Oil and Gas Lease Expiring?
When oil and gas leases are due to expire, the oil and gas company may commence operations, renew, or let the lease lapse. Landowners need to be aware of what they must do in each case. This video walks the landowner through Pennsylvania legal documentation requirements for several different lease scenarios.
- [Dan] Hi, this is Dan Brockett with Penn State Extension.
Today, I'm going to talk a little bit about oil and gas leases expiring.
Now, unfortunately, this presentation is only for Pennsylvania landowners, as each state has its own peculiar set of laws.
The lessor is the whoever owns the oil and gas rights.
That's probably you.
And the lessee is whoever leased you the oil and gas rights.
One of five things will occur, and we'll expand on these points a little further on in our presentation, but first, the lessee may commence operations.
Secondly, the lessee might renew the lease according to the terms of your lease.
Not all leases, but most have a renewal clause.
Thirdly, the lessee may allow the lease to expire, and then, depending on local market conditions, may offer lesser terms.
Fourth, the lessee may allow the lease to expire, and another company comes along and offers lesser terms.
And lastly, the lessee will allow the lease to expire, and nothing happens.
Some steps you may wish to consider.
First thing, let's check to make sure you're not in your secondary term.
Has the lessee done anything, taken any action that would keep you in your lease agreement such as producing oil and gas in payable quantities, or even things like pad development, permit being filed, and other things?
This is variable and depends on the language in your lease.
Now, after you've ensured yourself that you're not in a secondary term, you may wish to wait for a reasonable amount of time to get that release of lease from the company.
Maybe many of us have circled a date in our calendar and said, "That is the date that our lease runs out." But oftentimes, you won't get a release of lease within a day or even a week.
You might have to wait a month or two.
Unless you anticipate leasing your oil and gas soon or selling your property soon, you can probably afford to wait that 30 to 90 days.
If not, you may contact them sooner, but if you do wait out a reasonable amount of time and still haven't received a release of lease, you may wish to contact the lessee, and you may get best results from the owners tab on their website.
This creates a ticket that needs to be addressed on their end.
Now, if you've contacted them, still haven't received anything, heard any response, try contacting them with more frequency, phone calls, letters, emails.
In some cases, they need an incentive to address this problem.
Lastly, if you still haven't received anything after following all these steps, you can, in Pennsylvania, file your own release of lease.
Now, let's talk about this, is it being held past its primary term?
Most leases are written with a three, five, 10 year primary term.
There's really no law that dictates this.
It's all contract between you and the lessee, but at the end of that, what happens?
Well, most language in the lease allows the least to continue, that was the purpose of leasing.
In most cases, it includes the production of oil and gas, but there are often other activities to hold that lease.
I have that sample language in the bottom.
Might be a little awkward for those of us who aren't an attorney, "Notwithstanding anything to the contrary, "lease shall continue if only one of maybe "a long list of things are satisfied." This example, under lease term extension, it gives several things that could occur that could push that lease into a secondary term.
Here's another example, under this Operations, any number of things, including drilling, but also testing, reworking, recovery, any of those things that would occur in this lease would continue operations.
A release of lease is a formal process for landowners to get that recorded on their deed.
What happens when you look at your deed at the courthouse, there's a date where it's been leased, and if there's nothing after that, a reasonable person might assume that that least is still in effect, and so the state made a law that says, "Not more than 30 days after the termination, "expiration, or cancellation of a lease, "the lessee shall deliver to the lessor, "without cost to the lessor, "a surrender document," okay?
Now, even though that's without cost, oftentimes, you still have to pay to have it recorded.
The release of lease should come to you without any expense, but you might have to pay a modest fee, say 20 or 30 dollars, at the Register and Recorder's office, to get that on your deed.
Now, if the surrender document is not provided as required, the lessor, that's you, may serve notice on the lessee containing some prescribed information, which I'm gonna get to.
On receipt of that notice, the lessee has 30 days to deliver a written challenge to the lessor.
Here's the way that works.
You believe your lease is ended.
You send them a notice that says, "I believe my lease ended on this day." If they dispute that, if they think that you are in a secondary term, they have 30 days to deliver that in writing.
If the lessee fails to challenge that notice, then the lessor, you, may record an affidavit of termination, expiration, or cancellation of that lease.
What's in that affidavit?
All the names and addresses of anyone who's on that lease, the relevant municipality, that would be, most times, township, county name, unit descriptor, well descriptor if there is one there, dates of the lease execution and end, a statement of compliance with Act 152 process, and this thing has to be notarized.
The recorder of deeds has to record that affidavit if it's in compliance with the statute, and the impact of recording an affidavit does not completely, conclusively establish that the lease is no longer valid.
In other words, maybe someone'll come back and challenge that, but it should make it easier to negotiate a new lease, and make it apparent to a potential buyer of your property that a lease is no longer present.
After you get a release of lease, you will usually have to file this yourself, okay?
Gonna go to the county recorder of deeds, bring the original release of lease, signed and notarized by the lessee, along with a self-addressed stamped envelope so that they can mail this back to you after it's been recorded.
Most recorders offices won't accept checks or credit cards, so bring cash, typically, I mentioned, 20 to 30 dollars.
I note in here, Tioga County is $20.
Others might be a little different.
If you have multiple parcels leased separately, you'll likely have to do this for each parcel.
Now, why should you do this?
Well, even if you don't plan to lease or sell your property, you may pass it on to heirs, and this indicates that you've retained your oil and gas rights.
Here's an example of a surrender document.
They all may be just a little bit different.
So, in summary, you're gonna want to check to make sure your lease is expiring without being put into a secondary term.
Producer may end up taking action if they wish to continue the lease under the current terms.
Sometimes, it does take a little while for producers to send a release or surrender document, and you might want to take steps to get a release from the producer.
You can take steps to create your own release, but one from the lessee is generally better.
Finally, you need to file your release in the recorder's office in the county that the property resides.
I have to give credit to the Marcellus Center for Outreach and Research for images, and thank you very much.
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