The Rural Voice, 1999-04, Page 65Agrilaw
Gas leases — ask before signing
By Paul G. Vogel
"Use and occupy the lands to such
extent as may be necessary or
convenient";
"the right to complete any geological
and geophysical surveys";
"primary term";
"delay rental";
"not produced
for any cause
whatsoever
beyond the
lessee's
reasonable
control";
"spacing unit":
"unitized
development";
"abandonment";
"surrender";
"default";
"surface rights":
"automatic renewal";
"additional acreage".
The language of production and
storage of natural gas leases may
appear esoteric and is often
confusing. However, with expansion
of natural gas markets and increasing
interest in available underground
storage, more and more landowners
in Southwestern Ontario are being
confronted with such leases and are
considering surrender of sub -surface
rights. Before entering into leases,
landowners should consider the
extent of the rights they are
conveying and potential liabilities
they may be incurring.
Provisions common to many
production and storage leases
currently in use constitute a
significant concern for landowners.
While such leases are expressed to be
for a specified number of years, and
may provide for termination in
default of drilling or production,
these leases invariably contain
provisions which permit their
indefinite extension in time upon
payment of a minimal annual rental.
In effect, such leases provide the
leasing company with an option on
sub -surface rights which may
continue in perpetuity at the cost of
Leases can
seem limited
but give away
sub -surface
rights in
perpetuity
only a small yearly payment to the
landowner. While the lease
continues, the landowner has no
further right to convey or otherwise
deal with the sub -surface rights in his
lands.
Of equal concern to landowners
are lease provisions which purport to
eliminate or limit a leasing
company's liability for damages and
injuries caused by its operation
because of, for example, some
neglect or default of the landowner.
Considering the limited financial
return to landowners under these
leases and their lack of control over
the leasing company's operations.
landowners must be vigilant to
ensure they do not incur liability
either during the period of the
company's operation or upon the
abandonment of facilities.
The location and depth of
facilities and the construction and
maintenance of temporary and
permanent access also pose concern
for landowners, particularly with
respect to interference with
agricultural operations. Landowners
should not surrender to the leasing
company blanket rights to locate
facilities and access upon their lands,
but should ensure they retain rights
to determine these issues.
Certainly compensation
provisions of production and storage
leases are of critical significance to
landowners. In addition to industry
competitive royalties, landowners
should establish before entering into
leases the minimum compensation to
which they will be entitled upon the
leasing company Lndertaking
investigation and development
activities on their lands for both
access and facilities sites. Such
minimum compensation should
include provision for present and
future crop loss, disturbance damages
and temporary and permanent
impacts. Compensation for storage
rights should address increased
payments after designation,
payments for lands not included in
the storage pool, and payment for
unproduced residual resources.
Landowners should not he content to
leave pooling or unitization of
production within the sole discretion
of the leasing company.,
Most landowners presented with
production and storage leases for
their consideration find the legal
language of leases hard to understand
and feel ill-equipped to attempt
negotiation of the issues concerning
them with the leasing company. In
response to landowner concern.. and
recognizing that landowners ‘1 ill be
more'successfu1 in negotiating
collectively satisfactory lease
amendments, the Gas Lease
Landowners of Ontario (GALLO)
has recently formed to represent and
promote landowner interests. The
members of GALLO are landowners
throughout Southwestern Ontario
who share concerns about the present
form of leases with which they have
been presented and who would like
to negotiate a form or lease which
better protects landowner interests.
Any readers interested in obtaining
more information about GALLO and
its objectives should contact:
GALLO.
c/o Mike Unsworth.
R.R. #2,
Tupperville, Ontario.
NOP 2M0
or call Len McMurphy,'GALLO -
Chair, at 1-519-692-4367; or Jerry
Burns, GALLO - Public Relations, at
1-519-692-5127.0
Agrilaw is a syndicated column
produced by the full service London
law firm of Cohen Highler Vogel &
Dawson. Paul G. Vogel, a partner in
the firm. practises in the area o/'
commercial litigation and
environmental law. Agrilaw is
intended to provide information to
farmers on subjects of interest and
importance. The opinions expressed
are not intended as legal advice.
Before. acting on any information
contained in Agrilaw, readers should
obtain legal advice with respect to
their own particular circumstances.
APRIL 1999 61