signing a contract for this CHESAPEAKE EXPLORATION, llc COMPANY

i AM A LAND OWNER IN SMITH TOWNSHIP, MAHONING COUNTY OHIO. i WAS APPROACHED TO SIGN A CONTRACT FOR A OIL AND GAS LEASE. THE ORIGINAL LEASE WAS DONE IN 1964 WITH PREVIOUS OWNERS. THE OLD CONTRACT STATES WE WOULD RECEIVE 1/8  OIL AND GAS ROYALTY. THE NEW LEASE STATES WE WILL RECEIVE 1/8 OIL AND GAS ROYALTY,THAT PROPORTION OF SUCH 1/8 ROYALTY WITH THE ACREAGE CONSOLIDATED BEARS TO THE TOTAL NUMBER OF ACRES COMPRISING SAID DEVELOPMENT UNIT.( WHICH IS 160 ACRES) DOES THIS SOUND RIGHT? any comments would be greatly appreciated.

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Permalink Reply by Kathleen on April 21, 2012 at 12:47am
I agree. Since checks were received up to 6 months ago this property is HBP. DBD is right get a good lawyer and try to get a better royalty or something. Your unit size will most likely need changing so here is your one opportunity to try and get something that will benefit your family
Permalink Reply by BICS on April 21, 2012 at 3:47am

My belief is anyone or group with large contiguous land areas such as yours have a better handle to negotiate a higher royalty, in addition to making the lease more land owner friendly (clauses in your old lease are likely limited, making it open-ended for the operator - giving them too many rights to the surface.)

 I have not had a chance to execute this belief so I have little empirical advice except I highly recommend you gain knowledge on the subject before contacting a lawyer…we contacted a lawyer who claimed to have oil-gas lease knowledge but his knowledge was out-of-date and it ending up costing us $400.  Next time I’ll get references before contacting a lawyer and if they have little knowledge of current lease activity I’ll end the consultation quickly.    

  I am not sure if the following situation applies to you but I thought it would be good to add to this discussion.  When an operator subleases your land and you are asked to modify a lease for horizontal drilling must all legal transactions occur between you and the original lessee or will the sub lessee (likely more experienced operator) try to/do the negotiating?

Permalink Reply by Billy Park Whyde on April 21, 2012 at 6:29am

BICS the sub lessee in all probability would try to to the negotiating  I would believe. The sub lessee knows what is in the original lease and knows full well what the terms are in their purchasing of that lease (Flipped Lease) be it a working interest, over riding royalty and the cost. As such they will try to work around those perimeters which might be restrictive. 

Permalink Reply by BICS on April 22, 2012 at 2:02am

Billy, I agree wt you assuming the HBP lease gets flipped to a Utica operator.  In this situation the new operator becomes the new owner or partial owner (lessee) – there is a legal relationship between the lessor and lessee(s).  So the Utica operator will likely be the one performing future legal transactions with the lessor.  But when the HBP lease has a no assign clause the lessee cannot flip/transfer ownership.  They can sub lease becoming a sub lessor to the sub lessee - they retain total ownership so there is no legal relationship between the lessor and the sub lessee (Utica operator).  I believe in this situation the sub lessee cannot execute legal transactions with the lessor.   What are the thoughts or experiences on this type of transaction?   

Permalink Reply by Billy Park Whyde on April 22, 2012 at 3:36am

  BICS very interesting as the original lease even without a non reassignment clause with addendum could be a real mess. In some leases restrictive access points of ingress and egress are described, storage tank placement, free use of gas, excluded areas such as a walnut grove could be in the lease. 

 If the lease had a non reassignment clause it would be my personal opinion that the only way around the lease to some extent would be a working interest in the lease not ownership of the lease, or a major renegotiated lease. What say the legal eagles here? 

0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on April 21, 2012 at 5:12pm

Sandy, there is some great info written and audio at this site mentioned on one of our blog posts here...have a look:http://gomarcellusshale.com/profiles/blogs/the-gas-company-wants-to...

 

 

Permalink Reply by LAE on April 22, 2012 at 1:06am

  I wouldn't sign ANYTHING with Chesapeake. The voice of experience......

Permalink Reply by LAE on April 22, 2012 at 10:57am

 I agree, that sometimes, you're almost forced to deal with a specific company. But this particular one is NOT a stand-up company. I have had horrible experiences with them that I'm not going into here. Avoid them if you can.

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