Oil & Gas - FAQ's
(click question to reveal answer)
1) What extends a Lease past its primary term?
There are four (4) situations that can extend a Lease past its primary term, as follows:
- The well goes on production;
- The well is capable of production and has been shut-in;
- Continuous Operations are being conducted at the time of expiry of the Lease;
- Force Majeure.
2) What does the term “Held by Production” mean?
Held by Production means that the Oil & Gas Company has drilled a Well which is capable of commercial production of oil or gas and the Lease in question is being held past its primary term based on said production (and the eventual payment of Royalties to the Landowner). Also abbreviated as “HBP”.
3) Why do you want to lease my mineral rights?
- You are fortunate to live in a jurisdiction that requires us to lease your mineral rights;
- In some areas, mineral rights are government-owned (and are not vested with the surface owner);
- The intent of various laws in areas where landowners own their mineral rights is to share natural resource wealth with landowners and to protect correlative rights.
4) How much damage will you do?
- We are obligated to restore the surface of your property to the same condition so far as it may be practicable;
- Our industry is strictly regulated in these matters by the particular governing bodies (different depending on State) and this responsibility extends to include Soil Conservation;
- I would be happy to provide you with some information / pictures of restoration of surface by our client on drill sites in your area.
5) How soon do I receive royalties once a well is producing?
- Royalties are distributed approximately 8 to 12 weeks after first production.
- Royalty payments will then be paid monthly based on the proceeds from the well, typically within 45 days after the end of each production month.
- The royalty paid under your lease is also based on your share of the spacing unit.
6) Does this restrict what I can do on the property?
Any well or facility structure built on your leased lands must be 200 ft. away from any structure or building.
So, you will be unable to build any structure within 200 ft. of the well or facility during the life of the well without prior written consent from the Oil & Gas Company (and subject to compliance with all existing Regulations in this regard).
7) What is involved with seismic activity, drilling and pipeline operations (and how might this affect me and my property)?
Under the Oil and Gas Lease you are granting the Lessee the exclusive right to explore for oil and gas and that would allow them to shoot seismic, drill wells and lay pipeline if hydrocarbons are found and if there is no restrictions in the lease. If any of these activities were to be carried out on your property a representative of either the gas company or land company would contact you and explain the activities. They would also explain the compensation you would receive in each instance.
Are we protected from any lawsuits that may be a result of the Oil and Gas Company’s operations?
No, there is no indemnification clause contained in the Lease.
You cannot protect yourself from being named in a lawsuit – but, if you are not instrumental in the tort (act), legally, you should not be held responsible by the courts.
Where should the bonus payment be reported on my Tax Return?
- If your payment is less than $600, you will not receive a 1099.
- If your payment (or the combination of payments made to you by any one entity for several Oil and Gas Leases) amounts to more than $600, you will receive a 1099 for the year that the check is dated and will need to report same as miscellaneous income within your Tax Return.
How can I be sure this is not harmful to the environment?
- You can’t be sure – there is no way of knowing;
- The environment is hugely protected and vigorously regulated by the Department of Environmental Conservation (in NY) and Department of Environmental Protection (in PA) as well as the Public Service Commission;
- Huge precautions are taken (and regulations are in place to impose this on Oil and Gas Companies);
- The Oil and Gas industry’s record in this regard has been impeccable over the past 25 years.
11) Will helicopters be flying over my property?
- Helicopters are typically used to determine whether it is feasible to build a location in a specific area or to scope out an area for pipeline or seismic operations;
- They are very expensive and are only used when necessary;
- In the case of a big 3-D seismic project, helicopters are often the best way to move heavy equipment in and out of the property to minimize the impact to the surface;
- Landowners are always notified in advance.