When the oil and gas developers come knocking at landowners’ doors, it’s best to be prepared.
Posted on August 9, 2012
When the oil and gas developers come knocking at landowners’ doors, it’s best to be prepared. More than 50 people filled the R Bar in Lemmon July 24 to hear about what they should know in advance of signing on the dotted line.
Three meetings, sponsored by South Dakota Farmers Union drew 300 people to Lemmon, Buffalo and Isabel to learn more about what to expect as the oil patch continues to creep toward their area.
“The one thing to remember is this isn’t really a lease it’s a contract,” said attorney David Ganje. “It’s a business contract.”
And the emphasis shouldn’t be on money. Landowners might be enticed by the concept of the bonus and the money, but “a good lease is a sign of success,” said Ganje.
There are many questions that need answers other then “Who pays for any damages? Exactly what are you granting?” he continued. If you get insurance, who pays for it? If your cattle get out from an open gate who is liable?”
Usually the terms of an easement and associated lease is three to five years, he said.
During exploration, where will the wells be located? Will noise suppression be an issue?
“They will want to put as many wells as close together as possible,” he said.
Brine (salt water) disposal needs to be discussed – if there is a salt water pipe for disposal and it leaks, nothing will grow there again.
“The best way to look at easements is once severed, you sold them the ranch and they let you live there and keep doing what you were doing yesterday,” said Ganje.
Make sure you have it all in writing – and what you write down is what you want, he advised.
“Will a 30-foot easement work where they are asking for a 60-foot one?” he asked.
The landowner has the advantage of knowing his property, the terrain and the various values of different places of that property.
Always consult an attorney, he said. “It’s the best way to protect yourself and your land.”
Eventually the oil companies will leave, and the landowner is left with whatever they leave behind.
“The money you get up from won’t last you forever,” he said.
Surface damages and reclamation become the most important piece of the contract, he said.
This can run from the oil companies removing piping to putting down new topsoil. Who will put in new roads or easements if they are needed is another point that needs to be raised.
The whole point is that when the oil leaves, landowners can go back to what they were doing before, with little effort or cost to themselves – and the oil company leaves the surface land as it was before they started.
“The land guy is the nicest guy you’ll ever meet at your doorstep, but you have to be careful with them,” said Steve Wegman of the Renewable Energy Association. “South Dakotans get into a pattern where we can be too nice. You have to be like a junkyard dog when you’re dealing with people who want to buy your land. And that’s really what they’re doing; they’re buying your land so they can make money from it. You’re selling your rights to the use of that property.”
Wegman said landowners need to have what’s called a “Most Favored Nation Clause” in their contracts with oil and gas developers. That means if you sign your lease with an oil or gas developer, and your neighbor gets a better deal, you’re entitled to the same deal as your neighbor.
“Lots of times no one wants to be the first to sign, because they might get the lowest price,” he said. Again, the suggestion of legal counsel was stressed.