Facts and Fracks:
What You Need to Know Before Signing a Lease
From the Article by Jamie Stover, WBOY, 12 News, Clarksburg, WV, October 7, 2013
Natural gas development has brought hundreds of jobs and boosted the local economy in north central West Virginia, but workers and business owners aren’t the only ones who can cash in. Mineral owners are entitled to royalties for minerals extracted by natural gas producers. For some families in W.Va., such royalties are like hitting the lottery.
“Some people on a fixed income, this could make a big difference in their lives,” said Tammy Beamer, a mineral owner in Doddridge County. It’s a seemingly solid offer, thousands of dollars and all the mineral owner really has to do is sign on the dotted line. But experts said mineral owners need to do more before they make that binding agreement.
“A lot of the leasing agents don’t even work for the companies they represent. They are really independent contractors. They have an incentive to get you to sign the lease,” said Bill Quinn, a CPA. Some of those who understand what the wording in lease agreements mean said the real winner is often the one who wrote the lease.
“The initial offer, typically, is very advantageous for the oil and gas company and not the mineral owner,” said Luke Thomas, an oil and gas attorney. Thomas said this is why mineral owners need to do their homework, and seek advice before jumping on board. He said the up-front costs are worth it to ensure that a solid and fair deal is made. He said a good negotiator could triple royalty rates.
Mineral owners could be offered as low as 12.5 percent and as high as 20 percent in royalties. A next door neighbor could get a completely different offer. ”The variances between what neighbors get is drastic. It doesn’t have to be. One neighbor takes it to an attorney and gets competent assistance and get a very good lease for their family and future generations. But someone who just signs the document may have just cost their family a small fortune by not,” Thomas said.
Tammy Beamer owns minerals in Ritchie and Doddridge counties and has signed more than 15 lease agreements. She also worked in the industry as an abstractor. “It is very easy to get tricked. I get caught up sometimes,” Beamer said. But experience taught her to watch out for certain clauses. “I don’t ever guarantee title {warranty of title}. Say they came to you and they were mistaken, their person went out and said you owned and you really didn’t and they paid you. Then you would be expected to join in with them if there was a lawsuit,” Beamer said.
She also crosses out post production costs; something Thomas and Quinn strongly support. ”I ask for well-head price. The difference there is if you have a lease that you’ve agreed to pay post production cost on, you will be charged for the transportation,” Beamer said.
A good rule of thumb: never sign anything you don’t understand. Quinn said mineral owners should never agree to (natural gas) severance charges or (natural gas) transportation fees either.
Beamer said she has also seen lease agreements that include market enhancement charges. She never signs a contract that includes those fees, as she believes the gas is rich enough without enhancements. Quinn and Thomas said mineral owners need to realize that a contract is always negotiable, until it’s signed. The two have seen a wide variety of lease agreements over the years. “You should get that royalty, by and large, free of all costs and expenses,” Quinn said.
Thomas said the only true standard for oil and gas contracts is a minimum royalty rate, making seeing an expert before you sign all the more important. ”There are no consumer protections really out there for a mineral holder or a surface owner. It’s not like buying a car where there’s a Consumer Credit Protection Act and those sorts of things. The only really protection, is there is a state minimum of 12.5 percent that they have to pay you by statute,” Thomas said.
Beamer also avoids contract agreements that include storage and adverse claim, but Beamer said she is in the middle of learning a new lesson. “You need, because the West Virginia State Law does not require the producers to begin payment at any certain time, your leases need to include a statement that says how long they will hold the money for payment after the well is on line,” Beamer said.
She started signing lease agreements as a mineral owner nearly five years ago but has yet to receive a check in the mail for royalties. Beamer said she soon learned she wasn’t alone. “I have been talking to people about this non-payment. I have found out that it is more the norm anymore, than the exception. There is a huge delay from the time the well goes on line and the time the royalty owners get paid,” Beamer said.
She’s not taking it lightly. “I own other oil and gas properties. I already put the word out, I am not signing any more payments from the wells that already have,” Beamer said.
According to Antero Resources, it typically takes seven to eight months before a royalty owner starts receiving payments, but it can take close to a year. Al Schopp, Vice President of Antero Appalachia, said the delay is typically attributed to time needed for a full title opinion. Schopp said this opinion determines all of the heirs and how much their entitled to.
Schopp added that most of the lease agreements date back to past generations, and companies need to verify who the rightful heirs are before payments can go out. “Majority of the people never show up on the name of a lease because the leases were made years ago,” Schopp said. “The lease doesn’t have all of the current royalty owners, the lease may be e generations long and have been passed down.”
Once everyone is accounted for and the math is in check, Schopp said checks start going out monthly. The first check is typically the largest, as it includes earnings from date the well started producing.
But Beamer believes that should have been taken care of before the drilling started. “Why aren’t they sending out checks, who gets the interest in that money?” Beamer said. Her options are limited. “I can either take my money and hire a lawyer and try to fight these huge corporations. I don’t think that’s fair. Or I can sit and wait it out,” Beamer said.
She also contacted the Attorney General’s Office and West Virginia Department of Environmental Protection. She said both agencies told her there was nothing they could do to help. “Our Attorney General’s Office. I see where you can put up hotlines. I think if he put up a hotline for mineral owners that aren’t being paid, or being paid properly, he would find there are more people out there than he really realizes,” Beamer said.
With nowhere to turn, Beamer said someone needs to be looking out for the mineral owners. “There’s no one out here to regulate it. There’s nobody out here to protect the citizens of this state who are getting ripped off,” Beamer said.
{See the WBOY 12 News Video here. Each individual situation may vary. 12 News is not offering legal advice, so consult a legal professional if you have questions}
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