Beware of all the gas companies!

I signed two lease's back in 2011 with Gulfport Energy on 80 acres that I own in Belmont County, Ohio. Let me start by saying don't believe anything that any of the land men tell you, the are working for the gas companies and their own benefit not yours period. While I was negotiating my lease with several companies at the time in 2011. I clearly explained to them that any lease I would sign would require a Pugh clause, and that I would not except any lease that required me to pay any of the cost associated with the production or marketing of the finished product from any wells drilled onto my property. I ultimately ended up signing with Gulfport Energy because of the higher bonus payment and higher royalty percent, and the land man assured me the Pugh clause and the deduction clause weren't a problem, that a lot of people were requesting it. Well the land man was lying through his teeth after receiving my first royalty check and statement there were $14,574.11 in total deductions. Beware of any lease that includes the language below.

 

"All oil, gas or other proceeds accruing to Lessor under this lease or by state law shall be without monetary deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other proceeds produced hereunder to transform the product into marketable form; however, any such cost which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as they are based on Lessee’s actual cost of such enhancements.  However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee."

 

It was explained to me that this was exactly what I wanted and that the second part of this clause only meant if they did any advertising to enhance the selling price of the finished product I would have some associated cost from that. Well I have since found out that this is the language that the big oil companies have adopted to lead land owners to believe that they are getting a no expense deducted clause in their lease. If you find this language in your current lease be assured be ready to pay every single cost that is associated with bringing the product to market. Don't sign it! Ask clearly for a no production cost clause and have it reviewed by a gas royalty attorney.

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Permalink Reply by Kevin in Belmont County on October 5, 2013 at 3:10am

I contacted the land man at Gulfport on Thursday, he said he would send me out the lease's, and then gave me the song and dance about enhancing the gas for a better price.  He said he would check into it and get back to me. As I said in the beginning of this blog I really just posted this so other potential lessor's wouldn't fall into this same pit fall. I am very well versed in contract negotiations and they slid this by me I just don't want to see others fall into this clause. Like I said it was the land man who blatantly lied to me. In my line of work that's called twisting but there is no governing body to control these people. Isn't it kind of ironic that the same land man that they sent out the second time get my lease signed I through him off of my property and called Gulfport and told them to never send him back out here because he was a liar. And please I am not trying to say all land men are bad as a matter of fact I am sure most of them are quite honest. The only thing I am trying to say is to be careful what you sign. Once you sign the lease you are at the mercy of the gas and oil companies.

Permalink Reply by Karla on October 5, 2013 at 2:45am
TG7891,
Have you received your bonus monies yet? And if so, was the gross clause you received upheld? If this is the case with your lease and Mr. Brutz, then my office should be aware of this. It may help turn around our language. As of now, we are only authorized to use the Market Enhancement Clause. Which, as we know, can be a bit hazy in it's language.
Permalink Reply by TG7891 on October 8, 2013 at 5:25am

Karla

We had an original 12.5% boiler plate lease signed back in 2007. We were renewed June of 2012 at 18.75% and no deductions. We received all of our bonus dollars within 90 days and have received royalties for the first 6 months of production. There have been no deductions.

Permalink Reply by The Hiker on October 12, 2013 at 7:58am

TG:   What company are you signed with?  Thanks.  

Permalink Reply by TG7891 on November 6, 2013 at 3:09am

Sorry for the delayed response. We are with Cabot

Permalink Reply by Karla on October 5, 2013 at 2:54am
Kevin,
I am sorry that it seems you were taken advantage of. You are partly correct about landmen not having to be licensed. However, it does depend which acquisitions company you are hired to work for. For example, the company I am currently employed through requires we have bachelor degree, at least 4 years experience in the certain field we are applying for and references to that effect. Not every land company operates this way. Unfortunately , some "landmen" have no prior experience in this business. That being the case, it is basically as if they are being thrown to the fire. Many do not receive any training in the field either. As with my company, we are even required to take cont ed classes for credit. At our expense. That's why I was saying it may help to ask the landman for his background info. Which it sounds like you did do your homework and still got burned. In those cases, I really do hate to hear of that. Like you said in the beginning, it gives us all a bad rap. You are much more apt to hear of the negative in this business than the positive.
Permalink Reply by Jim White on October 10, 2013 at 9:17am

I've signed three leases in the past year and a half with no deductions. From a major player who we are presently negotiating a fourth lease.

Permalink Reply by Greg K on October 11, 2013 at 3:42pm

You get a bad name because you intentionally mislead people.

Permalink Reply by Frank Walker on October 22, 2013 at 11:50am

Karla is offering typical landman crapola.  My own lease is gross with no deductions.

If any landman's lips are moving, falsehoods are in the air.  Landowners need to hire a good lawyer.  Sounds to me as if the OP did not.  If I'm right, it was an expensive error.  I intend no disrespect.  But straight up, any landowner who believes what a landman says is certifiably  insane.  

Permalink Reply by JK on October 28, 2013 at 1:35pm

Well 'Karla' you do sound like you are doing your job to the best of your ability.

But, it is the mineral owner who has to also do due diligence by hiring an O&G attorney who knows what tiny loop holes there are to be found in written and verbal agreements for all parties involved.

 It always falls back on us.

Permalink Reply by Kyle Nuttall on October 29, 2013 at 9:17am

I have several clients who have signed leases with no deductions.  It's not always possible to get the company to agree to, and sometimes they're the only game in town, but when it's at all possible I make sure the lease has no deductions.

I worked as a landman for four years.  New landmen don't really realize what the lease language says.  They're just doing what their supervisors tell them.  A landman with years of experience should know, though.

That's almost word for word the language that Antero Resources uses for their Market Enhancement clause.  The first half gives "no deductions", and the second half takes it all away.

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on November 2, 2013 at 2:41am

Kyle,

       I had a question for a friend that I asked you a few days back but the information didn't take, so I must not have been logged in.

A friend of mine in Ohio has mineral rights in Greene County PA that he is attempting to get a lease on. He called an attorney in PA one time and sent a few emails, now the attorney is telling him that he owes money and is now a client.

What do you think about this situation, is the mineral owner committed to the lawyer if he calls him one time?

I believe his Mother owns mineral rights in WV as well so he will be looking to lease that land eventually.

I own land in WV with mineral rights as well and will be looking for representation when things start to heat up in the Rome Trough. 

Thanks Kyle.   Ron Hale

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