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Understand the “Option”

Many landowners across the Marcellus Shale region of Pennsylvania are being approached by natural gas pipeline company landmen presenting them with Pipeline Right-of-Way Option Agreements.  These Pipeline Right-of-Way Option Agreements are presented to the landowner in order to provide the pipeline company a right-of-way or easement across their property for the installation of natural gas pipelines and often water line(s).  These Pipeline Right-of-Way Option Agreements are extremely powerful legal documents that involve the conveyance of an easement to the pipeline or gas company and must not be entered into lightly or without the assistance of an experienced attorney.

It is extremely important that the landowner understands what rights they are transferring under the Pipeline Right-of-Way Option Agreement and also for how long these rights are transferred.  I am not going to fully address what the rights are in this blog, but will address these concerns in future posts.  However, my concentration at this point is on making sure that landowners understand the “option” aspect of the pipeline agreement.

Many landowners mistakenly believe that upon signing a Pipeline Right-of-Way Option Agreement they are going to have a pipeline or water line installed across their property.  However, this is not always the case.  It is very important that the landowner understand that when they are presented with a Pipeline Option Right-of -Way Agreement, the “Option” typically provides the pipeline company the ability to exercise the “option” to install pipelines, water lines, both, and potentially much more. In the alternative, the pipeline company can refuse to exercise the “Option,” in which case there would be no activity by the pipeline company under the terms of the Pipeline Right-of-Way Option Agreement.  

Normally a pipeline company will pay the landowner a certain fee shortly after signing the Pipeline Right-of-Way Option Agreement as consideration for the “option” to install natural gas pipelines, water lines, fiber optic lines, and potentially other facilities in the future.  The landowner should always seek to maximize the option payment and minimize the length of the option term. It is obviously more beneficial to the landowner to execute a pipeline option agreement with a two (2) year option term as opposed to a five (5) or ten (10) year option.  The Pipeline Right-of-Way Option Agreement will likely be recorded at the courthouse and will give notice to third-parties that there is a pipeline option that applies to the premises.  This absolutely may negatively impact the value of the property in the eyes of potential buyers.

It is important for landowners to understand that although they have executed a Pipeline Right-of-Way Option Agreement, the option may never be exercised by the pipeline company and there will be no subsequent payment under the terms of the Pipeline Right-of-Way Option Agreement. Unfortunately, many landowners do not realize that even though they executed the Pipeline Right-of-Way Option Agreement, there may not be a subsequent damages payment under the terms of the option agreement.  Again, typically the Pipeline Right-of-Way Option Agreement will have an initial payment shortly after signature which operates as consideration for the pipeline company to have the ability (or “option) to install the natural gas pipeline(s), water lines, etc.  A typical “option” agreement also will normally have either a per linear foot payment for a gas pipeline to be installed, or per disturbed acre payment that covers the area of the right-of-way.  However, if an individual executes a Pipeline Right-of-Way Option Agreement and there is no subsequent installation of a pipeline, there will be no secondary per linear foot or per disturbed acre payment.

If a landowner exercises a “straight” Pipeline Right-of-Way Agreement, the agreement will normally require that damages or per linear foot payment will be due within a certain amount of time (for example 90 days) from the time of execution of the Pipeline Right-of-Way Agreement.  If the landowner is able to enter into a “straight” Pipeline Right-of-Way Agreement, the landowner can be far more assured that a pipeline will be installed upon the property, but more importantly, that they will receive the subsequent damages or linear foot payment.  These “straight” Pipeline Right-of-Way Agreements are usually reserved for situations where the pipeline installation company is certain that they are going to install a pipeline(s) or water lines and the pipeline company already has a planned easement route across the landowner’s property.

Pipeline companies seeking Option Agreements will typically seek to sign up a landowner and their neighbors to allow them to have alternative routes to proceed with the pipeline(s) or water lines prior to installation.  A pipeline route may change for any number of reasons including wetland issues, resistance by neighbors, or other physical characteristics of the property that make the initial path less favorable or impossible.  Landowners should seek to identify if they are “currently” involved in the actual pipeline route, or merely an alternative route. There is no sense spending time or money on an attorney negotiating a Pipeline Right-of-Way Option Agreement if there is no real intention of installing a subsequent gas pipeline or water line on the property.

Landowners in the Marcellus Shale region of Pennsylvania considering a Pipeline Right-of-Way Option Agreement should seek a lawyer experienced in pipeline negotiations as these Right-of-Way Agreements may last many lifetimes and may permanently devalue your property.  These Pipeline Right-of-Way Option Agreements must be negotiated to maximize financial compensation and property protections for this and future generations.  I have negotiated Pipeline Agreements across the entire state of Pennsylvania and continue to actively negotiate Pipeline Agreements daily with many companies all across the Marcellus Shale region. Any landowner interested in pursuing a Pipeline Right-of-Way Option Agreement can contact me any time at 570-307-0702.  


Douglas A. Clark, Esq. – Protecting Pennsylvania Landowners



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