OSU Extension — your source for information about gas, oil exploration
“Should I lease my land for oil and gas exploration?” “How much should I get for a lease?” “What should the lease include?” “Will I owe tax on the money I receive?” “What should I know about pipelines?”
These are but a few of the questions I have received the last several months related to the gas and oil exploration boom that is occurring throughout the area and across much of eastern Ohio.
Ohio State University Extension has developed several research-based, non-biased pieces of information to help landowners understand more about this broad topic and provide a resource to assist with making wise decisions. A team of OSU Extension educators and specialists meets regularly to discuss trends and developments, plan educational programming, and develop resource materials.
Leasing
For those who have yet to lease their land, or are in a position to negotiate a new lease, it would be advisable to obtain a copy of the OSU Extension fact sheet Leasing Farmland for Oil and Gas Production. This is an excellent resource for learning about what to look for in a lease, what to include and what to exclude.
A sample lease is also provided that can help serve as a template when negotiating an agreement. It’s important to remember that when negotiating a lease agreement you are the one in charge. Now is the time to make your requests known and documented.
Tax and wealth management
Any money you receive as a result of signing a lease will result in taxable income. There are a few things you can do to minimize your tax liability, but the fact remains that the IRS is going to know how much you received and will expect payment.
The OSU Extension fact sheet Income Tax Management of Oil and Gas Lease Payments describes federal and state tax obligations and provides a summary of available strategies for minimizing taxes on income received from signing a lease.
Depending on the amount you receive, you may be required to pay the Ohio Commercial Activities Tax as a result of signing a lease agreement. To learn more, read the Shale Oil and Gas Payments Subject to Ohio Commercial Activity Tax fact sheet developed by OSU Extension.
Pipelines
Pipelines play a critical role in moving materials from below the ground to processing facilities or end users. We are beginning to see and hear more about the construction of pipelines across private property.
Property to construct a pipeline is acquired through an easement, as opposed to a lease that many landowners have signed for oil and gas exploration. An easement agreement should be negotiated separate from a lease and should include a number of provisions to protect private property, people and the environment.
The OSU Extension fact sheet A Landowners Guide to Understanding Recommended Pipeline Standards and Construction Specifications provides a summary of an agreement the Ohio Department of Natural Resources negotiated when the Rex Energy Pipeline — East Project was constructed. This document provides landowners with items to consider before, during, and after signing an easement agreement.
Summary
The information presented here and developed by Ohio State University Extension should not be considered legal advice. Meeting with a qualified attorney and/or accountant is highly recommended before, during, and after negotiations. It may be some of the best money you’ll ever spend.
If you are interested in copies of these materials, go to http://tuscarawas.osu.edu/topics/agriculture-and-natural-resources. If you are unable to access these documents at this site, call the Tuscarawas County office of Ohio State University Extension at 330-339-2337.
