Introduction Key Components of a Lease Before Signing, Think About... NYS DEC’s Role
Oil and gas are valuable commodities. Their Cash Bonus - An up-front payment or bonus Land disturbance from an access road and drill DEC does not regulate private agreements be-
presence beneath your land could mean extra which is generally computed on a per acre basis site. The actual drilling of a well is a temporary tween landowners and operators. Staff do, how-
income if you choose to grant a lease to an ex- for signing the lease. It is considered to be the activity that may involve a large amount of ever, lease large tracts of state land for oil and
ploration company. first year’s rental. equipment similar to other construction projects. gas exploration and development.
Be sure that you know how much of your land
Exploration companies employ or contract with Primary Term - The number of years that a and which parts of it will be used for access, DEC’s Division of Mineral Resources (DMN)
a professional called a “landman” to acquire lease is in effect. It can be from one to ten years drilling, production, pipelines, compressors and regulates oil and gas activity in New York and is
leases of mineral rights to land with potential or more. short or long term storage of equipment. Have mandated by Article 23 of the Environmental
reserves of oil and gas. Not all landmen work for mutually approved reclamation plans incorpo- Conservation Law to protect correlative rights,
exploration companies. You may have already • Delay Rental - Annual rental payments paid rated into your lease. the environment and public safety. Rules and
been approached by a landman who has asked to the lessor after the first year of the pri- regulations require that well drilling, casing,
you to sign a lease that allows a company to drill mary term, usually on a per acre basis. Damage to crops, buildings and other personal stimulating, completing, producing and plugging
on your property. If you are approached, con- property. The lease can also be written to require techniques be designed to protect groundwater
sider the offer; revenue paid to owners of leased Secondary Term - The duration of a lease is fences or other safeguards if needed to protect and to prevent pollution, waste of oil and gas,
land can be substantial. Risks and inconven- extended beyond the primary term if a producing people and/or livestock. If not covered in the and migration and commingling of oil, gas, brine
iences, however, are also possible. Make sure well is drilled on the lease or if the lease is lease, consider asking for terms that make the and fresh water.
the lease protects your interests. “pooled” with other leases to form a “unit” for a company responsible for damage to crops, live-
producing well. The lease is “held by produc- stock, buildings and other personal property. DMN staff review well drilling and plugging
tion”, extending its duration, and expires when permit applications and issue permits for all
What is a Lease? production ceases. Free gas. Leases may provide for natural gas for wells in New York, whether on private or public
the landowner’s use if a well is drilled on the land. Staff conducts inspections before a well is
A lease is a legal document or contract between • Royalty - Your share of the production from premises. If the lease does not specify that the drilled, during the life of the well, and after the
a landowner (lessor) and a company or individ- beneath your property. This will be referred company is responsible for the cost of equip- well is plugged and abandoned. Staff may also
ual (lessee) granting exploration and develop- to in the lease as a fraction - usually 1/8 of ment and installation, then you may have to pay be present at the well site during operations such
ment rights to subsurface oil and gas deposits. the value of the oil and/or gas produced and for it. Because of safety concerns, the company as the cementing of well casings, drilling
sold. may provide a monetary payment in lieu of free through the productive formation and final plug-
Companies will usually present you with a pre- gas as an alternative. ging of the well. Before a drilling permit can be
printed or standard lease. Review it very care- • Shut-in Royalty - Payment in lieu of a pro- issued, operators are required to post a bond or
fully and consult an attorney or other profes- duction royalty. Paid when a well is “shut- Lease Assignment. The lease may contain a other financial security to guarantee that the well
sional who is experienced with oil and gas in” (capable of production, but not produc- clause which allows the company to assign or will be plugged and the site reclaimed. Staff also
leases. Negotiate changes to meet your needs ing) for maintenance or other reasons. sell the lease to other firms. administer comprehensive well reporting, com-
and protect your interests before signing. Get all pliance and enforcement programs.
agreements and conditions in writing. Termination - Occurs when the primary term Underground gas storage. Gas production reser-
expires or when economic production ceases voirs are ideally suited for underground gas stor-
Entering into a lease agreement does not neces- during the secondary term. age after the gas has been produced. The lease
sarily mean a well will be drilled on your prop- may contain a clause which permits gas storage
erty. Also, remember that you are granting a in return for an annual rental payment. As with
right to others which may be viewed as an en- many other terms of a lease, this clause is nego-
cumbrance on the property. tiable.
Drilling a Well Pooling & Compulsory Integration DEC Contacts
New York State
Drilling will typically last approximately two to A productive well will capture oil and gas which Well drilling permits, production, leasing:
four weeks, depending upon many factors, in- has accumulated in an underground rock forma- Linda Collart
cluding the depth of the well and the time of tion or reservoir. A well may capture oil or gas Region 8 Mineral Resources Program Manager
year. Deep gas well drilling may last two from more than one property. Therefore, an area 6274 East Avon-Lima Road
months. called a spacing unit, usually made up of more Avon NY 14414
than one property, is assigned to each well. If 585-226-5373
Once an oil and gas company determines where you own the oil and gas rights of your property Counties: DEC Region 8: Chemung, Genesee,
to locate a proposed well, the company must in a spacing unit, you are entitled to the opportu- Livingston, Monroe, Ontario, Orleans, Schuyler, Division of Mineral Resources
obtain appropriate permits from the DEC. Con- nity, or correlative right, to receive the benefits Seneca, Steuben, Wayne, Yates; DEC Region 7:
tractors will construct the access road and drill- of drilling in the spacing unit. If you lease, the Broome, Cayuga, Chenango, Cortland, Madison,
ing pad to accommodate the drilling rig and royalty paid under your lease is based on your Onondaga, Oswego, Tioga, Tompkins; DEC A Landowner’s Guide to
other equipment. The drilling location can range share of the spacing unit. Region 6: Herkimer, Jefferson, Lewis, Oneida, Oil and Gas Leasing
in size from less than one acre to two or more St. Lawrence.
acres depending on the depth of the well. Trees The law was amended in 2005 to define state-
Chris Miller
and vegetation will have to be cleared and dust, wide spacing unit sizes based the depth of the
Region 9 Mineral Resources Program Manager
noise, and exhaust fumes will be generated by reservoir and/or the target rock formation. If a
182 E. Union Street
the drilling rig and heavy equipment during proposed unit conforms to statewide spacing,
Allegany NY 14706-1328
drilling operations. Drilling is a temporary dis- then no comment period or hearing is required
716-372-0645
turbance, but some impacts, such as removal of before the Department issues a permit to drill. If
Counties: Chautauqua, Cattaraugus, Allegany,
vegetation, may be longer in duration. the proposed unit does not conform to statewide
Wyoming, Erie, Niagara.
spacing, the Department must seek public com-
If the well is capable of production, most of the ments and may be required to hold a hearing. Well drilling permits for all other counties,
drilling site will be reclaimed within 45 days, well spacing and compulsory integration
depending on weather. Wellhead assemblies, If the well operator does not control all the oil statewide:
meters and various tanks will remain on-site, and gas rights in the spacing unit, the Depart- Kathleen Sanford
near the well location, for the life of the well. ment must address compulsory integration Chief, Permits Section
through a separate hearing process after the per- NYS DEC, Division of Mineral Resources
If the well is not completed or is no longer capa- mit is issued. Albany, NY 12233-6500
ble of production, state regulations require that a 518-402-8056
plugging permit be obtained and that the well be Remember
plugged and the site reclaimed in accordance Leasing state land:
with the regulations. If you have specific plans Charles Gilchrist
The lease is a legal document and should be re- Chief, Compliance and Enforcement Section
for the site, you may want to negotiate a specific viewed by an attorney or other professional who
reclamation approval clause in the lease. NYS DEC, Division of Mineral Resources
is experienced with oil and gas leases. Leasing Albany, NY 12233-6500
provides you with revenues, but you should also 518-402-8056
make sure your interests and property are pro-
tected. For more information, visit the Division of
Mineral Resources website at:
Check out our other brochure, “Landowner’s http://www.dec.ny.gov/energy/205.html
Guide to Compulsory Integration Options”, for
information on the compulsory integration proc- March 2008 David A. Paterson Pete Grannis
ess at: http://www.dec.ny.gov/energy/1590.html Governor Commissioner