Gaining Access to the Natural Gas Resource

Steps required to gain access to the property under which the prospective natural gas resources are located and on which surface facilities will be located.

The first step toward producing natural gas involves gaining access to the property under which the prospective natural gas resources are located and on which surface facilities will be located. For any given tract of real estate, two types of “rights” exist – surface rights (ownership of the land and surface features) and mineral rights (ownership of the minerals beneath the surface property). The deed to the property may include one or the other, or both. Unless the natural gas developer owns the mineral rights for a piece of land, the company must lease the mineral rights from the surface owner.

A mineral lease is a legally binding contract between the mineral rights owner (Lessor) and an individual or company (Lessee) that allows for the exploration and extraction of the minerals covered under the lease. Some of the key elements typically included in a lease are:

• An up-front fee or bonus paid to the Lessor as an inducement to sign the lease.
  
  
• The lease term (this can vary depending on when the Lessee begins production and for how long the Lessee continues production). A lease typically has a lifetime of 3-5 years. If drilling in the production unit containing the lease has not begun within this time, the lease must be renewed. However, if a well is drilled or production initiated, the lease is considered to be extended through the production life of the well.
  
  
• A royalty agreement under which the Lessee will pay a portion of the production receipts to the Lessor.
  
  
• An agreement that allows the Lessee access to some portion of the surface lands so natural gas can be extracted.

Under Arkansas law, mineral rights have priority over surface rights. Property owners who own only surface rights must allow the mineral rights owner or Lessee to have access to a reasonable portion of the land. This agreement is generally reached through the lease, but if the Lessor does not agree, the Lessee can take the matter to court.

Some of the land within the Fayetteville Shale play is owned by the federal government, typically through the Department of Interior’s Bureau of Land Management or the Department of Agriculture’s Forest Service. In order to gain mineral rights for federal lands, operators must arrange leases with the appropriate agency. There are some circumstances under which the federal government owns the mineral rights but not the surface rights. This condition is known as a "split estate."

Most of the land within the Fayetteville Shale play is not federally owned. For these lands, Arkansas rules apply. The Arkansas Oil and Gas Commission prepared the "Royalty and Surface Owner Brochure."