They will Drill under my land Anyway? Wrong

Landmen repeatedly tell Pennsylvania landowners that if they do not sign a lease, a drilling company will drill underneath their land anyway. The assertion has been repeated between and among neighbors so often that it is assumed to be an accurate statement. But, it is not accurate.

The explanation that follows is intended for the landowner who owns his or her oil, gas and mineral rights and his or her land is not already subject to a lease. The law doesn’t change if the surface owner does not own the oil, gas and mineral rights, but the consequences and impact to that surface owner may be very different. Similarly, if the land is already subject to a lease, and the landman is asking the landowner to agree to modifications of the existing lease, the analysis will change.

There are two (2) primary explanations for the repeated erroneous claim that “they will drill under your land anyway”. One explanation is less sinister than the other. Many landmen, currently working in Pennsylvania, came from Texas, Oklahoma and other states that do have “forced pooling”. In other words, in many states a drilling company can establish a drill site on neighboring lands and invade the subsurface of nonleased property. In those states, although the nonleased landowner must be compensated for the gas or oil taken, the drilling company can take the gas or oil without a lease. As such, it is likely that in most cases, landmen believe they are correct when warning the Pennsylvania landowner that “they will drill under your land anyway”. It is also possible that some landmen have found that threatening a landowner with “forced pooling” may be an effective way to obtain a lease.

Currently in Pennsylvania, for a driller/operator to drill underneath a tract of land, or to include all or a portion of a tract in a drilling unit, it must have a signed lease. The landowner has to give the driller written permission to drill into the subsurface of his or her ground. In other words, “No, they can’t just drill under you anyway.”

The landowner controls whether there will be drilling under the surface of his or her ground. If the landowner is absolutely opposed to a drill bit, from a horizontal drilling rig, ever entering the subsurface of his or her property, at any depth, it won’t happen. If the landowner is adamantly opposed to the production of oil or gas from underneath his or her ground, it can easily be prevented. Just don’t sign a lease.

However, refusing to allow drilling through the subsurface of a tract, by refusing to sign a lease, may have other ramifications. There are numerous other considerations.

Obviously, refusing to sign a lease will mean the landowner will never profit from the oil and/or gas under the ground he or she owns. A drilling company will not come into the area if it cannot lease sufficient acreage. Or, if already in the area, the drilling company may leave and never return.

Perhaps more importantly, the landowner should not over estimate his or her power or ability to influence drilling. That is particularly true the smaller the tract. I recently sat in a conference room at the home office of one of the large drilling companies currently working in Pennsylvania. That office is located in Fort Worth, Texas. I listened as they mapped out drilling units in Western Pennsylvania. What fascinated me the most was the input of the engineer. When faced with tracts that were not under lease, he explained how they would drill around (not through) those tracts.

An isolated landowner of a reltively small tract is not going to stop or even slow drilling once the drilling company is committed to move forward. A group of similar landowners may hinder or stop drilling, but not the owner of one small tract. The company will drill around the unleased tract if there are other leased tracts to get to. In some of the more fertile “wet gas” areas in Western Pennsylvania, the driller will simply stop the “tip of the bit” at the extended boundary line of the unleased tract. The unleased tract is never infringed upon but the owner of that tract received no up-front bonus payment or any royalties.

It is noted that drilling around an unleased tract can be inconvenient and expensive. Drillers do not like to drill around unleased tracts. Often, a landowner that “holds out” will receive a premium to sign a lease “at the last minute” which allows the drilling company to include the tract in a unit. This allows the drilling company to avoid the expense and inconvenience of drilling around the tract. However, in many cases, the drilling company can avoid unleased tracts.

There are two sides to every coin. Don’t sign a lease and they can’t and won’t drill under you. No, they can’t drill under you anyway. However, in most cases, don’t sign a lease and they will drill around you.

#litigation #arbitration

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