Should I Start a Landowners Group with CX Energy?

My uncle owns property in Washington Co., PA and his lease is expiring soon.  He formed a small group with his neighbors for his first lease and paid an attorney to help with the contract. For his second lease I suggested he form a bigger group to try to up his bonus payment and royalty percentage.

I decided the best way to research would be to talk to landowners that had already formed groups.  I got tons of great advice from each group landowner leader, but found it surprising that some groups paid percentages to consultants and attorneys, and some just paid normal hourly fees.  This turns out to be a difference of millions of dollars in fees!  What was more surprising, is when I asked the group leaders if they'd go back and not pay a percentage for consultation, they all said no. 

Are there any landowners that are part of a group that paid a percentage for consulting fees that have leased their rights?  Would you still suggest paying a consulting percentage?  Are law firms and groups like CX really better than just paying an attorney to consult?  

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Permalink Reply by Janice L. Hancharick on October 18, 2013 at 6:47am

You are a lucky fellow, Patrick.  You've been able to make contacts with many who have been down the Group Leasing road, or are currently on it.  You know your area. Hopefully the people interested in a group have common goals. For the sake of both surface and sub-surface acreage (and generations to come), they best have an understanding that the "best" lease is not all about top dollar and top royalty % as printed on the first page of a leasing document.  Achieving that does take considerable negotiating, but where the "boots hit the road" are all the pages that come after that first one.  It's not a just one individual from a O&G company that will make the decision to accept your Group's acreage and meet your goals.  The decision goes before a board who will analyze the situation before coming back with a counter offer ... so consider .  What firm will best meet your needs?

The glory hole you've already hit is the knowledge you've gained.  If representation by one or a few is up to the challenge your Group lays down and that which industry demands, then go for it.  If you need a firm with a larger footprint in the O&G world to maximize  the Group's holdings, then I believe you already know the direction you will lead them in.  Is it time for a tentative decision or a real one?  Ask your  "almost members" then move on it.

Permalink Reply by Patrick Murray on October 18, 2013 at 9:27am

Thanks Greg, I checked them out and they seem like a great company. What is the percentage or fee charge if you don't mind me asking.  And I totally agree: contract is King with all of this, and real info is what feeds the "king."  It seems based off of other post on this forum, there are O&G companies working 24/7 to try to find ways to finagle more money from the landowners somehow.  

Permalink Reply by Jim Litwinowicz on October 21, 2013 at 3:45pm

First off, let me state again that I work with Cx so I am certainly biased.  If you have been reading past posts then you read what Cx did for me and my neighbors.

What you decide to do depends on many complex issues; How many acres can you get in the group? How long are you and your neighbors willing to work it? Is you area dominated by one major player or are there several companies active the area? How large an area can you get? How contiguous will it be?

You say this is Washington Co which I believe is dominated by Range R. Having one player greatly restricts what leverage you may have as competition is the best way to drive up offers. However, even with one player, you may have considerable power to negotiate if the parcels are situated such that they are critical to full and economic development of the area. If you are in an area that transitions from Range to another company then they may compete with each other for your business.

It also depends on if Range needs more territory or they are already maxed out with what they can produce in a reasonable time. Also depends if they are investing in areas outside of SW Pa. Lots of factors in play.

Many of the parcels there were leased years back and are now coming off lease.  If you are patient enough to take the time for a considerable number of leases to expire, you may get an area large enough to have good leverage. And if you can aggregate a large enough group that it will attract outside players that would be even better.

Cx is best at bringing in new competitors. No one else does that better. And companies that are already established in the area know that and have to negotiate accordingly.  Cx also has established relationships with most companies in the area and can negotiate deals with them directly. And Cx has the organization and backing to be around for two or three years if necessary to build a group as leases expire.

So if you are patient and can get a large group together, then Cx is the best  option. If you will have 500 to 1000 acres, Cx is still a good option but you may consider others.

Whatever you decide, good luck.

Permalink Reply by Patrick Murray on October 22, 2013 at 11:30am

Thanks for all of the advice and info Jim.  It's around 700 contiguous acres at this point I believe, so definitely attractive.  Hopefully they can get more landowner's together!  Appreciate all of the help guys.  

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