Replies to This Discussion

Permalink Reply by Berk on September 2, 2012 at 1:37pm

Sam,

Why wouldn't this producer just make this offer to the groups with thousands of acres already available? Why have a middle party involved?

Thanks

Berk

    

Permalink Reply by james on September 2, 2012 at 3:58pm

I also have been contacted by Wishguard and CX energy about signing up my property in Crawford county, at this time who else is doing anything in Crawford County? I talked to Halcon Landman on Thursday and they are leasing only south of Meadville nothing north of Meadville at this time. Hilcorp isnt doing anything in Crawford at this time according to Western Land services which works for Hilcorp. Range has done some work in Crawford but I hear the lease terms they currently have arent very good? Has anyone signed a lease in Crawford County with an oil/gas company direct yet?

Permalink Reply by Sam Douglass on August 29, 2012 at 3:15pm

Makes a lot of sense to me !

Try to wait for the real producers to come around.

Permalink Reply by Michael P. Davidson on September 7, 2012 at 2:18am

Any comments on this.  The Hilcorp Disappointment

Permalink Reply by Linda A on September 4, 2012 at 4:19am

You are so right Craig, here is a response from friends of mine who have been in the oil/gas industry for many years - one works in TX the other in Saudi Arabia.  We currently have a oil/gas investment business relationship.  Some VERY important info here:

" It looks pretty standard.. but there are a couple of negotiating points and some “understanding” that you need to make an informed decision..

First off, I’ll tell you how “the game” is played, and then you can make a few decisions..

First off, what a lot of companies will do, is lease your mineral rights from you, and then assign the lease to the “end operator” who will actually end up drilling the wells.. In that case, the first guy just “brokered” the deal..

That’s not a bad thing.. but that is what sticks out in my mind when they are asking for a 5 year term.. it doesn’t take 5 years to do what the oil operator needs to do.. IF they want to start drilling then only a few months.. but not 5 years.. so the 5 year term TO ME, sounds like this Patton Energy wants to lease the mineral from you, and then have 5 years to “broker” the lease to the company that will actually drill the well.

Next thing, an 18.5% royalty is an OK deal.. BUT.. what stands out to me again is this Patton Energy wants to broker the deal, and put an “override” on the lease to the end operator who will actually drill and produce the wells… So, basically, Patton add a 1.5% over-ride onto the lease when he brokers it to the end operator.. so the end operator will pay a 20% royalty.. 18.5 to you, and 1.5% to Patton..

As far as $4k/acre.. that to me seems like that would be a “local” variable.. down in Texas, where we are, we pay nowhere near to $4k/acre.. but in some places in the Marcellus I know that operators are paying as much at $10k/acre or more… so I would just check w some of the local folks and see what price seems about right..

Just as a point of understanding.. the oil operator will drill the well, you as the royalty owner will get paid generally from the oil/gas purchaser, when oil/gas is sold. Depending on the quantity, you may get paid monthly, weekly, quarterly, or yearly.. just depends on how much hydrocarbon is actually produced and sold..

So, as the royalty owner, you want to MAKE SURE that the operator that you sign the lease with “has experience” and “knows what the hell he is doing” because he could drill the well, and “mess it up” while drilling it, and you will not make any money, and then that operator has the lease and can keep it, and keep it and keep it.. all the while you as the royalty owner won’t make a dime.. so do some due diligence on the company signing the lease with you, and make sure that the company actually drills and completes wells in your area..

You can also see if they just “broker” leases.. if that’s the case, then you will have no control with whom they broker the lease to, and you could get stuck with an inexperienced operator again and you have no control."

So, that’s my take..
Hopefully it was helpful..
If you have any other questions, please let either Chad or I know.
Thanks Linda.. and good luck w this..
 
Cary

Permalink Reply by Sam Douglass on September 4, 2012 at 2:34pm

Cary has some good advice and I do not really disagree, but our experience may be different in certain areas.

The 5 years in this vicinity has to do with the lack of infrastructure which is yet to be built. Another factor is that we have so many millions of acres to lease that it cannot be drilled all at once but the companies want to tie it up for as long as possible for future needs - when there are enough plants to accept volumes of ethane that will go to plastic plants yet to be built.  And there will be markets outside country to accept all our bounty which cannot be shipped until the right facilities are built at ports.  And the conversion from other forms of energy to cheaper gas takes time as well - but there is reason to think there will be enormous demand to use this resource for the next 50 to 100 years.  Remember that there is not just one, but probably several earth layers that will be productive at different times.  Since you have to wait for this production and the resulting royalties [which may not come until a generation or two from now] it is critical to get a bonus that is substantial for the reserves that are being purchased.  And then there is reason for Advance Minimum Royalty at some point.

And the production royalty, when it comes, will be complex.  It is not just oil or gas.  It is many things that come out of the well, each sold for different price.

I worry less about experience with the wells that are being drilled to the shales.  It takes a company that can spend say $20,000,000 per well pad and that is not for amateurs to undertake.  By the time the wells are drilled, the brokers will disappear because they do not have the means to carry it off.  It is the big names that will end up with these leases, companies that can talk about billions without gulping.

Permalink Reply by Linda A on September 4, 2012 at 3:35pm

Respectfully disagree Sam - the 5 yrs allows for speculation and takes the whole thing out of our hands and we have no control in the end.

I'll wait until things are right and then go from there.  No big hurry and many are on the same wavelength as me.

Permalink Reply by Sam Douglass on September 1, 2012 at 2:05pm

Of possible interest.

http://marcellusdrilling.com/2012/07/chesapeakes-best-utica-well-bu...

Permalink Reply by Linda A on September 11, 2012 at 3:17pm

they don't have that much up front money so they will deal with smaller groups - our group of individuals (not a real 'group) have over 600 acres, in Vernon twp and we have a confirmed offer of $4k per acre w/18.5 royalty - 5 year term.  We are, however, permitted to accept another deal, up and until our leases are registered at the court house.  the payment is in 90 days - he said 'not business days' but I somehow wonder about that... but he said it...

With the huge increase in taxes next year, we are far better to get our deal done this year and we've ot heard of anyone getting any offers around here - some surrounding got $3600 or so... not much different but they are in a different country (Mercer Co.)

Having a lawyer review the lease and then we will decide.  what we MAY do is restrict the depth to the marcellus & Utica and then if they want to go deeper, the will have to come back and re-negotiate.

still up in the air about that...

Permalink Reply by james on September 11, 2012 at 3:25pm

Linda,  that sounds like as good of a offer as anyone in this area has received up to date, is it with a company direct or flipper? Thanks

Permalink Reply by Linda A on September 11, 2012 at 3:32pm

flipper - do you know of oil companies making direct deals here or anywhere around here?  These guys deal mainly with Chevron, but not exclusive...

Permalink Reply by james on September 11, 2012 at 3:39pm

When we signed with Hilcorp in Mercer county they had Western Land services handle the lease signing, but it was a done deal, we  didnt have to mess around wondering if the deal would go through or not?

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