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In October of 2005, legislation in New York was passed allowing landowners expanded options to consider when it comes to their oil & gas rights. Under the new legislation there are four options to consider when it comes to your oil & gas rights; lease, don't lease, participating ownership, and non-participating ownership. Also, landowners might be approached to sell their rights to a Master Limited Partnership for shares or sell their oil & gas rights, which is a completely different matter since the landowner is giving up their right to the other four options. No matter what option is chosen, decisions might have to be made that can impact your surface use.
The major forestry concern when a pipeline comes through a property is future access for large equipment. The pipeline may have to be crossed during a harvest operation. The time and cost of crossing a pipeline can lower the value of the timber sold or make it uneconomical to harvest small patches of timber. There are several options available that can be written into a contract that is signed with an oil & gas company such as; permanent crossing points and having an expiration date on the pipeline right-of-way when the pipeline is no longer in use.
If part of the forest land has to be cleared for a right-of-way, the pipeline company will appraise the timber and pay fair market value. I have reviewed the appraisal at no cost to landowners and have found that in a majority of the cases the pipeline companies have offered more then a fair price. Most of the landowners are given the option to keep the cut trees or have them chipped. When a landowner is given the trees it is usually a small amount of material and placed where it is hard to reach. Small amounts of timber that are hard to reach makes it hard to sell. If a pipeline is proposed, that may be the time (assuming good market conditions for timber) to sell timber along with the timber in the proposed right-of-way.
There are other concerns to consider so that the value and utility of the property is not hindered when a pipeline, drilling or storage is associated with the property. Signing a contract with a gas & oil company is a complex transaction. I would recommend seeking an attorney that is well versed in oil & gas and right-of ways. To assist in the negotiations it is beneficial to consult with a geologist that has the geological maps and can determine the potential of the formations that are under the property. Their are attorneys that can consult with landowners that have a geology background, geological maps, and practice law. Knowing the potential of the oil & gas formations gives the landowner a solid base to negotiate and/or select one of the four options.
Always include a punk clause when leasing your oil & gas rights.
Jim Trezise of Penn Yan has been the President of the New York Wine & Grape Foundation since 1985 and President of the International Riesling Foundation since 2011.
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