Free Gas Issues
Written by Nils Peter Johnson about Drilling and Producing + Leases on June 11, 2014
Many oil and gas leases provide the lessor with free gas. This provision was fairly common in older leases, but has disappeared to a large extent for newer leases tailored to shale gas wells. Here is a list of frequently asked questions and concerns about landowners exercising their right to free gas under an oil and gas lease:
Who is entitled to free gas?
You may be entitled to free gas if the oil and gas lease affecting your land contains a free gas clause, and if no other houses already use it. Read your lease carefully, and look for free gas language. Before you call your gas company about free gas, check to be sure that neighboring houses aren’t already taking advantage of it. Most leases only provide that one building is entitled to free gas. However, some leases contain unusual language that do not limit the number of buildings that can use free gas.
Generally speaking, only the landowner on whose property the wellhead is located is entitled to free gas. There are exceptions, however.
What types of structures/equipment can I hook the gas line to?
Most leases provide that free gas can only be used by “one dwelling house,” or “one residence.” Language like this pretty clearly suggests a house, though it could conceivably mean a barn, or outbuilding. Language like this pretty clearly prohibits the gas line to fuel farm or industrial equipment. Other lease language might say “for domestic use.” This language also suggests a house, but could also conceivably mean an apartment or office. It is best to err on the side of caution and to use the free gas in the spirit of the lease’s language.
How much free gas am I entitled to?
The average gas lease provides for free gas sufficient to heat an average sized home for about a year. Historically, that amount was 200 MCF, or 200,000 cubic feet of gas per year. However, some leases will provide for more than that amount, as well as less than that amount. There is some case-law that suggests that a landowner’s wasteful use of free gas may terminate their right to it. This typically arises in situations where the gas is being used to fuel an incredibly inefficient machine, or if it is used to heat/cool an completely uninsulated building. Read your lease carefully to determine how much free gas you may be entitled to.
How do I hook up the well to my building?
A professional with experience in domestic gas line installation should install the gas line from the well to your home. Please understand that natural gas is extremely flammable and must be treated with extreme caution. In the greater scheme of things, the cost to have the line properly installed will be far less than the amount of money you save by heating your home with free gas. It is worth the investment.
Who pays to install the line?
Most leases say that the lessor (the landowner) is to install the gas line at their sole cost and expense. It would be very rare for a lease to lay that responsibility with the lessee (the producer).
Who pays to install the gas meter?
The majority of leases do not specify who will pay to install the gas meter. If the lease is silent on the issue, it may be wise for the landowner to not draw attention to it: it would be difficult indeed to measure the amount of gas the landowner is taking if there is no meter. Prudent well operators will quickly catch on to the house gas line being un-metered, however.
What happens if I use more gas than the lease permits?
The average lease will state that when a landowner uses more gas than their allotted amount, that they will be billed for the additional used gas at a market price. A more favorable lease would say that the landowner would be billed at the wholesale price. Sometimes a lease will not indicate what happens in the event a landowner uses more than their allotment. This does not mean that the landowner is free to use as much gas as they want. Again, it is always good practice to adhere to the terms of the lease.
What if my free gas use prevents commercial production?
This is a very interesting issue that frequently arises with old wells. Imagine an old well that produces enough gas to heat a home, but produces no extra gas that the producer can sell commercially. Does this mean the house must stop using the free gas so that the well can be commercially productive? Surprisingly, there is not much case-law that speaks to this topic. A solution usually involves the producer paying a utility company to supply free gas to the landowner. This way, the landowner continues to enjoy free gas (now paid for by the producer), and the producer now enjoys a well that produces commercially.
No other houses utilize the free gas my lease provides…can I use it?
Maybe. Let’s imagine there’s a 100 acre empty field subject to a lease that provides for free gas. Some years later, the field was divided in half: the eastern 1/2 and the western 1/2. A well was later drilled on the eastern 1/2 of the field. Some years later, a family buys the western 1/2 of the field and builds a house. Even though the wellhead is on another parcel of land (the eastern 1/2), the family on the western 1/2 would be entitled to free gas from that well.
Let’s look at another scenario. Let’s imagine there’s a 100 acre empty field subject to a lease that provides for free gas. Some years later, the field was divided in half: the eastern 1/2 and the western 1/2. A house then gets built on the eastern 1/2. Let’s then assume that a well gets drilled on the eastern 1/2, the same parcel the house sits on. If a house later gets built on the western 1/2, and the house on the eastern 1/2 has not utilized the free gas provided for in the lease, the house on the western 1/2 would be entitled to free gas. However, in such a circumstance, the producer may ask that the western landowner obtain the eastern landowner’s permission.
Who has the right to receive free gas, the mineral owner or the surface owner?
Ohio law is quite clear that the surface owner of a parcel of land is entitled to free gas.
About Nils Peter Johnson
NILS PETER JOHNSON attended Western Reserve Academy, received his BA in philosophy from Bates College, and his JD from Vermont Law School where he studied environmental law. He is active in the Mahoning County Bar Association’s Taxation/Estate Planning Committee and volunteers regularly with the Canfield Rotary Club. He oversees Johnson & Johnson’s website, as well as GasandOilLaw.com.