Be wary of a landman who wants you to or tries to force you into signing a lease modification.

I can think of a couple of ways landowners with existing pre-Marcellus Rush leases might have leverage in negotiating a lease modification, granted the landowner likely will not have the same leverage he/she otherwise would if he/she had no lease at all. My first thought is if a gas company has new leases all around you then it really can't go around you if you have a substanial amount of acreage in a way it can with a smaller parcel, so it needs you if it's going to drill a Marcellus well. With a smaller parcel it could drill up to your property line and capture the gas that migrates off of your shale - which could very well be all of it. With your 100 acres there will be some gas migration, however, probably not enough to make a huge dent in your pool. Second, which pretty much piggy-backs on the first point, if there's no unitization language in your lease then the gas company needs you to sign a modification that contains a unitization clause so it can put you into a bigger pool. Of course you should try and get the best bonus payment and royalties that you can, but I would really try to also get at least payment of royalties without any deductions for costs, service fees, et cetera and vertical and horizontal Pugh clauses (and maybe even require them to put - and keep - all of your acreage in the unit so that you maximize your royalty payments - some of the companies have awful language that allows them to change the amount of your acreage in the unit at any time!). The other leverage a landowner with a large tract has is if he/she is sitting on on a good gas field, then a company might very well cave in and be willing to give the landowner more than he/she thinks because the company knows your acres are going to make a killing for it. And with a good gas field you really want to focus on the royalties even more.

Tags: Pugh, leverage, migrate, modification, unitization

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Hello-- Can somebody tell me what exactly a Pugh clause is? I keep seeing this mentioned but cannot figure how it is appliable to the PA landowner>?

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