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Permalink Reply by JDM on March 28, 2012 at 12:46pm

Utica- It is actually someone that is a regular to these discussions....i hadn't joined yet and this member had an email address so i emailed him directly to ask a question...not realizing that he was trying to get a landowners to use him and his "friend" to negotiate the lease for 2 1/2% of signing bonus..... he said that he sends small batches of leases at a time for approval and was pretty confident he would get us a $5800 per acre and 20% royalty..... there is a proposed well unit that ends at my neighbor's property....we are talking maybe 2 acres between my land and where the well unit would end so chesapeake is still talking to us about a lease.

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Permalink Reply by Keith on March 27, 2012 at 2:47am

Jett,

I work for a very large Oil and Gas company and I hope I can answer some of your questions.

Any large company (there is one in Eastern Ohio that has a majority of the leasehold and is very active) is going to drill in the North West and South East direction.  This is due to the natural fractures in the formation.  The mountain range runs south west to North east.  If they drill perpindicular to that, then the fractures from the perf gun will run with the natrual fractures in the shale, creating more oil and gas.  In short, it doesn't matter if you put that language in your lease, they are going to do it anyway.  It will be a long rectangular shape, pending everybody in the unit is leased with the same company.  You start to get funny shapes when people don't sign leases or everybody is signed with a different company.  Also, there are old wells, which are Held By Production (HBP) which can really cause problems if the larger company can't get the deep rights to those old leases.

On your other point, you want a Pugh clause which allows any portion of your acreage to be in a unit, (which is called a DPU, Designated Pulling Unit, which is recorded at the courthouse) with the ability of any acreage not in the unit, to expire from the lease when the term of the lease is up.  Ideally you would want all of your acreage pooled in the unit, but that usally doesn't happen.  If you have less than 10 acres, just do a non-surface lease, and both of these questions won't affect you.  Who ever said that a company could exclude you from the unit, if you hvae a unitization clause, is right on.  I would NOT use that language, use a PUGH clause instead.

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Permalink Reply by Olive Sue on March 28, 2012 at 2:17am

My question here is if you have 100 acres and only 40 of those are included in a unit, it hits big and royalties become due, you receive your proportional share on 40 acres.  Would it have been to your advantage to have the clause requiring all of your acreage be included?  I suspect no matter how well we think we have closed all possible "holes" in a lease some issue will "get us".  Tongue in cheek,  at least those of us that are older won't have to think about our mistakes as long. ????

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Permalink Reply by Keith on March 28, 2012 at 2:45am

You are on a fine line.  Obviously you want as much of your acreage in the unit as possible, but by having a "pool all" clause, you are handcuffing the operator and they might not like that.  If your 100 acres runs in a Northwest to Southeast then they will probably include all of it anyway.  If you only have 40 "wanted acres" in the unit, changing the unit from 1,280 to 1,240 (leaving your 40 acres out of the unit) isn't going to hurt the output of the unit. It would however give them a big insentive to get the other 60 acres produced, if only 40 was in the unit, but you would have to sign a ratification to get the 60 acres in a seperate unit, seeing as you put the "pool all" clause in your lease.  Honestly, your best bet is a Pugh clause, not the "pool all" clause.  Just think of it as a double edge sword, it can be very beneficial, but can also hurt you!!!  And the big company is always going to "get you" (some more than others) there is no way around that.

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Permalink Reply by jett on March 28, 2012 at 6:11am

After these explanations, the Pugh clause seems absolutely the better way to go as opposed to the "pool all" clause. As for the rectangular/squarish shape requirement, we're going to include it just to be sure. It makes sense they'll want to drill it that way because of the geology, but with several companies having leased in this area, we aren't taking any chances.

I agree 100%  that the Oil/Gas companies have it figured out to their best advantage - that's to be expected. We live here by choice and not by default so like everyone else here, if they want our oil and gas we are going to try to protect ourselves and our wallets! Just glad to have all this help.

Jett

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Permalink Reply by Nut leesduh on March 29, 2012 at 6:18am

Include all clause wouldn't be very fair would it? If they were taking gas from all of your land and only taking half or even less from someone else with an include all clause yet paying them for all it just wouldn't be very fair would it. Better yet just for example if everyone else had the include all clause but you, you wouldn't be getting your fair share at all.

Which brings a new interesting development for thought. How much control does your lease have over what they give in someone elses lease in your unit (NONE). There are going to be different leases in your unit. How many different ones depends how many are in a land owners group and how many are independent leases. It just goes to show how someone making a better deal with their lease can affect your royalties.

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Permalink Reply by jett on March 29, 2012 at 10:20am

I hadn't thought of it that way - we were just worried about them cherry-picking parts of our acreage to include in a unit and still sucking the gas from under the rest of our property. There are so many gas lease/royalty "horror" stories - it hard not to over-think every situation. Of course, every choice has some sort of risk involved.

For sure, everyone in a given unit will have probably have different deals with the Oil/Gas company. The next coming decade (or more) sure will be interesting!

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