Question 1

Should I sign this oil and gas lease?

Accepted Answer

Before signing any oil and gas lease, you should absolutely consult with an experienced attorney. Oil and gas companies employ teams of lawyers and landmen whose job is to acquire your mineral rights at the lowest possible cost. The lease document they present is drafted entirely in the company's favor. Many landowners sign leases without understanding the long-term implications, only to discover later that they've given away valuable rights for far less than they were worth. At Smith Butz, we have negotiated hundreds of oil and gas leases in Western Pennsylvania and understand every provision, clause, and potential pitfall. Your strongest negotiating power exists before you sign. We can review the proposed lease, identify problematic provisions, negotiate better terms for royalties, bonus payments, surface protections, and lease duration, and ensure the final agreement protects your rights and your property for decades to come.

Question 2

What are my rights as a surface owner in Pennsylvania?

Accepted Answer

In Pennsylvania, the relationship between surface owners and mineral rights holders is governed by a complex body of law. If you own the surface but someone else owns the mineral rights beneath your property, the mineral rights holder generally has the right to use a reasonable portion of the surface to access and extract their minerals. However, this right is not unlimited. Pennsylvania courts have established that mineral rights holders must exercise their rights in a manner that is reasonable and minimizes damage to the surface. As a surface owner, you have the right to negotiate terms that limit the impact of drilling operations, and potentially the right to challenge unreasonable uses of your surface. At Smith Butz, we specialize in protecting surface owners' rights and have extensive experience negotiating agreements that clearly define what drilling companies can and cannot do on your land.

Question 3

How do I negotiate better lease terms?

Accepted Answer

Negotiating better oil and gas lease terms begins with understanding what you have—and what the company wants. Key areas for negotiation include: royalty rates, bonus payments (the upfront payment for signing), lease duration and extension clauses (shorter primary terms with clear expiration dates are better for landowners), surface use restrictions (limiting where equipment can be placed, road construction, and water usage), environmental protections (requirements for proper waste disposal, water testing, and spill remediation), and shut-in clauses (what happens if the company stops producing). The attorneys at Smith Butz have negotiated hundreds of leases and know exactly which provisions companies will move on and which require more creative solutions. We leverage our deep knowledge of the industry and current market conditions to position you for the strongest possible agreement.

Question 4

What is a royalty payment and how is it calculated?

Accepted Answer

A royalty payment is the compensation you receive from the oil or gas company for the minerals extracted from beneath your property. In Pennsylvania, there is a statutory minimum royalty of 12.5% (one-eighth) for gas, but many landowners negotiate significantly higher rates. Royalties are typically calculated as a percentage of the gross production value—meaning the price the gas or oil sells for at the wellhead or a designated point of sale, multiplied by your royalty percentage, and then divided among all mineral rights holders in the unit or pool. However, the details matter enormously. Many leases contain deduction clauses that allow companies to subtract costs for gathering, compression, transportation, and processing before calculating your royalty. These deductions can dramatically reduce your actual payment. Our attorneys at Smith Butz scrutinize royalty provisions to ensure you receive fair compensation and challenge deductions that violate the terms of your lease.

Question 5

Can I get out of a bad lease agreement?

Accepted Answer

Getting out of a signed oil and gas lease is challenging but not always impossible. Several legal grounds may exist for challenging or terminating a lease, including: failure of the company to produce within the primary term (many leases expire if drilling doesn't begin within a specified period), breach of contract by the lessee (failure to pay royalties, violation of surface protections, environmental contamination, or bad faith unitization), fraud or misrepresentation during the lease signing process, and expiration of the habendum clause if the lease is no longer being held by production. Additionally, some leases contain antiquated or unconscionable terms that may be challenged in court. At Smith Butz, we have worked with companies to assist property owners in obtaining releases from ancient leases, freeing their property to be leased again under better terms. If you believe you're trapped in an unfair lease, contact our office for a thorough review of your agreement and an honest assessment of your options.

Question 6

What should I look for in a lease agreement?

Accepted Answer

Depending on your particular circumstances, a thorough review of any oil and gas lease may focus on several critical provisions: the royalty rate and whether post-production deductions are permitted, the bonus payment amount and payment terms, the primary term length and any automatic extension clauses, the Pugh clause (which prevents the company from holding unleased acreage by production from a single well), surface use restrictions and restoration requirements, water well testing requirements before and after drilling, insurance and indemnification provisions, assignment clauses (whether the company can transfer the lease to another party), environmental compliance requirements, and dispute resolution mechanisms, and warranty clauses. The attorneys at Smith Butz have reviewed thousands of lease provisions and know which clauses are standard, which are problematic, and which can be improved through negotiation. We provide a detailed analysis of every provision in your proposed lease before you sign.

Question 7

How long do oil and gas leases last?

Accepted Answer

Oil and gas leases in Pennsylvania typically have two phases: the primary term and the secondary term. The primary term is the initial period during which the company must begin drilling operations, usually ranging from three to five years. Once production begins, the lease enters the secondary term, which can continue for 'as long thereafter as oil or gas is produced' from the leased premises. This means a productive lease could theoretically last for decades. Some leases also contain 'extension' or 'renewal' clauses that allow the company to extend the primary term by making additional payments. It is critical to negotiate reasonable primary terms, clear expiration provisions, and Pugh clauses that prevent companies from holding your entire property based on production from a single well on one small portion of your land.

Question 8

What happens to my property during drilling?

Accepted Answer

Drilling operations can significantly impact your property. Activities typically include: construction of access roads and well pads (which can disturb several acres), heavy truck traffic during the drilling and fracking process, noise from drilling equipment operating 24/7 during active drilling (which may last several weeks to months), water usage for hydraulic fracturing operations, temporary storage of drilling fluids and chemicals on site, and pipeline construction for gathering and transporting produced gas. Without proper lease protections, companies may have broad discretion in where and how they conduct these activities. At Smith Butz, we negotiate comprehensive surface protection provisions that limit the location of well pads and roads, require advance notice before activities begin, mandate water well testing before and after drilling, specify restoration and reclamation standards, and include financial protections for crop damage, timber loss, and disruption of use. Our goal is to ensure that if drilling occurs on your property, the impact is minimized and fully compensated.

Oil, Gas & Coal Rights

Protecting Landowners Across Western Pennsylvania

Your Strongest Position Is Before You Sign

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