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Natural Gas Lease Considerations This document is not a substitute for legal advice. It serves as a listing of items for discussion with your legal advisor. It is not all inclusive. Leases given will always be provided in the presenter’s favor. Remember that this process is a negotiation and must include terms and language to protect your interests. Always retain contact information for leasing agents / landmen. DO NOT sign a lease as originally presented. READ THIS FIRST. PROPERTY OWNERS – Before you sign a gas lease 1. Talk to a professional advisor with knowledge of gas leases. 2. Talk to neighboring land owners concerning bonus and royalty rates being offered. (Better potential for inclusion in unit if same gas company). 3. Get information from other sources, example: PSU Publications “Natural Gas Exploration – A Landowner’s Guide to Leasing Land in http://pubs.cas.psu.edu/freepubs/pdfs/ua448.pdf 4. Limit lease to 5 years without automatic renewal. 5. Compare to other known leases. TERMS TO BE AWARE OF: 1. Do not allow gas storage except by separate agreement. 2. Do not allow post production costs deducted from royalty. 3. Do not allow injection of waste water into wells on your property. 4. Do not allow force majeure clause to include phrases such as: “or any other causes”. Force majeure literally means “greater force” and covers natural disasters or other "Acts of God", war, or the failure of third parties such as suppliers and subcontractors. Limit the time force majeure applies. 5. Do not allow wording that no action can be taken against Lessee. OTHER CONSIDERATIONS: 1. Request pre- and post-drilling water well testing. 2. Commencement of drilling language should be limited to the actual commencement of drilling. 3. Do not sign a lease for “all of the oil and gas.” Limit the lease to specific horizons such as “all of the Marcellus shale and above,” or the “Marcellus Shale only,” or the “Utica and below”. 4. Use of and access to water should be by separate agreement. 5. Who pays taxes especially if there is a Clean & Green violation? 6. Advance royalty, when is it paid? 7. Future gas pipelines and locations should be under separate agreement and location approval should be retained in your lease. 8. Include approval of location of well siting, roads, ponds, pump stations and other appurtenances. 9. Declare known environmental and cultural resources that you wish to protect and include sketch “site plan” as addendum to the lease. 10. A “Pugh Clause” should be added. 11. Consider potential for production without surface disturbance. 12. Define post production costs. If impact fees are not a post production cost, specify who is responsible for payment. 13. Negotiate beyond standard lease language. These considerations should be included in an addendum to the lease and supersede the lease terms. This document was prepared by the Centre County (PA) Natural Gas Task Force in conjunction with the Centre County Solicitor and the Centre County Planning and Community Development Office. It received the acknowledgement of the Centre County Board of Commissioners on March 15, 2011 / amended September 27, 2011. Guideline Document #2