Replies to This Discussion

Permalink Reply by Denver Gallentine on January 29, 2012 at 11:59am

Very interesting information.  I have contacted two lawyers (one whose law degree was in oil and gas law) and both said we can't "break" the old lease.  I am happy to hear, if I am reading the replies correctly, that if approached by oil co. we can renegotiate the current lease.  We also have an old pooling lease that has us in a 321 acre lease so I assume we can renegotiate that also.   I would like the name of the gas broker too. - Denver

Permalink Reply by Finnbear on January 29, 2012 at 12:47pm

Technically, those attorneys are probably correct - you probably can't break the old lease. That being said, the old lease was probably written for vertical well exploration. Deep shale horizontal drilling requires different lease language to allow the O&G Co. to economically develop the leasehold. If the holder of the old lease wants to develop those deep shale formations or assign the deep rights to someone else who is able to develop them, that someone else will probably have to contact you to get you to agree to some modifications to the old lease to allow them the changes necessary. Most likely they will need new pooling/unitization language that allows for the larger 640-1280 acre unit sizes that are written into many shale leases. At this point, you should negotiate with them. They should give you something (signing bonus and/or extra royalty%) if you give them something (favorable unitization/pooling terms). Make sure you research the issue fully before setting down at the bargaining table. If you waste their time you will only p!$$ them off.

Permalink Reply by BuckeyeMom on January 31, 2012 at 6:34am

They SHOULD give you something in return, but they WON'T.  Chesapeake said, NO, we cannot offer any additional royalty above the 12.5% in your lease.  We just can't do that.  We told them, by agreeing to additional acreage for the unit, and increasing it to 1000 acres, we'd save them five million on another pad, so why couldn't the royalties increase or a bonus be paid.  NO was the answer.  That, my friends, is greed.  

Permalink Reply by Finnbear on January 31, 2012 at 7:19am

A well pad does not cost 5 million so I'm not sure where you're going with that. A complete well, drilled, fracked, in production, and tied into infrastructure does price out in that range.

A well pad costs the spud fee plus some excavating, some drainage supplies, some gravel. We might be talking about $100k. CHK must know a way to get around what they want from you for less $ than you want from them. If it is cost-effective to give you want you want for what they want in return, they will do it. This is simply business and decisions boil down to dollars and cents. They evaluate things like this based on the profit to be made.

If they were truly greedy, and what you were asking for/offering would make them more profit than not, they would take you up on it.

Permalink Reply by Utica Shale on January 31, 2012 at 1:02pm

BuckeyeMom,

 I understand that when you wrote "another pad" you really meant another pad with vertical wells and horizontal wells. And yes, you are right, that is millions of dollars.

 

 Why was your lease up for re-negotiations?

 

Permalink Reply by BuckeyeMom on February 1, 2012 at 4:39am

Yes, I did mean all expenses incurred with creating and drilling another pad.  Also in our situation, there was a massive amount spent prepping our local dirt roads for the truck traffic.  An UNBELIEVEABLE amount of limestone went down over several miles.  

Our lease was not up for re-negotiation, but when Chesapeake came around with the Amendment to our current lease for us to sign, we turned them down because of the unlimited acreage they were asking be in the unit.  They offered to put in a top end acreage for the unit size (around 1,000 acres) (all the while threatening to go around if we did NOT sign it), but before they came back with a rewritten lease, they called the landowner and stated it was to stay at 640 acres.   End of story, and they haven't been back. 

Permalink Reply by Billy Park Whyde on February 19, 2012 at 8:21am

Well I guess they don't get a well then! They only make money buy using the land. Looking at a piece of property they can't use is a loss to them, the question is what would be better grant a better royalty or get nothing at all. Besides if they get nothing at all they lost whatever they had paid for the other leases as well!

Permalink Reply by Denver Gallentine on February 1, 2012 at 1:52am

In following this discussion and talking to friends and relatives (and two lawyers) I'm finding that each lease is an individual situation.  I've spoken to some who have had old leases changed to $5600 per acre bonus & 18% royalty while others having to accept larger pooling w/o a bonus or change in the 1/8 royalty clause.  Great advice given on this site has been "don't sign anything until youv've spoken to at least 1 lawyer and all of your neighbors.  Become best friends w/ your neighbors."  I'm learning a lot fast - Denver

Permalink Reply by karen brown on February 1, 2012 at 10:13am

Don't fall for it.  If all the neighbors pull together you will have more bargaining power. DO NOT SIGN ANYTHING THAT STATES THE PRODUCTION COSTS COMES OUT OF YOUR ROYALITIES.  It may end up you owe them money or you get nothing.  Keep your acreage in units low.  They also can pay you sign up fees and give you more money per acre and higher percentages in royalities.  Be very careful, a couple of words can change everything in a lease. Make sure the lease does not state a frack pond or a major pipeline, these issues need addressed in a lease and make it clear if they want them, it will be negotiated at a later date.  If they intend on drilling make sure you have a site fee set up and have that amount written in the lease.  You should also have a held by production clause, stating that they have to drop a bit to the ground to be held by production.  I know of some leases out there that all the company did was survey and cut a little brush and the company moved out the people were held by production the company could wait years to come back in to drill. If they have to install a road on your property your lease should state that you receive surface damages, cutting of trees etc.  Have in the lease that at the expense of the company a forrester will estimate the total amount of timber to be taken off and you are paid the price of the timber, now the surface damages is something different, this is a payment to you for you will never reap monies from trees that they have taken out.  The road issue, they should pay you an amount per foot for a road and they have to maintain it and the company also pays for that, not out of your royalities.  You see, if they drill and cap the well off due to the fact that they cannot transport the gas out right away, these costs are building and when they do get the gas flowing they will try and pull a fast one and tell you that all these costs need to be subtracted from your royalities.  Do not let this happen, have it in writing.  Good Luck

Permalink Reply by Jamotom on February 16, 2012 at 7:59am

CHK has recently (4'th qtr 2011) purchased substancial Range holdings here in columbiana county and are in the process of now putting together drilling units. Several of the acquired Range leases are expiring in the very near term (2wks to several months) and CHK is going around attempting to re-up the leases & increase the pool size; and they are playing hard ball stating NO negotiating on terms. Same story as above. My neighbors are in this situation. Does anyone have an actual example of someone successfully negotiating a better economic deal or inserting verticle/horizontal clauses? 

So the far the Reps doing the negotiations (DPS) have stated that "they" have been in Carroll Cty recently doing these modifications and have not had to modify any leases. Sign on or risk the potential outcome of getting left behind or getting force pooled.

Permalink Reply by Robin Hood on February 16, 2012 at 1:38pm

We got the check that extends the lease an extra year, but at $15 an acre and 12.5% royalty when compared with prevailing offers it feels that they are trying to take advantage of us.  I think getting out of the current lease is the best thing to do. With all the recent activity, someone is eventually going to show up at the door with an enticing offer, assuming the wells that are permitted to be drilled nearby are  are wet with gas and oil. 

Permalink Reply by Billy Park Whyde on February 19, 2012 at 8:26am

Forced pooled? I would say ok ya want to go that route lets play ! I will talk to my neighbors. Forced pooling in Ohio has only been done once! First they need 90% of the land in the unit to force you and only the amount needed. They also would have to give you a fair market value the royalty (they are fighting against in the first place) and the current lease rate I think they must also allow you to hold a working interest as well. 

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