New York may not be widely known for such production, but our state does produce oil and gas. Although New York’s overall oil and gas production is modest compared to other states, the Empire State does permit oil and gas leasing. This practice dates to the 19th century and continues under the oversight of the New York State Department of Environmental Conservation.
While production numbers might not rival those of states like Texas or Pennsylvania, many landowners have successfully leased their mineral rights. The NYSDEC maintains extensive records of oil and gas production, and it monitors drilling activities.
Leasing and mineral rights
Oil and gas leasing begins with understanding your mineral rights, which is the legal term for the resources under the surface of your land. By entering into a lease agreement with an oil and/or gas company, landowners grant permission to explore for and extract these resources.
What is in a mineral rights lease?
Most lease agreements spell out several items. Most include an upfront payment that is often called a cash bonus. It is received at the time the lease is signed. It will also include the primary and secondary term. The primary term is when drilling must begin. The secondary term is an extension once production is established. Normally, there is also delay rental payments, which is compensation if drilling does not start within the primary term.
Other than the initial cash bonus, initial payment, or delay rental payment, there are also ongoing royalties. This is generally structured as a percentage of revenue from the extracted oil and/or gas. Finally, there is typically a shut-in royalty, which is a payment if the well is temporarily inactive, but still considered capable of production.
Compulsory integration
In certain situations, landowners may be subject to compulsory integration. This legal mechanism ensures fair development of underground reservoirs when multiple parties own adjoining mineral rights. It also guarantees that each party receives appropriate compensation if a well is drilled and produces oil and/or gas.
Leasing can bring financial benefits, but it also carries potential risks and responsibilities. Before entering into an oil and/or gas lease, read it and understand each term. This will help protect your interests and ensure compliance with state regulations. By understanding your mineral rights, familiarizing yourself with lease components and staying informed about state regulations, you can make the most of any leasing opportunity.