The Perils of Natural Gas Well Drilling / "Fracking" Leases in Pennsylvania's Marcellus Shale

Natural Gas Hydraulic FracturingThe New York Times’ exposé of the problems with natural gas/hydraulic fracturing continues with an illuminating article, “Learning Too Late of the Perils in Gas Well Leases.”  As the article says, “Americans have signed millions of leases allowing companies to drill for oil and natural gas on their land in recent years. But some of these landowners — often in rural areas, and eager for quick payouts — are finding out too late what is, and what is not, in the fine print.”   While some landowners have been paid significant sums under these leases, others are discovering they are paying a costly price for “permitting industrial activity in their backyard.”  Problems caused by the fine print in such leases can include: (1) the refusal by the gas company to compensate for damages to water supplies, livestock or crops; (2) noise and light pollution, 24 hours/7 days a week; (3) losing control over the use of the property, as most leases grant gas companies broad rights to determine where they can cut down trees, store chemicals, build roads and drill wells; (4) industrial waste disposal on the property; (5) enduring indefinite extensions without additional landowner approval.

Another article in the series, “Rush to Drill for Natural Gas Creates Conflicts With Mortgages” , describes the mortgage problems that such leases can create.  Some banks refuse to issue mortgages on properties subject to these leases.  Many mortgages require permission from the lender before they sign a lease; signing without permission can put a homeowner in instant default. Many gas well drilling leases will permit the gas company to operate in ways that violate rules in the mortgage.

An archive of more than 1,000 Pennsylvania gas leases can be viewed online on the New York Times website here. The archive can be used to compare lease terms and evaluate costs and benefits. An archive of documents relating to the problems with mortgages caused by gas leases is available here.

According to John Quigley, former Secretary of Pennsylvania’s Department of Conservation and Natural Resources, “at least seven million acres — 25 percent of the state’s land area — has been leased for drilling. About 4,000 Marcellus wells have been drilled in Pennsylvania so far, and over the next several decades, tens of thousands — maybe hundreds of thousands — of wells will be drilled.”

Landowners who have signed — or who are asked to sign — natural gas well drilling leases should be aware of these potential problems, and have the leases and other real estate documents reviewed by counsel.

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