Replies to This Discussion

Permalink Reply by 09bp5t05myjl3 on October 17, 2011 at 5:53am

Let me ask Adam 1 simple question. What is your offer to Trumbull & Ashtabula right now $Bonus and royalty % ?
Now we know the facts of the Utica in that area

Permalink Reply by Ed Ganelli on October 17, 2011 at 8:29am

Again, Adam, I go back to this portion of the WishGard lease:

 

LEASE DEVELOPMENT.  There is no implied covenant to drill, prevent drainage, further develop or market production within the primary term or any extension of term of this Lease.  There shall be no Leasehold forfeiture, termination, expiration or cancellation for failure to comply with said implied covenants.  Provisions herein, including, but not limited to the prescribed payments, constitute full compensation for the privileges herein granted.

 

PLEASE, Adam, since you are so experienced in O & G matters unlike all of us who have done no research whatsoever, HOW does the above referenced clause...one which takes away a landowners ability to have a lease terminated for violation of the implied covenants (essentially means the O & G company NEVER has to actually drill in order to hold the lease forever), benefits ANYONE stupid enough to sign a WishGard lease???

 

Permalink Reply by Eric Bowers on October 17, 2011 at 4:51pm

Tom,

 

You state "Now we know the facts of the Utica in that area".  What are the facts of Utica in the northern Trumbull county area?  Just curious to see if there is additional information regarding the quality of the Utica in Trumbull and Ashtabula that I haven't seen yet.

 

Thanks in advance.

Permalink Reply by Adam Thomas on October 17, 2011 at 5:33pm

Edward,

I am very glad you brought that up.

You will find as you look through the main body of the lease that there is few things things that are contradictory to the addendums included in the lease.  One was mentioned earlier in regards to the gross royalty that someone claimed was not a gross royalty.  Had they read the full lease, they would have read the top of page 5 that says"In the event of a connflict between the terms of this exhibit "A" and the terms of the printed form to which it is attached, the terms in exibit "A" shall control."

Under the Market Enhancement Clause also on page 5 they would read  "It is agreed between the Lessor and Lessee that, not withstanding any language to the contrary, all oil, gas or other proceeds accruing to to the lessor under this lease or by state law shall be without deduction, directly or indirectly, for the cost of producing, gathering, storing, seperating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other products produced hereunder to transform the product into marketable form; however, any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be duducted from Lessor's share of production so long as they are based on Lessee's actual cost of such enhancements.  However in no event shall Lessor receive a price that is lass than, or more than, the price received by Lessee.

IT IS A  GROSS ROYALTY

Now for the other question that was brought up Lease Development as you copied it from the main body of the lease:

LEASE DEVELOPMENT. There is no implied covenant to drill, prevent drainage, further develop or market production within the primary term or any extension of term of this Lease. There shall be no Leasehold forfeiture, termination, expiration or cancellation for failure to comply with said implied covenants. Provisions herein, including, but not limited to the prescribed payments, constitute full compensation for the privileges herein granted.

 

This language is standard in all virtually every lease agreement.  There is no oil company in the world that will lease property in an unproven area without it.  They are not going to guarentee anybody a well which is what "Implied Covenant " refers to.  It is that simple.  I wish that wasn't the case but it is.  You will learn about this clause if/when you see a real copy of a lease to sign.  Apparently they didn't include it in th "DRAFT" copy I have heard about.  That is why it is in the main body of our the lease.  However if you read the entire document, you would understand that that it is for a 5 year term with an option to extend one time of 5 years with an additional monetary payment of 1.4 times the original payment.   It is actaully addressed on page 5 in Exhibit "A" that was explained above that controls the lease in the PUGH CLAUSE.  The pugh clause in our lease is both verticle and horizontal.   It is 12 lines long but the portion that refers to your question is towards the bottom of it and it says that Lessee shall "surrender such portions of the leasehold not included in a production unit or those formations and horizons found below the deepest depth drilled."   NO production unit, NO depth drilled = NO Lease because what is not included is then surrendered at the end of the term.

They won't guarentee you a well like they would have to if therer was an implied covenant but if they do not drill than they cannot hold your acreage under lease.  They surreender it at the end of the terms depending on wether they do drill and it falls under the extended 2 year term or they pay to extend the primary term prior to drilling.  I am glad you asked that question though.  I am sure there were other people that may have been slightly confused.  We wish that the oil companies that accept these lease would allow us to write them alot clearer but unfortunately even after you have leased over 100,000 acres and paid out over $200 Million Dollars to you clients in the last 6 months, they still want the paperwork to be wrote in a certain way.  I apologize for any confusion that it may cause.

If you have any other questions in regards to the lease, I would be glad to answer them for you.

Have a nice day!

Adam Thomas

Have a nice day.

Permalink Reply by Ed Ganelli on October 18, 2011 at 1:15am

Pugh Clause 

In the event a pooled unit is created which encompasses land located outside the Leasehold premises and less than Sixty (60%) Percent of the Leasehold premises, any drilling completing, testing, deepening operations or reworking operations on or production from a well located on that pooled unit shall continue this Lease in full force and effect but only as to that part of the Leasehold premises contained within the pooled unit and only as to those formations and horizons found from the surface down to the deepest depth drilled and produced; specifically, this lease shall automatically terminate two (2) years (“Extended Term”) after the expiration of the primary term or any extension provided herein as to such portions of leased premises not contained within a pooled unit and those formations and horizons below the deepest depth drilled. However, Lessee may, at its option, pay the extension payment included in this lease one time, and one time only, prior to the expiration of the two (2) year Extended Term on the portions of the Leasehold not included in a production unit or below the deepest depth drilled to continue all of its rights in and to the Leasehold or surrender such portions of the Leasehold not included in a production unit or those formations and horizons found below the deepest depth drilled.

 

What's important with the addendum, however, is the entirety of the paragraph to which you have referenced (entire Pugh Clause language posted above).  In the first couple of sentences, it says that this paragraph only goes into effect if less than 60% of the leased acreage is included in a pooled unit (states elsewhere in the lease that pooled acreage need NOT be contiguous!).  If more than 60% is included, then the entirety CAN be held!  Also, under the conditions that must be met if the acreage in the pooled unit IS less than 60%, testing alone would keep the lease in effect for the entirety of the acreage, so long as the testing can be said to be done for all the acreage.

 

Also, while this clause states that the lease automatically terminates 2 years after the expiration of the primary term, it also allows for a 2 year extension (at a rate per acre MUCH below the initial per acre amount) - this, along with other vague clauses and phrases that can be easily manipulated by a Lessor for their benefit leaves a LOT of loopholes in the lease...a lease which, according to the language contained within it, CANNOT be pursued legally through the courts, but must instead be "arbitrated".

 

As for all O & G companies now including the "no implied covenant" language in leases, that is just not true!  I've seen several leases that make no mention of implied covenant - there's no need for an O & G company to have it, since if they don't want to drill, they just let the lease lapse.  When it IS in a lease, it's there ONLY so that a Lessee can hold onto leased acreage that they know they may take a LONG time moving on to actually drill and thereby Hold by Production...

Permalink Reply by Janice Lanphere Hancharick on October 19, 2011 at 5:47am

Is there a portion of the wording that dictates IF a well is drilled that it must be in the Marcellus and/or Utica layers, AND directional?  This would eliminate concerns that a property could be turned into Swiss cheese with a bunch of verticals of no specific depth just to hold the acreage.

Permalink Reply by AR on October 18, 2011 at 9:02am

Mr, Gannelli,

 

I find your post a bit unusual considering the pugh clause found in the lease you are touting has far worse language than this.

I have never heard of a Pugh clause giving an indefinate easement to the Lessee forever once the lease is terminated, or expires. This being said, what prevents them from choosing to do whatever they would like with your surface rights as you are no longer covered under a lease.

 

Most Pugh clauses or depth clauses DO NOT have the 60/40 language, so esentially even if they unitize 1 percent of your acreage, then all of it would be HBP. Also, I don't know how many parcels or acreage that you have but even if they put a tenth of an acre of one parcel in the unit, then the whole parcel would be HBP, even if that said parcel is 1000 acres.

 

And another thing you are doing is lying in regards to the contiguos language. if you read the lease and the LIMITATION OF A POOLED UNIT, then you would see that it states ONLY CONTIGUOUS ACREAGE WOULD BE UNITIZED.

 

Another item you pointed out, where testing alone would hold your acreage. If you read the COMMENCEMENT OF OPERATIONS, it states that the Lessee would have to secure a drilling permit, build access roads, pad site etc, and subsequently followed by a drilling rig for the spudding of a well to be drilled.

 

Now lets go back to the other lease that is SOOO MUCH BETTER

 

Held By Production- This Lease may be held in force after the termination of the Primary Term, including any extensions in accordance with Article II section 2 and or section 3 of this lease only by the terms and conditions contained herein, including but not limited to production from, or operations conducted on the Leased Premises or any units in which the Leased Premises is included.

 

 

I think you are getting your leases confused as Wishgards lease states the drill company will have to actually secure a permit, build a pad and drill a hole.

 

The other lease states that they don't even have to do   quote   unquote   operations on your particular parcel, but even if they do   operations on any unit in which the property is included which will Hold you by Production.

 

The truth of the matter is this, you can write whatever you would like in a lease, but if a drill company does not fund it then they are just words on paper. The most important items on a lease, and the whole point of a lease is not to just get the most amount of upfront money. It is important that you don't have verbage in the lease that is going to allow the drill company to tie your acreage up without actually drilling a deep well and paying you a royalty on that deep well.

 

I personally would give up all of the upfront money in order to get a commitment to drill my acreage in the first five years, because I know, as do most people on here that the real money and payoff is in the royalties.

 

I admire everyone that starts a group or joins a group to talk to their neighbors to stop the drill companies from taking advantage of uninformed landowners. I have seen great strides made in Ohio that just didn't happen in PA and WV, and now the good people of Ohio are reaping the benefits. There are alot of leasing companies out there that show up at your door with a lowball offer with actually no addendums at all, and unless you are informed and know what to ask for you don't get any. These are the companies out there leasing for 25-200 an acre, and those are the snakes and flippers that should be attacked. Again I wish all the best to every landowner in process of getting drilled and getting royalties, as this is going to change the whole dynamic of lifestyles and future emplyment throughout the Appalacian Basin.

 

Get informed, attend meetings, read information on the Geology of your area, and why there is such a major difference in the payouts from county to county. Some areas have faults, some the shale is shallower, and there are lifting costs associated with production of oil and gas. Every area is different, and the Geology can be different in one area then it is, say a mile away. Facts are facts, and it is a fact that Wishgard has funded over 200 million in leases in eastern ohio with the interest of the landowners at heart. They will be permitting the first set of wells in the spring on the acreage that Gulfport acquired and those landowners will reap the benefits of signing early as they will be getting anywhere between 6k-12k per acre per year in royalties. I am sure if asked those landowners would tell you they are very happy they signed early rather than waiting a year and getting an extra 2k per acre.

 

Again I wish all of you the best of luch in your effort to get a lease that will allow you and your family to recieve large royalty checks for the next 10-15 years. Good luck and God Bless.

 

AR

 

 

 

 

 

Permalink Reply by Ed Ganelli on October 18, 2011 at 3:15pm

Again, someone from WishGard replying with only half-truths and misleading info regarding the Wishgard lease.  MANY leases actually consider HBP to be only that acreage that is 100% in a drilling unit, and in fact many older leases with wells on them are releasing that part of the leased acreage NOT included in a drilling unit!

 

As for a WishGard rep saying AGAIN that I'm lying (in your case, about the contiguous language in the WishGard lease), that's getting old!  This is yet another example of the WishGard half-truths.  Below is the clause in WishGard's lease saying a unit need not be contiguous acreage:

 

UNITIZATION AND POOLING.  Lessor grants Lessee the right to pool, unitize, or combine all or parts of the Leasehold with other lands, whether contiguous or not contiguous, leased or unleased, whether owned by Lessee or by others, at a time before or after drilling to create drilling or production units either by contract right or pursuant to governmental authorization.  Pooling or unitizing in one or more instances shall not exhaust Lessee’s pooling and unitizing rights hereunder, and Lessee is granted the right to change the size, shape, and conditions of operation or payment of any unit created.  Lessor agrees to accept and receive out of the production or the revenue realized from the production of such unit, such proportional share of the Royalty from each unit well as the number of Leasehold acres included in the unit bears to the total number of acres in the unit.  Otherwise, as to any part of the unit, drilling, operations in preparation for drilling, production, or shut-in production from the unit, or payment of Royalty, Shut-in Royalty, Delay in Marketing payment or Delay Rental attributable to any part of the unit (including non-Leasehold land) shall have the same effect upon the terms of this Lease as if a well were located on, or the subject activity attributable to, the Leasehold.  In the event of conflict or inconsistency between the Leasehold acres ascribed to the Lease, and the local property tax assessment calculation of the lands covered by the Lease, or the deeded acreage amount, Lessee may, at its option, rely on the latter as being determinative for the purposes of this paragraph.

 

This clause in the addendum only kicks in ONCE A WELL IS CONSIDERED TO BE A HORIZONTAL WELL!!!!!!!  Any other drilling (or basic activity by the driller) at ANY time before the well is classified as horizontal (i.e. vertical well only...) allows the acreage held to be inclusive of non-contiguous acres! (as an aside, unlike most leases whose language restricts units to 640 acres plus 10%, WishGards allows for 640 acres plus FIFTY-SEVEN %!)

 

Limitation on Pooled Unit 

If a well drilled is classified as a horizontal oil or gas well drilled to any geologic formation whether oil or gas, then the maximum size of the pooled production unit shall not exceed 640 contiguous acres, except said production unit may exceed 640 contiguous acres, but in no event larger than 1000 contiguous acres, if the lateral extent of horizontal wellbores in said formation extend beyond the boundary of a 640 contiguous acre unit, and/or in the event that a reasonably prudent operator would expect that the entire acreage within such larger unit will be effectively and efficiently developed and drained from a central pad site location. The pooled production unit shall to the extent practicable be parallel and centered on the lateral wellbores to be drilled within the unit. Lessor and Lessee agree to abide by any State pooling or unitization orders.

It's becoming clearer and clearer to me, as it should to anyone following the discussions on this site regarding WishGard and many of it's agents, WHY WishGard is a terrible option for anyone to pursue...

Permalink Reply by James Kerns on October 18, 2011 at 4:24pm

Hi Edward, Great work your doing here, i would assume by this you have a copy of the lease and addendums from Wishguard. Why dont you post the link so we can see it in it's entire glory, as we have repeatedly asked their representatives to do this and they have decided instead to act in such a disrespectful and unprofessional manner, with more twisting and side stepping than many career politicians are capable of.

Truth be told, if these cats worked for me even as "1099" contractors, and i caught wind of this kind of behavior, i would send them packing on down the road in a hurry. They have done more to diminish the company image than help it. It amazes me that some people believe they can get away with this kind of behavior on the phone and on the net, but if they came to my home acting like that, i just might have to fire up the backhoe to dig a hole, he he he! I really dont want to hear any more from them or W***G****.

Best Wishes to All.

Permalink Reply by Ed Ganelli on October 19, 2011 at 12:03am

Hi James!  Yes, I do have a copy of the WishGard lease that they are presenting to Ashtabula Cty. landowners who hold large amounts of acreage.  However, while I DO have a legal background, I'm like most people my age and basically computer illiterate!  :-D  When my 10 year old grandson gets home from school later today, I'll go pick him up and drag him over here - I'm sure it will take him about 3 minutes to get the lease posted up here as a link!

Permalink Reply by Janice Lanphere Hancharick on October 19, 2011 at 6:27am

Your advice should be heeded by all.  An on-going education on all of this is a must.  Technology has exploded and allowed companies to do much more than they ever expected even 10 yrs. ago in areas that weren't on THEIR radar ... for one reason, low profitability  on whatever resources could be recovered. Not true today.

Many PA and WVA rightsholders learned hard lessons when it came to leasing with companies through a landman, or reaching out on their own.  If OH folks do their homework they won't fall for the same tricks.  Strength in numbers a.k.a. Groups = a much more level playing field.  Experienced and knowledgeable representation for any group will guard both the environment and the wallet.

Permalink Reply by Adam Thomas on October 18, 2011 at 4:11pm

Thank you AR.  You saved me alot of typing but I would like to point out one very important point that you missed.  Mr. Ganelli pointed out a great point of this lease:

"a lease which, according to the language contained within it, CANNOT be pursued legally through the courts, but must instead be "arbitrated"."

This lease does have an  "Arbitration" Clause.  It reads as follows:

"In the event of a disagreement between Lessor and Lessee concerning this lease or the associated Order of Payment, performance thereunder, or damages by Lessee's operations, the resolution of all such disputes shall be determined by arbitrationin accordance with the rules of the American Arbitration Association.  Arbitration shall be exclusive remedy and cover all disputes, including but not limited to, formation, execution, validity and performance of the Lease and order of payment.  All fees and costs associated with the arbitration shall be borne equally by Lessor and Lessee"

Apparently you are so foolish to believe that the courts are the place to go.  If you want to fight these huge oil companies in court, it shows how litttle you understand how that works.  They have hundreds of attorneys on their pay roll.  You will have to pay your own attorney out of your pocket to fight for you. They will bury you lawyer in paperwork and bankrupt you before you ever see the inside of a court room!!!   Welcome to big business!

 The fact that you would complain about such a clause that protects someone from having to fight these companies is amazing to me.  You truly do have no idea how this industry or big business functions.  It is apparent by every response that YOU are uninformed and uneducated on anything to do with leases yet you continue your rediculous retoric as if you know.  It should be apparent to anybody following this dicussion that you are clueless on the subject.  You for whatever reason seem to have a desire to preach to everyone your beliefs as if they are gospel.  THEY ARE WITHOUT ANY FACTUAL BASIS WHATSOEVER!!!  When you actually got down to speaking of the lease that you have adamently spoke so poorly of that Wishgard offers rather than continuing your rediculous name calling and childish rants,  you have been dead wrong on every single issue!!!  Although it may be a surprise to some, I have read it through and through,  I know what it says!!!  I am not a sheep that will follow you just because you yell the loudest.  I am capable of my own thought.

By the way, if you want to know how fighting these companies works, Mr. Ganelli,  do the research on how the lawsuits involving "alledged Fraud" are going in Northern Michigan. 

I will keep my Arbitration clause in my lease thank you!

Mr, Bowers,--  There is no new information on the utica shale.  Some people want to lead you to believe that it is a sure thing and a guarenteed bet but there are people all over that found out it wasn't when the interest from the oil companies disappeared with one or two dry holes!  Some think that because oil companies are willing to lease speculative areas that it means that the good stuff is in that area.  Oil companies spent Hundreds of millions last year in northern mMichigan because they had a great test well result. That is what will determine the value of the shale.  HOLES DRILLED.  that is it.  When they drill those holes, the offers will either go way up or off the table entirely. The fact is that if you lease on now, it may caost you some upfront money if your area pans out good.  However, if it turns out bad, the ones that lease early will have their money and  the ones that hold out may end up with nothing at all.  That is a fact!  It happened in Michigan just last year as well as many areas in the Marcellous in Pennsylvania.  Everyone needs to make up their own minds.  Inevitably, it  is you decision on how much you wish to gamble.  Some areas holding out worked and in other areas it didn't.

I truly wish everyone the best of luck with all this.  There are some different options out there which one you choose is up to you.  Remember, do your own research, don't just take the word of others or listen to who yells the loudest.  It is usually those people that know the least.   In the end you have to do what is right for you and yours.  You and your family have to live with your decision, not anyone else!

 

Good night,

Adam

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