HARRISBURG, Pa. — A bill signed into law by Gov. Tom Corbett Oct. 22 will give Pennsylvania landowners with natural gas lease agreements more notice of when those leases are set to expire.
The Pennsylvania Farm Bureau supported the legislation, but some gas industry representatives question its equity.
Forced to surrender
House Bill 402, known as the Recording of Surrender Documents from Oil and Natural Gas Lease Act, was introduced by Rep. Tina Pickett, R-110.
In a January 2013 memorandum to her fellow House members, Pickett wrote the legislation addresses instances when a lease has expired, it contains no renewal clause, and the landowner would like to sign a lease with a new natural gas development company.
Pickett said landowners are being asked for a release of property before being permitted to enter into any new lease with a different natural gas development company.
The lack of a “formal process” by which to do this, Pickett wrote, has led to unnecessary delays.
The law, which takes effect Dec. 22, states that if a lessee fails to provide a surrender document to a lessor (mineral rights owner) in a timely manner, the lessor may serve notice on the lessee.
The notice must state that the lease has terminated, expired or been canceled; the lessor has not received a timely surrender document from the lessee; and the lessor has the right to record an affidavit of termination, expiration or cancellation of an oil or natural gas lease.
The lessee has 30 days to deliver a written challenge to the lessor. If the lessor does not receive a challenge from the lessee, the lessor may then record the affidavit of termination, expiration or cancellation.
Mark O’Neill, director of media, strategy and communications for the Pennsylvania Farm Bureau, said confusion over lease termination notices has been an issue with Farm Bureau members for years, particularly in cases of older leases, or when property ownership has changed hands.
“A lot of times we get calls from our farmers who say ‘I have this old lease and I don’t understand it or know what I have’,” O’Neill said. “Often we hear stories about automatic renewals and (leases) continuing in perpetuity.”
O’Neill said the law makes the entire process more transparent and gives the property owner more control over future use of the land when a gas lease expires.
Gas industry responds
Kevin Moody, general counsel and vice president of government affairs for the Pennsylvania Independent Oil and Gas Association, said his organization supports the concept of the new law, but called its passage a case of “faulty implementation.”
“It may be helpful in some instances, but we really didn’t know of any problem out there to solve,” Moody said.
Moody identified two problem areas in the law.
The first, Moody said, is a section that permits the lessor to file the affidavit of termination immediately following the 30-day window the lessee has in which to challenge the lease termination.
“With some of these big companies, it may take more than 30 days to get to the correct person,” Moody said.
Moody said a 60-day time frame, similar to Ohio’s forfeiture statute, would have been more acceptable.
He also noted that lessors, in their initial letter to the lessee, must provide a basis by which they feel the lease is terminated. This “nature of termination” is not required, however, when the lessor eventually files an affidavit of termination.
“We feel there could be some mischief (by lessors), whether intentional or unintentional,” Moody said. “Especially with the older leases, (property owners) want to have a chance to make more money.”
Moody said the law will likely lead to undue “time, money and litigation.”
“The lawyers may be happy, but their clients won’t,” he said.
In an interview with Farm and Dairy, Pickett said in most cases, landowners know when their lease terminates, but gas companies take a long time — in some cases 12 to 18 months — to release a surrender document.
“So the company will allow the lease to expire, for whatever reason, but the landowner still is not in a position to negotiate with another company.”
Pickett said she felt the 30-day deadline was a fair time frame for lessees to issue the surrender documents.
A companion piece of legislation introduced by Pickett was also passed into law Oct. 22.
Known as the Unconventional Well Report Act, the legislation updates the reporting requirement for operators of unconventional wells from every six months to monthly.
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