A gas company wants me to sign an amendment to an old lease! I own the surface and the minerals. Should I sign it?
This article is only for people who own both the surface and all or part of the minerals of a tract of property.
(If you only own the minerals and not the surface, and if you are approached to sign an amendment to an old lease, then you will have fewer or perhaps different considerations in deciding whether to sign the amendment. Signing the amendment is a very important step. You should consult a lawyer or other resource before signing the amendment they send you or some modified version of it. This web page is NOT prepared for you.)
Even though you own the surface and the minerals, it may be that one of the previous owners signed a lease to an oil or gas company many years ago. Even though the lease was signed many years ago, the lease may still be in effect if a gas well or wells are still producing oil and gas from your tract. That is called "held by production". (If you are still receiving significant royalty checks, that will be true. Some smaller checks you may receiving may be "shut in" checks, and despite those checks you may be able to establish that the lease is over and make them give you a brand new lease with a signing bonus and a better royalty. That does not happen very often. Start investigating by finding out how much production is occurring from the wells on your land. Ask the entity paying you the royalty the "API" numbers of the wells and go to the State Office of Oil and Gas website and look for the wells under "data" to see what production the company is reporting.)
Even if an old lease is still in effect, modern horizontal gas well drilling techniques almost always require “pooling and unitization” in order to drill the new horizontal gas wells (the ones that use large volumes of frac water). In order for your tract to be “unitized” with other mineral tracts for the drilling of one of these wells, the lease has to have a “pooling and unitization” provision in it. Many old leases do not have these provisions. If the current lease for your property does not have a “pooling and unitization” provision, the current owner of the lease will want an “amendment” to the old lease so they can drill one of these wells.
These new horizontal wells using large volumes of water for frac jobs are a huge intrusion on your surface. The well site is much larger, and the time the driller is there is very much longer, and the traffic to and from is vastly greater. Right now it is the position of WVSORO that the driller cannot put one of these sites on your surface to drain neighboring mineral tracts without your permission. That is good. However, if there is already a lease for your property, and if the lease contains a pooling and unitization provision, then that provision would allow one of these new sites to be placed on your surface.
So if you do not want one of these sites on you, do not sign the amendment that would add a “pooling and unitization” provision to the lease.
There is a tradeoff of course. The landman will say that by refusing to sign his amendment with a “pooling and unitization” amendment, you will be giving up the receipt of substantial royalties. It is true that if you refuse to sign, you will be giving up the right to receive royalties IF they actually drill a well. Also if you do not sign they might also drill a horizontal well bore very near your property and drain gas out from under at least the edges of your property. So it is your decision. If you decide you are willing to risk having one of these new well sites on you in order to get the royalties, then you should see a lawyer first to advise you on exactly what language in the amendment you should agree to and what you should not.
Sometimes you may be able to hold off signing and still have a well drilled to your minerals, but without using your property. This may be unusual because most of the time when they come to you with these amendments the companies have not yet decided exactly where they want to put their horizontal well sites. They are just trying to get amendments to all of their old leases to give themselves lots of options. So they will not agree to this, in which case you should sign or not sign as explained above.
However, if when the landman comes to you the company already knows where they want to put their well site, and if it was not on you (if they were just going to drill horizontally from another surface tract and then underneath you in order to drill into your minerals), then they might be willing to agree to an amendment with a “no surface use” provision. A “no surface use” provision would mean that they could still “unitize” your minerals, but they would not put the well site on you! You would probably like that because you would still get royalties if they drill the well, but you would not have a well site on you. (But there might be a well site near you, on a neighbor, and you still might not like that.) But we expect that will be the except rather than the rule.
Still, if you know that you do not want to risk a well site on you, no matter what chance for a royalty you might be giving up, then you should just tell the landman that you will only sign an amendment with a “pooling and unitization” provision, if it also has a “no surface use” provision. Tell him he should come back to you when they know where the well sites will be, if they do not need a well site on you.
Be aware that by refusing to sign the amendment now could also mean that they will never try to drill a well to your minerals. Instead they may go drill in places where they already have everyone's amendments signed, or they will be content to drill close to you and perhaps drain at least the edges of your property.
The ultimate choice of whether to sign the amendment or not is yours to weigh the risks and rewards that are important to you. And unfortunately the future is hard to predict.