Drilling to Hold Cheap Leases Pits Mineral Owner vs. Operator

by Kenneth E. DuBose on July 25, 2011

Leases signed early in the boom of every play don’t get the signing bonus or lease bonus of those who wait it out.  And then again, those that wait it out sometimes don’t get anything….. Oil & gas companies are now pitted against expiring leases that might force them to pay thousands of dollars more per acre than the initial lease agreement. That mean lots of money at stake for the operators and for mineral owners. It will be important to follow the news to see how many of the court cases end up. For those that leased early, it means the difference in another pay day or not.

As landowners in Ohio and New York prepare for their own round of Marcellus leasing, high-stakes battles are developing in law offices and courtrooms throughout Pennsylvania. Landowners who signed early for pittances are trying to get out of their leases, and gas companies are trying just as hard to keep them shackled to the original terms.

“There’s just too much money at stake – between a $3 lease and a $7,500 lease – for the operators to walk away from,” said Robert Jones, an attorney in Endicott, N.Y., who represented a group of landowners who sued successfully in federal court to shed their old leases. “They’re desperate to hold on to them like the landowners are desperate to get rid of them.”

Often, that means energy companies are drilling not to produce natural gas, at least not right away, but to extend their cheap leases indefinitely. It’s called holding land by production. So long as the driller has sunk a well capable of producing gas, or even started preparations to drill a well, the original lease terms remain in force.

Read the full news release at star-telegram.com

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