The Brinker Hilcorp Amendment- Five Great Reasons I support it

The Brinker Hilcorp Amendment – Five Great Reasons I support it.

I am NOT an Attorney, and I am not attempting to offer legal advice.  However I am offering this post as a concerned member of the Brinker community.

I am a Brinker Landowner who signed the amendment.

There has been a lot of comment about this amendment.  I wish many more folks would have come out to hear Attorney Stuart Strasfeld’s commentary of this amendment last month, which was open to the public.  He did not give a “glass is all the way empty” approach, nor was it a “glass overflowing” approach.  He pointed out many aspects therein without neglecting the positives.

I would like to take the time to point out some of the beneficial positives since some folks might not have read the amendment as it currently reads at the Hilcorp office.  Some rely on their neighbors to tell them about it who for some reason leave out the positives.

 Here are just five of many positive benefits:

  1.  A 15% royalty opportunity for oil and gas. This, despite the fact there are several interests in the oil and gas.
  2. Strong water protection testing and replacement, above and beyond that of many other modern leases.
  3. Numerous surface property protections established above and beyond many other modern leases.
  4. Shut in Royalties paid if you are part of a producing well that is for some reason shut-in.
  5. Taxation mitigation in-line with many other modern leases.
  6. Added 7/3/13: Limit any unfavorable potential threats from legislatures/ government (see post reply on page 3.

One of the latest looming “negatives” described by some people having old Brinker Leases, and others is that with the amendment the lease will be forever.  According to my old Brinker lease, my lease already goes on “forever”- so long as the described conditions for gas storage are met by the lessee.  The Hilcorp amendment could then “forever” add modern property protections, and royalty improvement.

 

While my property is already under contractual lease, and apparently was when I bought it, I accepted the amendment as a good middle ground approach that includes significant improvements and consideration.

Royalty enhancement could possibly positively affect the value of my property, as compared to selling my property if it were to be stuck with one of the $200 gas royalties as described in some of the old Brinker Leases, along with few property protections.

So, what is there to lose?  I do not know, but it might depend on each property owners’ recognition as to what there is to gain.

I do not know how long the amendment is going to be available.  Do you?

I can only imagine that my chances of being in a drilling unit go up by supporting the amendment.  AND, possibly gain maximum drilling and community wealth potential while engineering for well unit planning is underway.

In closing, some feel it is a good idea to start a neighbor to neighbor campaign to influence people to go against the amendment.  

If you are interested in being included in a drilling unit then you might instead want to start a proactive neighbor to neighbor campaign in support of the amendment to avoid what I will call “drilling unit blockade”, or maybe even no drilling unit at all (who knows?).

And I am always encouraged to tell people to see an attorney to help them understand the legal document.  Again- I am NOT an attorney.  I also encourage folks to talk to industry experts to learn and understand the oil and gas industry, and perhaps consult an economist who can also help folks understand the science of oil and gas commodity and compensation.  Perspective is always important.

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Replies to This Discussion

Permalink Reply by Billy Park Whyde on February 4, 2013 at 10:08pm
Although the idea of a minimum royalty might sound good at the stated 15% it is only 2.5% over the old standard.I would think most would agree 2.5% is far from keeping with inflation when we can see gas prices raise at the pumps 10% in one day!
In my opinion wages making a minimum royalty sets a standard that might not be in the interest if all. Say perhaps a O&G company wants to force pool your land into a unit ( for personal reasons you do not want any part of seeing your property used) with a legal set 15% royalty it might give them grounds to make a offer of only 15%. Whereas without a minimum in a losing forced pooling case you might have been given a 20% royalty as in most newer leases.
Permalink Reply by Inchworm antenna on February 5, 2013 at 10:42am

Billy,

2.5% is 20% of 12.5%.  15% Royalty is about 17% more than a 12.5% Royalty.

I believe that inflation pertains more to the price of a commodity.  If the price of oil/gas goes up or down, inflation pertains to the up side.  If prices for oil and gas go up, and production remains constant, then the royalty would also go up.  

The royalty that is not based on commodity price and inflation is the flat rate royalty of just $200 annual for gas.  I encourage people to take a look at the production numbers from Carroll and Harrison County wells and plug them into an oil and gas calculator.  Adjust the calculator to reflect current oil and gas prices, your acreage, and 15% royalty for a good idea of what could be realized.

Permalink Reply by Inchworm antenna on February 5, 2013 at 10:46am

BTW, you speak of new leases and I see new Chesapeake leases offering just 12.5% NET in Columbiana County along with a 1K/ acre signing bonus

I think they just cut a lease deal with one of our municipalities for just 15%NET last month.

Does anyone know more about that deal?

Permalink Reply by Inchworm antenna on February 6, 2013 at 11:52am

.

Permalink Reply by Utica Shale on February 5, 2013 at 6:52am

Is that 15% Gross Royalties or 15% Net Royalties?

Permalink Reply by Inchworm antenna on February 5, 2013 at 10:25am

This is what part of the royalty clause indicates.  Seems pretty much like a "gross" to me.  There is a lot more to it.  It is further described in described in 6 paragraphs to help make it clear as to point of sale and so on:

Royalties for oil, gas, and constituents thereof shall be paid without deductions for the costs of producing, gathering, storing, separating, treating, dehydrating, compressing, transporting, or otherwise making the oil and/or gas and/or constituents thereof produced from the leased premises ready for sale or use.

Permalink Reply by Kelley Claypool on February 5, 2013 at 7:17am

"According to my old Brinker lease, my lease already goes on “forever”- so long as the described conditions for gas storage are met by the lessee.  The Hilcorp amendment could then “forever” add modern property protections, and royalty improvement."

 

We are seriously considering signing the amendment.   Forever with Modern Benefits seems better than Forever without,  BUT, until Hilcorp./Trinity/Total S&P gives us something in writing that we are not held by the "Trinity Lease" for the  5 years that we signed, not realizing there was a 60 yr old "Forever Without" type of lease by  Mfg Lighing Heat/Columbia, we are at a stalemate.  In December, Hilcorp took our name/phone numbers and said, alot of people are in the same boat and they are investigating.  We put the ball back in their court.  Haven't heard a word since.

 

Permalink Reply by Inchworm antenna on February 5, 2013 at 10:52am

Think that you are not alone in that situation.  It will be interesting to see how that goes.  Many people are optimistically & patiently keeping their ear to the ground on that matter.  I hope we hear more on that soon.

Permalink Reply by dr j on February 6, 2013 at 1:11pm

Your commentary is always appreciated.   

I don't see what the possible rush is to sign anything at this point.   We are still months to years from any of the wells that are already drilled being hooked to pipeline.  We are still in the infancy stage of drilling.   

We have one chance to "get this right".  Certainly if you feel the amendment gets it right for your property and heirs ( collective your) than of course it's your choice to sign.  But if you have any qualms, you should take your time.   

As you know, my property is surrounded by properties that are not leased at all or are leased to entities other than Hilcorp.  THere is going to have to quite a bit of horsetrading to put my land in a unit.   Many others are in the same situation.   Someone eventually will come to me and we will make decisions at that time.  Or not, but my signing a less than desirable amendment at this time not going to speed the process for development of MY resources.   

While CHK may be lowballing it now, other producers are not.  People are signing leases for 5K and 20% - not hearsay.   

The forever is real.  The best way for me to protect my property forever is to make sure I maintain some control over it.   In your interpretation the original old leases are valid,  the contention of the whole litigation is that they are not because they have been breached.  ( which they have).    There is not much doubt without the litigation it would be unlikely there would be any amendment offering yet we are supposed to be grateful for terms that are not on par with other offers ( including those that have been offered and paid to other Brinker landowners BY HILCORP - with storage leases). 

Do with that what you will. 

Permalink Reply by Inchworm antenna on February 6, 2013 at 2:32pm

My interpretation of the lease does not matter, it's how they are written that matters, and it will likely take an act of a court, and court, and  courts to change how the leases are enforced by Columbia.

Hilcorp paid an insane amount to Columbia/NEVCO.  It would have been great for Columbia/NEVCO to present some kind of revenue sharing to ensure all parties benefit but they did not.  In addition, according to documents I've read, Columbia/NiSource is taking a .7% overriding royalty AND will have a 5% working interest.  In converting the WORKING INTEREST into a royalty formula and adding the .7% overriding royalty to the 15% Hilcorp is offering landowners, that puts Hilcorp paying out pretty darn close to 20% OR in other words reserving pretty close to 80% for their operations.

Hilcorp is at where other drillers are in their investment with paying Columbia and is looking at a "payout" of of some sort close to 20%.,

So Columbia/NEVCO essentially subleases out to driller Hilcorp, accepts the "bonus" money, and grabs a modest royalty for itself if you will.

Then the MINERAL PROPERTY OWNER and Hilcorp are left standing there looking at each other, and somehow need to partner up in order to proceed with what is left.

If you can get Columbia to revenue share the cash- you might have to move Heaven and earth  

If you can get Hilcorp to pay out a double sign on bonus, and look at a higher than 20% overall "payout". Great!   

I do think while Hilcorp is OK with the 15% royalty payout, they advocated this to NiSource since it is the Columbia/NiSource lease documents that would need it added to the ratification and amendment.   

I do not know if it was just the litigation that led to the amendment.  I can't see Columbia/NiSource subleasing and being bamboozled with just a .7% royalty along with a 5% working interest.  Hilcorp would have been laughing all the way to the bank on that one, but who knows. 

Permalink Reply by dr j on February 6, 2013 at 3:47pm

The dealings between Nisouce and Hilcorp are irrelevant here.  They have been presented to us like they should matter but they don't.   It's like a CHK rep sitting down and telling us our deal is going to be different because McClendon had been reckless.  It might be true but THAT is not my problem.

So Nisource looks out for their best interests financially, Hilcorp does the same.  They are in business to make money as they should be.   What Hilcorp paid Nisource has NO bearing on the decisions I make for my land and my family.   I am not obligated to sign a lease that is less lucrative than my neighbors because of their business decisions.   I am fairly sure the thought HAS crossed their mind (Nisource more than Hilcorp) that this deal may not slide through with out some kind backlash from the landowners.  In fact I know that for a fact.   Whatever they have gained financially from Hilcorp and the overriding royalty for that matter is "found" money for Nisource with little to no effort on their part.

 

The logic behind a "signing" bonus is to get people to sign a lease. Especially when the development and thus royalties are not in the very near future.  The bonus is designed to get the landowners attention.  Otherwise without imminent development there is not much reason to sign any lease until absolutely necessary and desired by all parties.

But in the end, the crux of the situation really boils down to does Nisource have the right to control our deep rights?  Have they honored those old leases?   Many landowners feel they have not and so far the courts have determined it's a valid question.   It really has NOTHING to do with Hilcorp at this point.   Did Nisource even have the right to assign the rights to Hilcorp in the first place?   

 

Permalink Reply by gracie on February 8, 2013 at 7:23am

The lawsuit is moving along quite well, in spite of Columbia's efforts to end it.

Anyone who disagrees,can go to the courthouse and read the briefs themselves.

All the critics of the suit have been wrong so far, and it seems that they now wish they the foresight to do their homework and see the weakness in these suits.

Inchworm, did you receive your bonus when you signed up with Trinity and your lease was bought by Chesapeake? If so, you are not in the same position as everyone else.

The Hilcorp lease does NOT give the property owners any bonus money.

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