ATTENTION Landowner Group Members

The IDEA of "strength in numbers (acres)" is quite apparently agreed upon by many members. Let’s not forget that a portion of those "numbers' will not have a chance at the lease being paid.  Because if your "numbers" are not connected/contiguous to other "numbers" the valve of your numbers are not as appreciated by the potential LESSEE. And an outfit, no matter how financially secure, only has so much capital it is willing to spend/risk on a project.

Hypothetical Question: What if a group of 25,000 acres agrees to sign but only 10,000 of those acres are contiguous, what would be the incentive to pay the remaining 15,000 ac scattered all over the area? After-all, 10,000 ac would be quite enough leasehold to form producing units.

Also remember lawyers are paid directly from the amount of time spent "consulting" with the client(s) board leaders and it is very profitable to drag the process along for themselves. Every time a call/letter/email/fax is addressed concerning the process of your group.....cha ching, time is being billed. Another thing to remember, your area is not the
only area.....rather than drag it out, an outfit (especially a proven profit making producer not a flipper) just may pack in it and move to another more open-minded area and spend their money there. Which would leave your area open for another round of negotiations with another outfit and the much anticipated billed time for your friends at the law firm?

Hope you didn’t have plans for the bonus money anytime soon, yet the possibilities of a royalty check. Don’t worry, that new roof on your house/barn can wait (it isn’t leaking "that bad"). You can always wait for next year’s model of the truck/tractor you were planning on buying.  Paying off those loans can also wait...after all you've been paying on them for
years already. College tuitions can be paid for by the loans you were planning on getting anyhow. Your daughter’s/son's wedding will be fine downsized, their so in love it won’t matter. Vegas....you can do just as good at the local casinos that are closer to home and are popping up everywhere, you can’t afford to take that much time off of work anyhow.



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Permalink Reply by Jim Litwinowicz on November 15, 2011 at 4:27pm

Maybe groups aren't formed there because landowners in Texas have been around the business for decades and know what they are doing.  Most people here don't have a clue. And even the attorneys here don't know much about leasing so we have to work together.


Another reason is that landowners there own much larger parcels, often thousands of acres. They have a lot of leverage from the start.  Here things are very fragmented which makes it difficult for both landowners and the E&P companies.

 

I would think that having large group sign a group lease would make things much easier for a gas company to do a JV or to assign leases to other firms. Having all the land under one agreement has to make that a lot easier with a lot less legal work before doing a JV or swap.  Imagine doing the legal work on 5000 landowners all with different leases!

And when it comes time to drill or run pipe, having all the parcels under the same lease makes it easier for permitting, ROW acquisition, royalty calculations and more. And they don't have to pay landman to put things together.

Geeezzz, when you put all that together, they should pay us for doing groups.....wait..... they do...with higher bonuses and better royalties.

Permalink Reply by fred on November 7, 2011 at 12:13pm

We would like to get lease but, big landowers want big money.but,they have to come up to lease first. Small landowners don't seem to have a chance. We did sign for them to come on our land to do a siemic.

 

 

 

 

 

 

Permalink Reply by G S Gass on November 8, 2011 at 12:56am

Good points - also, align the group with a qualified consultant to negotiate on behalf of the group!  A savvy consultant should have the following qualifications -

will have direct E&P company land department contacts, 

will be aware of new players coming into the play,

will be able to keep the group on task and focused on the final outcome,

knows what the landowners need and what E&P companies can live with,

can stimulate competition to get the best offers.

Good luck!

Permalink Reply by Schnoozie on November 8, 2011 at 6:22am

Some of the group contracts I have seen take too much of the up front money from the landowner, and also take a big chunk of

their royalty, the agreement seems impossible to get out of, even if you have a better offer on your own.

Hard to believe what is true or not true.

Permalink Reply by Blindsquirell on November 11, 2011 at 5:43am

The biggest benefactors are the largest tract owners, who control the group.  The smaller owners, sit and wait for the boardmembers to get over their ego's/greed and skepticism.  The biggest reason that negotiations get dragged out is stalling by the groups.  It does not benefit a OG Co to drag it out.....that costs even more money to the project as a whole.  The OG Co wants you to sign your rights to their lease not the lawyers/groups lease, they will only revise to your wishes to a certain degree.  They will always lean to a lease that isadvantageous to them.  Rightfully so, its their capital thats going to hopefully profit the OGM owners, in a way they never dreamed it would.  The OG biz has evolved tremedously over the last decade.....generations of farmers used to sign on the dotted line in the blink of an eye, because nothing ever happen (they got paid and signed another OGL, when that one expired).  Some looked foward to an OGL as "found money" and a "win/win situation".  Some even called asking..."if there are any leases left".  Today, wells are being drilled, royalties are being paid.  Im not posting to purposely anger/annoy anyone .. Im just tired of the bad rapping the industry has receiving from a few "bad apples" that are on both sides of the fence.  FYI...the small tract owners outweight the large tract owners everyday of the week.

Permalink Reply by Blindsquirell on November 11, 2011 at 6:49am

By all means ....go for the best deal!  But try to remember that most folks dont have your land baron status and would really like to benefit from an OGL.....sooner not later.  Do you know what a donut hole is, Dude?  Hope you enjoy your view while your standing there with your chest pumped up...telling everyone to take a hike.  Ill be waiting for you to erase your last entry...like you did before.   BTW...today's standard is 1280

Permalink Reply by Finnbear on November 15, 2011 at 10:44am
Watch that change this winter. My sources tell me that a number of CHK rigs are slated to stay put on the same well pad for most of the winter drilling multiple laterals from the same pad. Remember,horizontal Utica drilling is in its infancy here in Ohio. This is a long drawn-out complicated process and it is not going to magically happen overnight.
Permalink Reply by Jim Litwinowicz on November 15, 2011 at 10:52am

It is strange that the first wells had such small units.  Maybe thats all they had under lease and they were in a hurry drill a few wells to prove the area. CHK is in a tough financial situation, very heavily extended.  Maybe they wanted to quickly prove the oil in the Utica and use that to form the JVs they have been announcing. This news has given them a big boost to their budget.  Not to mention boosting their stock.

Could it be that CHK has become the ultimate flipper? Lease up a pile of acreage, drill a few wells to prove the holdings, and then JV the rest of the holdings? They seem to have done that quite a bit lately in both the Marcellus and the Utica.

Permalink Reply by Finnbear on November 15, 2011 at 6:38pm

The size of many of those units corresponds with Ohio's minimum setback rules.

Could it be that CHK is actually just very shrewd and business savvy? Their business model has always been to aggressively lease early in a play and tie up lots of land cheap and then JV a partial interest to become flush with cash again. They sold a 25% interest in their Utica holdings for $15,000/acre. They still hold 75% interest in all that land.  What do you suppose they paid for those acres? I know they bought up the holdings of some smaller producers for $1000-$2000/acre. They paid $2800?/acre for the first ALOV deal? I'm betting they paid less than $3750/acre on average for all their Utica holdings. If that is the case then that 25% they just sold at $15,000/acre probably paid for ALL their Utica. Now they still have 75% interest in all those acres and all their money back to use to lease the next play and drill this one. Nice job if you can get it.

Permalink Reply by Sam Moore on November 11, 2011 at 9:41am

As I understand the forced pooling as a land owner you would make out great.  The O&G guys try to make it sound like you will getting shorted by telling you that you will receive 6.25% on your 40 acres instead of 18%  but what they don't tell you is that you will be getting 6.25% on all 6 wells in the unit.  If they force pool you then you become a partner.  So here is the math.  You sign a lease at 18% they drill a well that produces 2 mil. a year you get $134,579.  Forced pool because they just have to have your 40 acres as it sits in the middle of the 640.  They drill 6 wells at 2 mil each and you get 6.25% of 12 mil $750,000 less expenses.  Your expenses will also be 6.25% . 

This may give you an idea of why they talk about forced pooling but almost never do it.  I think it has happened 3 times in OHIO history.

Permalink Reply by Blindsquirell on November 11, 2011 at 10:05am

I believe the well has to payout 1 1/2 x before you start collecting the royalty and the royalty would be whatever your state mimimum is, minus your proportionally shared costs (since your now a partner).   Dont understand why you would want to be "forced pooled".  The legitgation time it takes to do this is very lengthy and would cause the others in the unit to be put on hold.  Your royalty is paid per well....dont get 6 laterals confused with 6 wells.  I find it very unlikely that a small 40 ac tract can have 6 wells on it. 

Permalink Reply by Sam Moore on November 11, 2011 at 10:52am

Would not want to be forced pooled.  Was just making the point that it is not in the best interest of the O & G company to do it.  And landowners should know the facts about it and like most every thing else the salesman tells they should verify.  Because believe it or not some of these guys will lie to you.

 

Forced pooling is a good law in Ohio and people should go on ODNR web site and read it.  The law is set up to keep one ding dong from preventing all his neighbors from benefiting from an oil and gas well.  For example everyone signs a great landowner friendly lease for $5000 and acre and 20% gross but one idiot in the middle of this tract with 10 acres refuses to sign unless he get $50,000 an acre and 50% royalty.  This law is more of a protection to the landowners not a club as the landman tries to make it out to be.

 

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