MDS Energy Lease

Several family members, neighbors and I have been considering leasing with MDS Energy.  They are pooling land and claim to have 300,000 secured acres in Clarion, Elk, Armstrong, Clearfield, Jefferson Counties and they feel that it will be closer to 500,000 acres by the time it's said and done.  I live in Venango County, where the shale starts to thin out and like the idea that everyone receives the same deal, regardless of where you are located.  I am also enticed by the fact that I don't have to sign if the bidding doesn't reach $4000 per acre and they seem to think it will go much higher (rumor has it Rex Energy out of Butler County sold for 10,800/acre to a Japanese company).  The lease offers 15% royalties.  Some things that I'm not thrilled about with the lease is that it's a 10 year lease.  However, I'm young enough that I'm in no big rush for royalty payments.  Also, they take up to 20% of your bonus for their cut.  While this is high, I would still be satisfied with the bonus even after their cut (3200/acre if it sells for 4000).  I also heard (haven't substantiated it yet) that they deduct the cost of pipeline from well head to main pipe, cost of upkeep for road/wells, as well as the cost to get the well inspected from your royalty.  Anyone know more about this?  Is this a typical deduction?  Also, is there anything else in this lease that should keep me from signing this? 

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Permalink Reply by PI on September 27, 2010 at 4:02am
I was not able to attend your meeting last week. However, I did attend the meeting in Franklin a couple weeks back. Was there new information presented at that meeting that would be pertinent in me making a decision? Thanks.
Permalink Reply by PI on September 28, 2010 at 5:54am
The one big question that I do have deals with the fact that I'm in Venango County. I know that the area that I'm in is not as attractive to the gas companies and I have been told that it is a lump deal for all the acreage included, but they also said that the company might be able to decline purchasing certain areas. Is there any guarantee that my acreage (on the venango/clarion county border) will not be dropped from the deal? And if there is not guarantee, what is the liklihood that it might not be purchased with the deal? I would hate to sign a lease that would hold my land for a year only to find that it was not wanted and excluded by the company who purchased the acreage.
Permalink Reply by BW on October 5, 2010 at 10:41am
Patrick,

I don't see this any place right now on MDS or Knapp website but in a one-on-one meeting with MDS on Friday, October 1 - I was told by their representative that they will probably not be able to accept any acreage after October 31to be included in this big sale due to the enormous amount of paperwork they need to do to have this all ready to be put on sale through the Royal Bank of Canada on January 1 who will shop this world wide. You might give them a call to confirm this for yourself - but that is what I was told
Permalink Reply by Go Green on September 24, 2010 at 9:58am
I only have a small tract of land but understand Snyder Brothers is offering a similar deal and is only taking a 15% cut.
Permalink Reply by PI on September 28, 2010 at 3:32am
any clue why half of this discussion is no longer showing up? or is it just my computer?
Permalink Reply by Keith Mauck (Site Publisher) on September 28, 2010 at 7:53am
Each member maintains control over their content, I rarely delete unless it violates the non-solicitation agreement.
Permalink Reply by Keith Mauck (Site Publisher) on September 28, 2010 at 7:51am
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Permalink Reply by Joe Baran on September 28, 2010 at 8:14am
Patrick

You have to be carefull in comparing deals done between energy companies/investors and land aggregation deals. They can be apples and oranges. For example, Rex may have had seismic performed on the property they did the deal on, they could have done a test well, they could have several producing wells on the property. Each action could increase the value compared to an aggregated group where none of the previous actions were performed. If none of those actions were performed, the value could be significantly lower. However, if the right buyer were found who wanted to make a large move into the market, they may pay a premium to do so. Several of the larger entities have over bought and are looking or have found JV partners to fund development. So I would say the likelyhood of one of them stepping up would be low. However, there are many other developers/investors looking for opportunities.

Not sure if that helps.
Permalink Reply by Carol on September 28, 2010 at 8:40am
Patrick,
Those costs seem high (20% of your bonus and all of those deductions.) I know from direct experience that many companies are shying away from these large landowner groups. The 10 year lease is becoming more common because most companies now have more acreage than they can drill in five years. I'm from Westmoreland County so it may be different here, but you may be able to get a better deal on your own. I received $2500 per acre bonus with 16% royalty - NO DEDUCTIONS whatsoever.
Permalink Reply by Two Dogs on September 28, 2010 at 12:47pm
Yall folks are falling into the traps of the skunks that roam the oil patch. Look at how many of these groups of community organizers still exist in the Haynesville. I am a Petroleum Landman that doesn't like to work the big job, in fact I am mostly a loan wolf that prefers to work for the wildcatters. I did work the Haynesville for over a year but was there on the ground for 6 years before Aubrey made his announcement in the spring of 2008. It wasn't the community organizers that did the main organizing, it was Keith Mauck founder of www.gohaynesvilleshale.com that did it. That website organized much more than any other driving force. This website started by Keith could do the same thing for the Marcellus. My advice to you folks is this, " Anyone offering you a 10 year lease should be sent back down the ROW kickin a can unless they are offering you a rental lease form where the bonus would be paid each year to hold the lease". As far as giving anyone a percentage of the money, that is your choice but from my experience you are getting screwed.
Permalink Reply by Joe Baran on September 29, 2010 at 5:48am
Well put regarding the 10 yr lease term!
Permalink Reply by Two Dogs on September 29, 2010 at 2:44pm
Nothing would be beyond crazy if NG went back to $8 or $10 per thousand. A rental lease gives them the option to drill or not to drill in one year periods. You would agree to a five year lease with rentals paid every year to hold the lease. If they think its there then they will drill, if they want to drag things around then they will keep paying rentals each year. Your money will come with the royalties if you are unitized with a producing well. Hopefully most Marcellus wells will be big time.

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