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August 3, 2013

New law changes rules for gas, oil leases

HARRISBURG — A bill signed into law by Gov. Tom Corbett makes it easier for natural gas companies to merge drilling leases from old conventional drilling deals to allow for fracking under the same properties.

A gas company used the new law last week to sue 70 Allegheny County property owners in an effort to gain the right to frack under their properties without renegotiating.

In the lawsuit, EQT Corp. argues that some of those property owners in Monongahela have been trying to force the gas company to renegotiate their old drilling leases before they allow fracking. The gas company alleges that the group is violating the law by preventing EQT from fracking under the terms of the old leases.

The issue hits hardest in southwestern Pennsylvania, where many people have old gas and oil wells on their property, said Dale Tice, a Williamsport lawyer specializing in gas drilling law.

In most cases, those leases lack language indicating whether gas companies can add the property to a “pool” of properties that are combined.

The absence of that language “creates an opportunity for negotiation,” Tice said.

Landowners can demand new bonus payments, better royalty payments or additional protections.

At least they could until Senate Bill 259 was signed into law.

The legislation includes language specifying that gas companies can merge neighboring properties with existing gas and oil leases “unless expressly prohibited by lease.”

Under the law, gas companies are allowed to interpret silence as permission to go ahead and merge the leases.

“It cuts the legs right out from underneath property owners,” said Paul Yagelski, a lawyer in Pittsburgh who specializes in gas law.

Tice said that the National Association of Royalty Owners, of which he is a board member, has learned of a landowner who said that a gas company had offered a $120,000 bonus to add the pooling language. The gas company yanked the offer after the new law was passed.

State Rep. Jaret Gibbons, D-Law­rence, said there was open debate about the pooling language in the House Environmental Resources and Energy Committee, on which he serves.

The bill was approved by the committee and then the House passed its version of the bill unanimously.

Gibbons said the law deals only with properties that already have leases allowing conventional drilling.

 “It’s a different kind of drilling,” said state Rep. Michele Brooks, R-Crawford. “Property owners should have the opportunity to renegotiate.”

For landowners, the difference can be substantial, said Brian Pitzer, a member of the Northwest Pennsylvania Landowners Association, which formed to educate property owners who are negotiating with gas companies.

The initial lease offer might include a bonus payment of $50 an acre, he said. Now, some landowners have gotten bonus payments of $1,000 an acre.

He said 185 people showed up at a special meeting to discuss the new law.

Making it easier for gas companies to frack underneath the affected properties is that the procedure is arguably environmentally friendly because it will allow the companies to get the gas with less activity above the ground, said lawmakers who supported the bill.

“All leases must be held by the same company, and that company could drill a separate well on each property under its existing leases,” said Sen. Gene Yaw, R-Lycoming.

 

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