Landowner Leasing and Royalties

Discover Penn State Extension’s educational resources on oil and gas leases and royalties. Information and advice are available on managing volatility in royalty income, negotiating lease rights-of-way, and understanding legal issues. Access a detailed guide on leasing and royalties, as well as a valuable leasing checklist.

Natural Gas Leasing

The interest in natural gas development in the Marcellus Shale is growing, and many Pennsylvania landowners are faced with the decision of leasing farm energy resources. In general, property owners can lease the right to explore and drill for gas to a qualified company and, in return, receive payment for the lease and royalties for the gas value.

Before making any legally binding decisions, however, make sure to understand the basics of gas leasing in PA and consult a knowledgeable attorney. Penn State Extension’s resources can further help landowners understand legal issues regarding natural gas leases and avoid gas leasing scams.

Landowner Coalitions for Natural Gas Leases

During oil and gas lease negotiations, landowner coalitions can prove helpful in sharing information and gaining collective bargaining power. These coalitions vary in size, scope, and structure and can provide advantages such as receiving greater lease terms.

When deciding whether to join a coalition, note that the landowner coalition model is primarily focused on group needs and may not necessarily be beneficial for owners with specific or unique needs in negotiations.

Learn more about coalition models, membership benefits, and best practices during the Marcellus Shale Landowner Coalitions webinar. Additionally, access the leasing checklist to obtain an overview of items to consider when reviewing oil and gas lease forms. Landowners can further benefit from resources on residential property values near shale development and pipeline rights of way negotiations in PA.

Expiring Gas Leases

Oil and gas leases can be written for different time frames, but most commonly with a three-, five-, or ten-year primary term. The primary term refers to the time period during which a lease is in effect, in the absence of specified operations such as production and drilling.

The gas lease may be renewed or extended into a secondary term according to the existing terms. Other possible options for expiring leases involve the gas company allowing the lease to expire without offering other leasing opportunities or allowing it to expire and then offering less favorable terms.

Whether the company decides to commence operations or let the lease lapse, it’s crucial to be aware of the different legal documentation requirements. If the lease does not get extended or renewed, the property owners should receive a ‘Release of Lease’ document. The signed and notarized document should be taken to the County Recorder of Deeds to verify the retention of gas rights.

Landowner Gas Royalties

A gas lease offer typically covers different types of payments, including oil and gas royalties. Royalty payments are paid by the company when natural gas is extracted from the leased land.

In Pennsylvania, landowners are entitled by law to at least 12.5% of all natural gas removed from the property. It is also worth noting that in cases where multiple tracts of land are included in a drilling unit, property owners will receive royalties based on their acres in the unit. To estimate potential royalties from natural gas production, factors such as initial well production and decline rates must be considered.

In this section, find comprehensive resources on topics such as managing volatility in gas royalty income, as well as understanding the tax laws and responsibilities regarding oil and gas leases. Valuable information on reading gas royalty checks is available, as well.