I'd appreciate all information helpful in deciding what to do. CHK wants to expand our lease's unit size. We would like a better royalty (current 12.5), no HBP. What factors should we consider before reaching a decision? Thanks in advance.
Where is your land located?
What is the current unit size limitation in your existing lease? 160 acres?
"I said this will reopen my lease and the DPS Penn guy said "no it's not reopening your lease we just need to reword one sentence". It is reopening the lease."
That depends on what the sentence is. If it substantially changes the terms then yes, that's reopening the lease. If it's simply a curative issue then it's not. What did he so badly want to change?
This is a good question!! I've heard others say they have also been approached to increase the allowable unit size. I don't know the pros and cons, BUT ... bear in mind that if they increase the unit size they can drill fewer wells, roll more property into a unit and thus claim your land is in production and there will be no additional 5 year bonus renewal for you.
Example ... let's say you agree to increase your unit size from 640ac to 2560ac. Since gas prices are low, the drillers are not really interested in drilling any more wells than necessary. They want to hold out for higher gas prices. So to minimize their drilling, and still hold your land in production so they don't have to pay you another bonus in 5 years, they want to increase the unit size ... at 2560ac they need to drill only one well instead of four. You will, at least in the near future, also get a much smaller royalty check since your share will be a much smaller percent of 2560 than it was at 640. Maybe sometime in the future they will drill additional wells in the 2560ac unit and you will eventually get the same overall total royalty dollars, but in the short term they get to hold your land without any further bonus renewals. Unless you want to renegotiate your lease for some reason, I don't see any advantage to a landower to agree to a larger unit size.
Thanks all. Land in Carroll Co, current lease 240 ac unit size. 12.5 royalty. It is a lousy lease, and I am awaiting the end date. Many of the landowners in this area signed early w/ Patriot for a whopping $50/ac. and minimal protections.
Man, what a bummer. When is your end date? Good news is, your unit size is still under 640. And, even if you get put in a unit at those terms, it's more $ than you had. Hang in there! There's no denying what's under our land. It's a matter of time...
PS, I'd lawyer up. Not in a hardball fashion, but for guidance and fair negotiations. All these technicalities are way beyond what we (landowners) should try to navigate ourselves.
Remember that these oil & gas companies have been dealing with landowners in TX and OK for decades and I believe that they have perfected deception as an art form! I wouldn't trust any of these company representatives as far as I could throw him.
We all know that the royalty is the key big dollar item in a lease. All the other terms and conditions are ancillary to the royalty. And since the royalty to be received by a landowner is based on unit size, in my opinion, a redefinition of the unit size is a major change to the contract ... and, hence, directly impacts the royalty .... it should be considered a "reopening" of the lease agreement.