the back and forth of the lease game

I have had Land Men from different companies trying to lease my property for 3-4 years off and on, starting in the low 100s per acre, then to 250, 500, then up some more, then higher but not to what I know it's worth.  I set a depth clause and you'd have thought I had stolen the last cookie in the jar.  I got sick and tired of the "well if you do this then we may be able to do that".  Finally I decided what I wanted, set a price and a percentage and haven't heard a word since.  It's been about a month.  I was sure in some part they talk about who's got what leases going and prices etc. and we're working on this one etc. 

A little old fashioned investigating, a little time at the courthouse assessors office showed they know each other to some extent and some were even comparing lease maps right there.  I also know it's their job to get it as cheaply as possible for these companies but it was like buying a used car and knowing you weren't going to be happy in the end and I got sick of it.  Since they know each other they ensure the prices don't get too high because they won't compete beyond a certain point.  I placed an add in a couple papers to offer the O&G Lease on the acerage sort of to confirm my thoughts .  The suspicion was that I wouldn't get a single nibble from anyone not even the smaller companies, because someone has already been "working" my property.  The add didn't get anything, so I suspect I may be right.  I know the balls in their court, I know the lease is worth more than they are offering and I despise the process.  I guess I'll sell some timber in the meantime. Anybody have a similar experience?  What was the outcome.  Any advice other than wait.

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Permalink Reply by Brian V. on May 23, 2012 at 4:19pm

The reality is that your minerals are only worth what someone is willing to pay you for the right to extract them. That said, they are also worth what you are willing to lease them for in the end. it is a game and understanding many factors will help you understand the offers being made. The first thing you should do is find out which companies are trying to build a lease hold in your area and more improtantly which companies are actually doing the drilling. Then find out who your neighbors are leased to or who their leases have been assigned to if they are leased. I would also research the what type of gas you are sitting on.

 

I have friends that do abstract work for the gas industry in different courthouses here in Ncentral PA. They almost never have any idea what is being offered and even more so to who. Most of the time they are researching title for those who have signed a lease only. I do not believe that what is filed in the courthouse actually ever has a dollar amount on it either. As to speaking to abstractors who work for a "competitor" I'm sure it happens but my friend told me that she has to be very carefull about what she speaks about in the courthouse because of confidentiality which is addressed in her contract.

 

My brother-law has done some Landman work. He has told me that competition is what truly drives the prices up. That and a good gas market. He said that (and this is what he is not a fan of in this line of work) he is give 2 numbers. The 1st is the initial offer. The 2nd is the max offer. He is given approved addendums and everything else needs to be requested and approved by the client. He said there is wiggle room when the property is of high priority, -examples- it is in a well unit scheduled to be drilled soon or a large tract. He said he rarely speaks to "competitor" landmen unless it is someone he knows well. Basically, these guys and gals jobs are dependent on confidentiality. I'll tell you that he has to make very detailed reports of meetings or negotiations with everyone he meets. My guess is that if you have set your price and the landmen can't meet it they have nothing more to discuss with you until their offers go up or your demands go down.

 

Best of luck. Here in the dry gas areas many wish they could just get an offer lately. We signed our lease last year before many companies pulled their offers off the table all together. The drilling is still happening here but the acquisition end of it has dried up. The only leases being offered are to close out units for the most part and those offers are much less than they were 1-2 years ago in terms of Bonus and royalty.

Permalink Reply by D Miller on May 24, 2012 at 5:36pm

I appreciate the help.  I guess people assumed from what I wrote I was just talking about the researchers at the courthouse.  I did listen to and watch a bit of that to see what and where was active. I listened to what was discussed at diners and other places, I did the local watering holes as well.  I'm not mentioning any company names because I wasn't interested in who they worked for, only that some of them do talk and that they made comments like "were trying to lock up this lease but that family wont budge and we offered them x per acre" and so on.  I just wanted to see how connected or disconnected the whole land man or whatever you want to call them groups are since I was ignorant of the whole business except what I had read.  It's not completely disconnected, they do talk maybe just to guys they have know a while, maybe even guys from the same company who knows, like your brother in law said. It's not conspiracy, its their business and people are pround of what they do and accomplish "like trying to sign some tough old coot" or getting the final acerage to help close a unit so some talk happens.  Overall I just meant I hate the process and the methods.  Now it may be too late, just glad I didn't really need the money to live on, although I had plans for it if it came.  What really killed me was my three companies all after the same land (they said you need to be flexible or work with us, so I said OK I'll let each know whats going on, can't be more flexible than that, upfront on whatever was offered or being researched by one to the others).  After I did that then they only make verbal offers on the phone or in person.  I ask for something in writing, nothing.  I say I got a better offer from X or they are looking into this possibility, I send the info to Y&Z and they say show it to me in writing (they know who they all are bidding against because I told them),  so nobody puts anything in writing, and this goes back and forth for a month, then I send an email to all saying, Z offered me this, they say let me see it in writing (at this point none have put anything in writing except the starting price, and beyond that price nothing in emails, its all phone so there is no record anyone offered me a farthing other than the starting price and they know I don't have counter offers it in writing to show them because none of them sent a thing except one, so why ask for it), thats why the process really ticked me off.  It seemed very odd when I was trying to be truthful I got lower offers than when I wasn't telling anyone anything .  Being a cop for 31 years, I started thinking I smelled a rat.  I understand it's big money, it moves fast in spurts, then nobody replies because maybe they got someting going someplace else, but from the landowners perspective at least mine, I felt like either they were not up front with me (just me reading people because thats part of what I do) and I didn't like people holding out on me, when I felt there was more to be said or done, it just didn't happen because maybe they can't tell me but I know they knew whatever it was that was missing to make a deal.  So I got mad, I sent the price to all and not a word since.  So thats it.  Basically they either lost interest in my land, I wanted too much or was a little too educated on the process (my addendum was to specific and strict, they didn't like the depth clause), who knows.  So either they come back or they don't.  Since nobody even countered, I guess I need to sell some timber to make a little pocket money instead.  Can't buy tractors on hope. Thanks

Permalink Reply by Industry Watcher on May 26, 2012 at 5:37am

Buddy, you're going to be waiting a long time.  Wetzel County is in a very unenviable spot geologically.  The Marcellus starts getting thin out your way so at $2.60 natural gas it's just not going to be in demand.  The Utica is prospective dry gas at best there as well.  How do you "know" what the lease rights are worth?  At 7+ million dollars per well, that will in turn pay you thousands per acre in royalties over 25-30 years, I'd be taking the next offer from a company with a sizable leasehold contiguous to me.

Permalink Reply by Industry Watcher on May 26, 2012 at 5:39am

Also, no company will freely accept a depth restriction unless they have first right of refusal to match a bonafide offer to lease the other strata.  You would never pay for land that you wanted to build a home on, if you knew someone else already had rights to build their house in the same place you wanted.  Drill sites are a premium, and who wants to have double the disturbance?

Permalink Reply by time will tell on May 26, 2012 at 7:16am

That's good advice Industry on both points .

Permalink Reply by paleface on May 28, 2012 at 2:25am

 The geology of your area is basicly what determines your land worth.

Permalink Reply by Frank Walker on May 29, 2012 at 12:49am

Have to disagree there just a bit, Watcher.  My own lease has such a restriction.  It was freely accepted and not a bigee.  There is no right of first refusal for Lessee.  Just sayin'.

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