Is a 10 year lease too long?
We live in Jefferson county PA.
Eight years ago was the first time anyone was interesterd in the gas under our land. We entered into a 5 year lease for the shellow gas. There was no talk about Marcellus Shale Gas at that time. In the 5 years that passed only 2 wells were drilled close to my land they did not pan out as planed. So all drilling stoped. After that lease expirded we was asked by a different drilling Co. to lease our land again. We opted to only lease it for 3 years. Again no wells were drilled on our land or on adjoning land.
We now have been asked to lease our land for the next 10 years with a one time lump sum payment, but this time they want the rights for oil, gas and coal bed methane by any means.
My question is;
Is 10 years to long for a lease?
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Replies to This Discussion
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Permalink Reply by 0l1a6laz7smpf on
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Hi Larry,
When we were entering lease negotiations we didn't know that there was even 5 year lease agreements available....that was in the early part of 2008. When a land agent mentioned a 10 year lease the terms were not that much different, so we were very pleased to go with a 5 year agreement. I suggest that you contact several land agents representing the different oil/gas companies and find out the differences in the offers for a longer lease than 5 years. With all the excitement of the Marcellus Shale and the recent testings it would behoove you to be able to renegotiate with a shorter lease term at the end of 5 years or if you lease whether 5 or 10 or whatever...it would be good if you have a 'top lease' clause (and remember that some leases have a clause for extension time for the lessee, the oil/gas company...that would also give extension time and a renewal of the first payment of the primary lease again.
I know that when we first did some negotiating all this was soooo new that we didn't fully realize the importance of these clauses that I just mentioned. Now that some time has passed and I hear they are offering almost 2k more per acre than when we initiated the lease....I am glad it is only a five year lease.
As far as mineral rights, gas/oil, etc. It is good to determine whether you would ever pay someone of your own to mine for minerals, etc. If you intend to do that yourself then you most likely would not want to turn over that in a lease to the oil/gas company. but if you know that you would most likely never be mining for gold (example) nor would know how to process it and retail it...then consider putting it into the lease for the oil/gas company would know what to do with it. That also should be a consideration in how long the lease should be for when giving out those rights also for a leaseholder. I haven't heard anyone mention thus far about 'wind mill' leases on top of oil/gas leases...so there is also 'wind' rights as well as mineral rights. Gas and oil are not necessarily considered minerals and some leases only refer to the 'soft' minerals not the 'hard'. My lease excludes coal or hard minerals under the leasing clause.
http://geology.com/articles/mineral-rights.shtml
Hope this info helps someone!
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Permalink Reply by Keith Mauck (Site Publisher) on
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What year were those first 2 wells drilled...technology has continued and will continued to improve. Were those two wells shallow as well? Do you know how thick the shale is in your area?
This doesn't sound like a "lease" as typically referred to...this sounds more like a 10 year mineral purchase with the option for them to transfer the right to a 3rd party...would this be accurate? You would not be recieving any royalties whatsoever...correct? Personally, unless I was about to be thrown onto skidrow, I'd never do this....unless the lump sum payment is of value, but it never is...
Alot can happen in 10 years...and it leaves you without any options... technology will advance, conventional leasing may pick up in your area.
What do you know about this company...are they proven, do they flip their leases...? There are so many issues here that I don't believe the 10 year term is the only potential issue that will lose you income here.
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Permalink Reply by Brian on
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Don't do it. I have yet to see or ever hear of anyone signing a 10 year lease that they were happy with. Like Keith said, even if they are giving you a lump sum to buy your rights it still won't be worth it. (Unless you are about to lose your house or something of that nature.)
It would also help a lot if you gave us some more information on your situation. Best advice I can give you is to research on this site and others like it to gain as much knowledge as you can about this business. Have you spoke with your neighbors? Have they received offers? If you own a significant amount of land I would suggest finding an oil and gas attorney. Where I live there are billboards up all over with attorneys who supposedly specialize in oil and gas leases.
Don't make any immediate decisions because they are pressuring you. This is a long process, and if there is not any drilling going on near you then you are not pressed for time no matter what they say.
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Permalink Reply by Sara A. Worsham on -
I would be very hesitant about signing a ten year lease. If they are interested in your land then they should begin drilling within a three year time frame, so I would not sign anything over that. By tying your land up for ten years, you take the risk of the company not drilling for a prolonged period and also not getting any additional bonus consideration until your ten years is up and another company can approch you about another lease.
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Permalink Reply by Monty on
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The coal bed methane should be a separate deal. When talking to my lawyer he told us a couple people were getting 75 barrels of oil a day from a marcellus well and did receive any money from this oil. You need to be careful about these leases and contact an attorney.
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Permalink Reply by Henry Edwards on
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We have three leases and 18 % royalties when wells are drilled. Prices for those leases go up to $3200 an acre for three years.Many factors go into whether the company will drill in your area, proximity to pipelines, compression stations, activity in the area or past experience in surrounding areas. You need to investigate all of these matters. 10 years is way longer than most are getting. Three years is pretty much the mininum. Five years is probably the norm. Coal Bed Methane should be separate. You really need an experienced law firm in Marcellus gas leases. It will more than pay for itself.
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Permalink Reply by al price on
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Henry,
Where are you located and which company did you sign with? Three separate parcels ought to give you a good chance. ap
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Permalink Reply by DP on
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It is important to understand that the infrastructure for conveyance of gas (pipelines of suitable size and location, compressor plant, etc...) is limited and it may be unreasonable to expect a well within 3-5 years. if a company is compelled to meet a short term lease to avoid expiration they may simply drill a vertical well, less productive well, to hold the unit or if they do drill a horizontal well, shut it in for extended periods due to limited ability to sell the gas. 10 years may be a reasonable time frame when you consider these factors. It may be best to negotiate a higher bonus payment in exchange for a longer lease to off set the extended time to get royalties and to allow the company adequate time to propery develop your gas.
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Permalink Reply by JRW on
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no way for a 10 year lease, 5 year is what is the best most landowners or groups get, even 5 plus 5 at 5K an acre is better at least after five years it renews at 5K an acre.
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Permalink Reply by Marty Wittstrom on
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Ten years is a long time in a play as active as the Marcellus. With a long term lease one encounters two problems: 1) should average lease bonuses and royalties increase during the time your land is under lease, then you miss out on the advantage of those better terms; 2) the oil company can delay drilling on your lease until it is more convenient for them. This is especially aggravating if your neighbor for some reason leased after you and got better terms, then the oil company decides to drill on your neighbor's land first because they need to do so before their shorter term lease expires. Since the real money comes after production starts, any delays in drilling also delays the enjoyment of your financial benefits.
A 5-year lease is plenty for a company to do their evaluation, drill, and construct their production systems. If a land agent pushes back on that they're just blowing smoke. The fact that you previously signed a 3-year lease is interesting. It sets the precedent for signing a 3 year lease again and getting the advantage of another bonus payment in three years. The Marcellus will still be a hot play then and bonuses may have increased.
Something that I noticed companies doing is amortizing the bonus payment over the term of the lease, e.g., paying a 1/5 of the bonus each year for the five years of a lease. Companies are doing this to get more leases by making their leasing budgets go further. This is not a common practice in other states, so it is reasonable to demand the bonus up front if you wish. Some people with a large amount of acreage though want to spread the payments out over time for tax reasons.
It appears that the first lease for your land was for the purpose of conventional shallow gas exploration above the Marcellus and when the nearby wells weren't successful the company lost interest in drilling; this pretty typical. The target for exploration in the second lease might have been the Marcellus, but the main activity has been in SW and NE PA, so they may not have had the necessary encouragement at the time to do any drilling. The exploration is now converging on the center of the state, e.g., Clearfield, Centre, Jefferson counties, etc. The Marcellus is a fairly blanket play, although it has sweet spots, so there is a good chance there will be drilling on your acreage this time, especially if natural gas prices increase.
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there is some really good info and wisdom in this discussion...thank you all for sharing, I enjoy reading your comments.
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Permalink Reply by Larry on
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I got to thank each one of you for posting your helpful Comments on this question for me and all others that maybe wondering what to do as well.
Some answers to questions asked to me.
1. The thickness of Marcellus Shale under our land is in the 100 to 150 foot.
2. Right now there is only one company leaseing up land around us. So no going out for other bids.
3. From info I am getting the wells are being drilled and caped for now. I assume untill the price for gas goes up to make it Profitable for them. That way land is secured and no payouts for gas left in the ground.
4. Offer per acre was $2000.00 for the 10 years. I only own 15 acres.
Needless to say you all have given me a good insight on how to negotiate my lease.
I am so thankful for all the new friends I have found here at GoMarcellusShale.com
Larry
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