea of a group is that each individual landowner will end up with a similar or identical lease contract, which is a better lease contract than what they could have negotiated as individuals. Landowners are united in negotiating to get the lease that they want, but that unity ends when the leases are all signed. While the leases are all similar or identical, they all apply only as to the individual landowner’s property. So if you have 100 acres, the “group lease” that you sign applies directly to your 100 acres. You get paid bonus and royalties based on your acreage, and your royalty payment depends on when and how your acreage is developed and oil and gas is produced. While you may have the same “group lease” that all group members obtained through the leasing process – the same lease as another group member in another township 10 miles away – you are only affected by how your own property is developed after signing the lease, and not by how any other property in the group is developed.

 

WHAT IS A FAMILY PARTNERSHIP AND WHY DO MY NEIGHBORS HAVE ONE?  

This is a common question with landowners who recently were drilled or are about to be drilled. A family limited partnership can be an ideal method for clients to gift assets during life and avoid inheritance taxes as part of a broader estate plan. In most FLPs, the owners of assets, for many of our clients the assets of the FLP include oil and gas interests, will assign those assets to the FLP. The FLP is usually controlled by the same people who controlled the gas interests before the transfer, often Mom & Dad. These people are known as general partners and control the day to day operations of the FLP. The other members, often children and grandchildren, are limited partners. Each year, the FLP can be set up to make pre-determined distributions in a tax-free amount as gifts. The FLP also gains interest on the amount it is funded with. The interest paid on the principal investment in the FLP is enough to cover the gifts made in that year, especially in highly capitalized FLPs such as large land estates comprised of many acres or large estates of significant assets. Of course, whether an FLP is the right vehicle for you and your family is a much more complex decision than what is presented above and tax consequences and benefits depend on individual circumstances. We encourage you and your family to consult with our offices so that we can determine the right estate planning that you need based on your own particular circumstances.

 

IF I SIGN A GAS LEASE, WHEN IS THE BEST TIME TO UPDATE MY ESTATE PLAN?                            

A client recently called and asked me this question. The answer I usually give is anytime you acquire a significant new asset, beneficiaries change or new beneficiaries are born or need to be added. While these events are always a good reason to re-examine and update your estate plan, they are not the only reasons. Many in the Western Appalachian Basin are included in the shale exploration and development boom. At some point, hopefully soon, this will result in drilling and royalties on your properties. Before this occurs or as soon as possible check to make sure that your will and trusts reflect how the royalties are to be distributed. Remember, royalties are not included as part of your surface lands and are treated as a separate asset. This was less important a few years ago before the valuation of mineral rights became so critical. Additionally, many clients are surprised how much has changed since they last looked at their plan and many clients no longer can find their wills, if they have created those documents at all. We ensure that these assets are distributed according to your wishes and that all facets of your estate plan, including living wills, powers of attorney, trusts, partnerships, businesses and investments are protected, adhered to and distributed. We look forward to the honor of serving you in your oil & gas estate planning needs.

BEING APPROACHED FOR SEISMIC TESTING OR PIPELINE RIGHT OF WAY?    

Landowners are currently being flooded with solicitations for either seismic testing or pipeline right-of-way easements from a multitude of industry players.  Thankfully, the offices of Morascyzk & Polochak are well-versed in the negotiation and legal advisement regarding these complex agreements on behalf of landowners. Seismic testing is a necessary component of the oil and gas industry, as it helps provide informative data for E&P companies to better make choices with regard to well-site placement and other surface installations.  Although it is less invasive than many of the other surface activities that frequently occur within the industry, it should still be viewed as a complex process rife with potential legal issues affecting the surface owner. Even more so than seismic testing, right-of-way easements contain a significant element of surface disruption that must be addressed accordingly via a Surface Use Agreement.  Issues such as set-back provisions, pipeline bury depth, indemnification, and compensation for surface damage present opportunities for landowners to preserve surface protections while maintaining a working partnership with the installing company. If you are being approached for either of these services, please do not hesitate to contact our office at 1-855-PA-SHALE  for assistance. We look forward to continuing to represent landowners through all facets of oil and gas industry development.

DISCLAIMER***Information posted on this website is informational only and does not constitute and is not intented to be legal advice. Personally consult an attorney for legal advice. Morascyzk and Polochak cannot predict the prices of oil and gas lease bonus payments or royalty rates in any geographic location. The issue of what price reflects true “fair market value” at any point in time is for Lessors and Lessees to determine through negotiation.