East Resources Lease Shut-In Terms
The East landman showed me a map of Tioga County with the East leases highlighted in yellow and it looked like 3/4 of the county was leased. Is anyone actually getting royalties yet?
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Replies to This Discussion
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Permalink Reply by Brian V. on
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Bottom line is royalties should be at least 20%. That is what the gas plays out west are receiving and that is what has been offered and signed for in other counties in PA.
Before the summer of 2008, when gas and oil prices shot through the roof for no good reason what so ever, gas had been steadily around 4.00 to 5.00 dollars for years. This current price is low, but not that much off the norm.
The gas companies constantly try to put on a show for why they offer what they do. Reality is they offer it because people take it. Everyone knows full well that if gas drops far enough they will shut in the wells. I've got no issue with that because I too want the best price. -
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Permalink Reply by William Ladd on
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If wells are shut in there will be nothing coming in either or very little. A little money coming in is better then none coming in at all. To be greedy about what you will accept for royalty is a crap shoot! Insisting on too big a royalty is liable to leave you behind with nothing, not even a lease!
Greed is what caused the financial institutions to fall!
Bill L.
aka Bummy -
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Permalink Reply by Ann Ticopa on
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The thing is, the gas is a finite resource. It's not like a crop where, if the price is low one year because of over-supply, the farmer gets a do-over the next year.
Because of the sharp decline over the first year of production (~70%), it really matters when shale gas is inititally produced/sold. Say I do negotitate an 18% royalty, 20% over the going rate of 15%. But then the well operator decides to produce/sell it at $4 rather than waiting for the price to go up to $5. Yes, of course 18% is better than 15%, But it's not necessarily going to maximize my income.
Anyone know what effect storage has on the price the royalty owner gets? Can a well operator pay the wellhead royalty when it's produced, store it, and sell for a higher price later? Or is gas sold into storage and and the middle-man makes any profit? -
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Permalink Reply by Brian V. on
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There are numerous possible points of sale. One of East's tricks used to be to make the initial sale to one of their own companies for a low price and base the royalty paid on that sale. Then they, while still owning the gas, make another sale at a better price. Tricky, tricky.
I believe that once gas is delivered for storage the sale from the operator to the storage company has been completed. Not sure though. -
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Permalink Reply by 2pwyhp2o205y9 on
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Is an O&G company obligated to produce gas from a well on a continous basis? Lets say gas is $5 and the well is producing, then the price goes down to $3. Is the operator obligated to pump at $3 if he does not want to?
Ann, why wouldn't the operator have the same goal you have; to maximize income?
If you have a "no storage clause" in your lease but are part of a production unit where the majority of the folks may not have that clause, then you may find that the operator pays everyone royalty on $3 gas and turns around and stores it within the same production unit and later sells it at $5. I am not aware of any clause that states that the operator must take his gas to market. All I am aware of is that the operator must pay you based on the well head price of gas at the time of production.
What is the definition of production? Is it that the gas left the well head and went to market or could it mean the gas left the well head and went back into the gound. If it can have that meaning then I would assume that the production report that you will be getting will always show that the price of gas was low and that is what you are being paid at. Later the company opens another valve and sells your gas at a higher price, having already paid you.
They wouldn't do that would they? -
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Permalink Reply by Ann Ticopa on
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Ann, why wouldn't the operator have the same goal you have; to maximize income?
That may be their goal, but they also have to pay their bills. -
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Ann, Shell doesn't have a problem paying their bills. But they may very well have a problem staying honest when it comes to the dirty business of Gas Production and paying honest royalty.
When you consider that in the majority of the leases in Tioga county that Shell will subtract what ever costs they want prior to paying a royalty and then consider that they may have the option to actually pay the diminished royalty based on a low priced gas then store the gas later to take it to market at a higher price is remarkable.
What is the difinition of "costs"?
Look at a possible senerio: The operator hires a high tech guy indepenednt contractor to go to the well head to check that the gauges that measure gas flowing through the well head are operating properly. The operator does that to insure that he is geiing true records of gas producing. The independent high tech guy charges $300 per hour and works 24 hours to make sure the gauges are working properly over a 24 hour time period.
Then the operator expenses the high tech contractor charge on his books. Then when he pays all the people in the production unit their royalty, he subtracts the gauge test fee from the everyones royalty payment.
Here is wild example: The operator hires family and friends who are independent contrators that do all kinds of gas work including the high tech gauge guy and actually pays them by subtracting their fees from royalty payments. I wonder what controls the fees from being too high? Who cares - not the gas company because they are not paying for it, we R.
It would be interesting to see a report of an actual well in production that an operator turns into the state and compare it to a royalty report after costs of production have been subtracted.
What is the difinition of "costs"?
Like the actual President of shell takes a group of 10 gas folks out to a well on a tour and later takes them all to a $5K lunch where $200 bottles of wine are shared with live maine lobster. They discuss the well they just toured and Shell accounting charges the lunch off to the well they just toured. That could be a "cost of production" could it not?
Shell wouldn't do that would they? -
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Permalink Reply by paleface on
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I don't understand what your saying here correct me if I'm wrong are you saying the gas co. would pump gas out of a well in your unit than pay you for it than pump it back in the same well and store it?
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Well, I don't know John, could they do that? Would it be possible to pump gas form well #2-3-4-5-6, pay you for it at $3 calling it produced gas and at the same time......store it in well #1 and then sell it later for $5?
Probably not...sorry I brought it up..pretty stupid on my part, I just don't trust the O&G guys to do anything honest when it comes to paying royalties is all and think they will do anything to steal from you.
The Gas biz seems even dirtier than politics. Or, maybe the two are tied together so to speak. Seems like if the Politicians cared at all about how owners were paid royalty, they would legislate law that protected the owners rather than the O&G folks. -
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Permalink Reply by Ann Ticopa on
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I didn't say Shell was having a problem paying their bills. But there still may be situations where they will sell gas at a less than optimal price to fund other investments and operations.
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