All Things Marcellus addresses gas and pipeline company “Option Agreements” head on. The vast majority of pipeline agreements and pipeline related agreements are presented as “option” agreements. Too many landowners are failing to understand how option agreements function and are again being taken advantage of by oil and gas and pipeline companies. There is nothing fundamentally wrong with pipeline or other option agreements. However, you must understand how these option contracts function in order to protect yourself.
Option agreements typically have a shorter upfront “option” term that are followed by a much lengthier term (sometimes forever) in the event that the gas or pipeline company exercises the “option” in the agreement. Landowners must understand the value and how to negotiate the time length of the “option term” as well as the secondary term in the event the company exercises the “option”. Timeframes in option contracts are critical and must be negotiated to limit the option period and ultimate life of the contract. Option Agreements are very common in natural gas pipeline contacts, but are also often involved in many other gas and oil development agreements. Option contracts involve many of the same property owner considerations but have an added level of complexity due to the aspect of the option terms. As you would expect, option contracts are carefully composed by gas and pipeline companies to allow for loopholes to decline the option, but if the option is exercised and the agreement moves forward there are many other issues that have to be addressed at the time the option agreement is being negotiated. Otherwise, it is too late to negotiate terms once the company notifies you that they have “exercised the option”.
Property owners must negotiate to maximize the upfront option payment and to minimize the length of the auction turn. Also, you must negotiate for the highest compensation and damages payments should the company exercise their option. Too many people are not negotiating these extremely important terms in our stock with bad agreements when the company exercises their option. Remember, it is the company who has the option, not the property owner.
Too many landowners are not cementing in the terms of the pipeline easement and what terms will last forever if the option is exercised. It is Doug’s strong position that Pennsylvania landowners cannot leave open future turns to be determined in the future when you enter into an option agreement. We cannot allow companies to convince people to sign bad option agreements when the landowner does not understand how the agreement will function in the short and long term. There have been many radio shows on All Things Marcellus that discusses what Doug called the “land owner option dilemma” which every landowner should be aware of and listen to at their convenience. No property owner should ever enter into an option agreement without representation or at least a review and consultation regarding the option agreement to provide guidance on whether this is a document that deserves further consideration.
Remember, just because you are presented with a natural gas or pipeline contract does not mean it is right for you. Landowners must not be afraid to say “no” when they are presented an offer. Do not fall victim to land man promises of future riches. Option agreements are powerful contracts that are carefully written to provide the best opportunities for the company. We must turn the tables in the go she ate pipeline option agreements and other option agreements to benefit the property owner and not the natural gas company.
Information is available on how to negotiate gas lease and pipeline company contracts and there are experienced lawyers working and fighting for Pennsylvania property owners. All landowners must get high quality assistance for their specific situation when presented with any option agreement or other contract for natural gas development. Stop relying on gas and pipeline company employees to educate you as the property owner. They work for the gas and pipeline companies were trying to negotiate the best deal for the company, not the property owner.
Once the company exercises an option agreement, that agreement will last potentially forever, unless they have been terms limiting the length of the agreement negotiated and added to the offer, typically by way of addendum. Option agreement addendum negotiations are critical to protect the landowner and preserve their property. Addendum terms to option agreements must be negotiated to protect the landowner from future liability, future tax issues, clean and green issues, and of course, to maximize compensation. Option agreements involve many other considerations than your standard oil and gas development contracts and no one should sign an option agreement without fully understanding their rights and without fully negotiating the agreement to obtain the best possible terms.