Will There Be A Well In My Front Yard - Part 2

Natural gas wells, both conventional and unconventional (e.g.Marcellus Shale) are a matter of interest and concern to both sellers and buyers of property in many areas of the US.  Here in Western PA the public interest in such things has been peaking as more and more Marcellus well sites are leased and drilling sites are put into operation.

If you are a buyer of property in either an develpment plan, or in an urban area, the concerns are basically moot.  But if you are looking to buy a few acres for that private estate of your dreams, the concerns may very well be real. 

In this Part 2 Blog, we will look quickly at the issues that are likely to come up if the property you are considering already has a well or two on it.  The issues are rather obvious:

1. Who owns gas rights and are they being transferred with the title?
2. To whom have they been leased?
3. What does the lease say about future drilling and exploration
4. Do the royalties and/or the free gas pass with the title to the land?
5. Will there be a well in my front yard?

The answers to all this lie in two main places - the county courthouse (where deeds, leases, etc are officially recorded) and within the lease itself.  Of course the seller's intentions as to transfer of rights plays heavily here too.  In most cases, the right to pass on the royalties and free gas lie entirely with the seller.  But I would advise asking your attorney to check the actual lease to see whether or not the seller truly does have decision-making rights. 

Assuming the seller does have such rights, the seller may wish to retain the royalties as an ongoing income stream - perhaps as a supplemental retirement income.  This is the more typical situation, however if the seller is willing to allow the royalty rights to transfer, the value of the land in question increases.  However, it is VERY important to ask the seller to provide records of royalty payments.  Not all wells are equal.  If it is a low producing well, or at the end of its life, there may be little additional value added to the land.

If the property is only a part of the seller's holdings, and the seller actually lives on adjacent property, the free gas will likely be retained by the seller for his own purposes.  So while you may get some benefit in terms of future royalties from a new well on what is now your property, the free gas may still go to the original owner.  Again, check the lease agreement.

As to that lovely well in your front yard, you will most definately want to check the lease and contact the leaseholder.  Positioning of the well and its storage tanks is usually defined in the lease so you may have to be careful about choosing your homesite.  Drilling companies will usually work with you on such matters but you would be well advised to make the call to avoid an unpleasant surprise in the future.

Another critical question is whether or not the rights and royalties have been "pooled".  More about that in Part 3.

Very best advice - find an Attorney skilled in dealing with the complex nature of Oil & Gas leases.