Consumers Beware of Gas Well Leases, Especially Around the Holidays

For those contracts professors who teach Peevyhouse v. Garland Coal & Mining Co., 382 P.2d 109 (Okla. 1962), there is a modern version this 1962 case going on right now in the gas drilling context. In the venerable Peevyhouse case, Willie and Lucille Peevyhouse owned a farm that contained coal deposits, and entered into a contract with Garland Coal & Mining Co. allowing Garland to strip mine the coal, in return for a royalty. In the contract, Garland promise that the land would be restored once they were done. The court refused to enforce the clean-up provision, however, finding it incidental to the main purpose of the contract. The land was left a hot mess.

Yesterday’s New York Times reported on the perils of modern gas well leases. It reported that many homeowners in Pennsylvania, Colorado, and West Virginia have seen their water sources contaminated as a result of such drilling and that based upon a review of the New York Times of over 3,000 lease and other documents, fewer than half of the landowners had any recourse under the contracts for the contamination or for the waste pits being left on the land after the fact.

There are significant parallels between these gas leases and the Peevhouse contract. Both are one-sided to say the least. Gas leases are peddled in Texas, Maryland, New York State, Ohio and the other states mentioned above by people called landsman, who have their own trade association and who frequently hawk the leases in rural poor areas, especially around the holidays when people need extra cash. The drilling companies often leave dangerous waste on the land and the leases do to require then to clean up. If they do clean up, the costs are frequently deducted from the revenues the landowner receives. The risks of land and water contamination are not pointed out to the landowners. The leases last 3-5 years but can be extended indefinitely by the drilling companies, making it hard for consumers to ever get out of the arrangements. The article says eight states have state laws requiring drilling companies to clean up their messes but the others do not. Another example of consumer beware.