Information mineral owners need to know

(And what Landman often fail to explain)

​

1. Why is today’s oil and gas development different from the old wells?

Before 2008, much of Appalachia relied on conventional shallow wells, such as the Upper Devonian Shale. These wells were typically:

• Drilled vertically to about 3,000 feet

• Low pressure

• Produced small but steady gas and oil for decades

• Often provided free gas for homes and modest monthly income (e.g., $100/month for 40–50 years)

After 2008, operators shifted to unconventional shale development, primarily the Marcellus Shale, which:

• Is drilled vertically to about 7,500 feet

• Then horizontally 16,000–20,000 feet (3–5 miles)

• Requires high-pressure, multi-stage hydraulic fracturing

• Produces large volumes early, but declines rapidly

​

2. Why do royalty checks get smaller over time?

Marcellus shale wells experience rapid depletion:

• Wells can lose 60%–80% of total production within the first 3–4 years

• Example from DEP annual production reports:

  • Year 1: 3–4 million MCF

  • Year 2: ~2.8–3.3 million MCF

  • Year 3: ~1.7–2.2 million MCF

• As production declines, royalty payments decline accordingly

• Also remember the “shut-in” provision. Royalty payments can temporarily stop when a drilling unit is shut in. Common reasons include drilling activity on a nearby unit, pipeline leaks or maintenance, weather events that cause damage or prevent production, or natural gas prices falling below approximately $2.00 per MCF.

This is why it’s important to understand the shut-in clause in an oil and gas lease. The clause can often be negotiated or modified to require a higher shut-in payment per net acre, and/or to limit the length of time the lease can remain shut in before additional compensation is owed.

 

3. Why am I still paying property tax if production is low?

In West Virginia, mineral owners pay personal property tax on minerals:

• Typically ranges from $5 to $100–$200 per year depending on your ownership

• Taxes remain due even when production drops significantly

• After several years, some owners receive very small royalty payments but still owe the same tax annually

​

4. Why are deductions taken out of my royalty check?

This depends entirely on your lease language.

• A 15% “net” lease allows operators to deduct post-production costs

• Typical deductions include:

  • Gathering

  • Compression

  • Processing

  • Marketing

  • Coning

• These deductions can total 6%–7%, turning a 15% royalty into 7%–9%

Best practice: Always negotiate a “cost-free at the wellhead” royalty clause so you receive the full royalty percentage you agreed to.

​

5. Can I sell my mineral rights after leasing them?

Yes—and often leasing first is the smarter move.

Recommended approach:

• Negotiate a strong lease with proper protections

• Secure a good bonus and royalty

• Then, if needed, sell only part of your minerals, not all

Example:

• You own 50 acres

• Medical expenses arise

• You may only need to sell 10 acres

• You keep 40 acres for future income or value

This strategy allows you to diversify without giving up everything. Many mineral buyers won’t explain this because they want 100% ownership.

 

6. How long does it actually take before royalties begin?

A signed lease does not mean immediate drilling or income.

Typical timeline:

1. Unit formation (640 acres) – up to 1 year

2. Surface agreements & permitting:

   • Road widening

   • Traffic control

   • Army Corps permits (creeks/bridges)

 

1. Rig setup – 2–3 months

2. Drilling horizontal laterals – up to 1 year

3. Fracturing (fracing) – 6 months to 1 year

4. Flaring & cleanup – several months

5. Production begins (only if gas prices justify it)

Realistic expectation:

 3–4 years before first royalty payment

 

7. What is a drilling unit and why does it matter?

Before drilling:

• A Declaration of Pooling and Unitization must be filed

• This document finalizes the unit and is recorded at the county courthouse

• Without a permitted unit, no drilling timeline is guaranteed

Always ask:

• Is the well permitted and approved?

• Is there a designated pad site?

• Has the unit already been formed?

 

8. Why should I always ask for proof and documentation?

You should always request:

• Proof of title

• Copy of permits

• Unit maps

• Timeline expectations

Many modern landman focus on getting signatures, not educating owners.

​

Always remove the general warranty clause from an oil and gas lease.
A general warranty makes the lessor responsible for defects in title, including issues arising from the lessee’s title examination. Drilling operators do not certify title themselves; instead, they rely on a title attorney’s opinion, which is not a guarantee of title.

As a lessor, you should never assume responsibility for another individual’s or company’s title research or title defects. At most, a lease should include a limited or special warranty, or no warranty at all.

If you want it a bit more plain-spoken (good for landowners):

Never give a general warranty in an oil and gas lease. It can make you liable for title problems that aren’t your fault. Operators rely on a title attorney’s opinion—not a guarantee—and you shouldn’t be on the hook for errors in someone else’s title work.

​

Key Lease Modifications to Protect Your Mineral Interests

When negotiating an oil and gas lease, several important modifications should be added to protect your mineral rights and preserve the long-term value of your asset.

​

First, the lease should include a conflict-of-terms provision stating that, in the event of any conflict, the standard lease terms remain in effect unless specifically modified in writing.

​

You should also require a no-refund clause, ensuring that any bonus or royalty payments already made cannot be reclaimed by the operator under any circumstances.

​

The bonus payment timeline should be clearly defined, with payment due within 45 to 60 calendar days of lease execution. Additionally, the bonus amount should be fully negotiated to secure the highest possible payment per acre.

​

A strong hold harmless and indemnification clause is essential. This clause should protect you and your family from any liability arising from operations within the unit.

​

The lease should include a no surface operations clause. Even if you do not own the surface rights, this provision helps protect the original surface owner by prohibiting surface use related to drilling or production.

​

You should also include strict water protection provisions, including:

• No water usage from your property

• Baseline and post-drilling water testing requirements

• ​

The lease must prohibit disposal wells and injection wells, as well as gas storage of any kind. It should also explicitly forbid the extraction of coalbed methane.

​

The lease should be “cost free at the well head” stating in #4 of this document.

​

Regarding formations, the lease should address the Marcellus Shale and the Utica Shale, which lies approximately 2,000 feet below the Marcellus. Operators may drill the Marcellus now and later seek to drill the Utica, so a depth limitation clause is critical. This clause should specify that:

• The lease applies only to the Marcellus Shale

• Any future drilling into the Utica requires a new lease with new terms and compensation

A Pugh clause prevents a lessee from holding all your acreage (or all formations) forever just because they drilled one well somewhere.

There are two flavors:

• Vertical Pugh → releases unused depths

• Horizontal Pugh → releases unused acreage

You can have one, the other, or (best case) both.

Vertical Pugh Clause (depth-based)

What it does

If the operator drills and produces from one formation, the lease only stays alive down to a defined depth.
Everything below that depth is released back to you.

Example

• Lease covers surface down to the center of the earth

• Operator drills a Marcellus well

• Lease says: “All depths 100 feet below the deepest producing formation are released.”​

These protections help ensure that your mineral interests remain secure and retain their value over time.

Everything starts with a well-negotiated oil and gas lease.

 

9. What happens if I move or pass away?

This is a major issue, especially in West Virginia.

If you move:

• Notify the operator in writing

• Use the address listed in your lease

• Otherwise, royalty checks may go to the wrong address

If you pass away:

• Your Last Will and Testament must be probated in your home state

• An exemplified copy must be filed in the WV county where minerals are located

• This process is called “curing title”

• Heirs must notify: The operator and the county tax office

Failure to do this can result in:

• Lost royalties

• Tax sales

• Title complications for future generations

 

Final Advice to Mineral Owners

• Never rush into signing a lease

• Always ask questions

• Always request documentation

• Understand timelines and deductions

• Protect your family’s future by keeping title and tax records current

 

Another issue we often see involves inherited mineral rights.

If someone is receiving disability benefits—such as Social Security Disability, Veterans Disability, Medicaid, or Medicare—it is very important to check with those agencies to understand whether additional royalty income could affect eligibility or benefit levels. Royalty payments can fluctuate from month to month and typically decline over time as production depletes. In contrast, programs like Medicaid, Medicare, or disability benefits may last a lifetime, so it’s critical to understand the long-term impact before accepting or relying on royalty income.

​

At Appalachian Mineral Company, we practice old-school petroleum land work—educating mineral owners first. We believe in “Oil & Gas 101”: teaching the entire process before a lease is ever signed.