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 Larry Pearce on November 8, 2013 at 3:05am

Well this thread is saying we are ALL bad apples, and I resent that, and yes I get your point, and you are personally attacking me by lumping all landman careers as liars. And I too am proud of seeing leases and this industry turn an entire county around, where farmers and families have had their lives changed because of the gas industry.

I never asked you to feel bad about the O&G companies, I am suggesting you stop feeling bad about yourself, and be thankful you are getting to participate.   ok this makes NO sense, "Especially the ones that decide to set up subsidiary companies to sell their gas to, so they can sell it at a reduced price to themselves, and then turn around and resale it for huge profit down stream"  kind of a conspiracy theory huh? there is no way to value a sale point prior to processing, products would NOT suddenly become more valuable because it changes hands, and it doesn't work that way.  As an upstream co. it all goes into Mark West Midstream (not by sale) for our operator, and gets sold to multiple buyers, downstreams, crackers, etc...in which the operator does the marketing for out the other end, and this is typical.  

No, they did not know what the expenses were going to be, new technology, new processing plant, new state fees, taxes etc...  There are multiple contact companies that all have to get paid too.  

AND again about the market enhancement, your point to a novice would look as though the landman wrote and pushed it onto the landowners, completely opposite, landowner attorneys starting INSISTING on it, so BACK off and get your facts straight.  It doesn't make us liars if we present you ANY language, we don't write, approve, push it on anyone.  We start with a base lease and then proceed with the concerns of the landowner, and then must use approved addendum language, as well as attorneys, and the attorneys know what flies and what doesn't, and usually leases get created that way.  I encourage anyone to use a reputable O&G attorney and work with many constantly

So if you are going to continue to push us all off as liars, you may as well say ANY sales type work carreers are liars too, including what you did in the insurance field, so stick to discussion topics and the stop lively-hood attacks! OK!!!!!!!!!!!!!! 

Also that clause you started with here, is 5 or 6 years old, it wasn't good then or now, it was a scare crisis paragraph that showed up in Chesapeake leases, and it does not fit the times, it is old news.

Currently, 9.2 million men and women are employed (directly and indirectly) by the oil companies.

• In 2010 they paid $86 million DAILY to the federal government for royalties, rents and bonus fees.

• They invested $266 billion in new capital projects in 2010. Which means lots of businesses benefited from these investments.

• In the same year oil companies paid $176 billion in wages to employees plus benefits and also made payments to oil and gas lease holders.

• Finally from net profits, they distributed $35 billion to American shareholders.

Who benefits from oil company profits? A 2011 Sonecon study found that state pension fund investments in oil and natural gas companies are providing strong returns for teachers, firefighters, police officers and other public pension retirees.

On average, oil and natural gas stocks comprise 4.6 percent of state pension fund assets, yet provide 15.7 percent of the returns, a ratio 3.4 to 1.

The U.S. oil and natural gas industry supports the retirements of tens of millions of Americans who have invested in industry stock.

In fact, if you have a mutual fund or IRA retirement account — and 95 million U.S. households do — there’s a good chance it invests in oil and natural gas. So when politicians scream about taxing oil profits more, what they are actually doing is taking more money from average Americans who count on those returns in their retirement plans.

There are a total of 17 major U.S. industries ranging from pharmaceuticals/medicines, computers & peripheral products, manufacturing, machinery, etc. In terms of net profits, the oil and gas industry ranks 11 out of 17 with a net profit of 6.7 percent.

Basically, they get to keep and distribute as shown above, 7 cents of every dollar they earn. And what does the government get?

The federal gas tax is 18 cents on the gallon, so for doing nothing to bring this product to market, the government more than doubles what the gas and oil companies earn as profit.

Just for balance, net profits for pharmaceuticals is 22.1 percent, computers is 21.8 percent, beverages and tobacco products 20.1 percent and the list decreases all the way down to gas and oil at 6.7 percent.

Permalink Reply by Greg K on November 10, 2013 at 1:35am

Gee that's a lot of money! You would think they just pay the landowner what they agreed then huh??

Permalink Reply by Rick on November 8, 2013 at 3:11am

Thank you Kevin for everything that you have posted.  I for one am grateful that you take the time to explain again and again your situation. I totally understand that some of these landsharks will rob a 90 year old blind woman if they can. It takes a lot of courage to say that you were swindled... I applaud you. There are more than a few people on these boards that would like you to stop educating anyone that will listen... i believe that some of them are landsharks that do use those tactics, or company people who see the land/mineral owner as a minor inconvenience. I have run into several of these people myself with posts that urge caution when dealing with the O&G companies. Some try to get others to jump on the bandwagon to shut you up by calling you various names, or accusing you of trying to shut down the industry... give me a break! We ALL need to remain vigilant in our negotiations with an industry of multinational corporations. They laugh at the thought of some rural folks like us in pa and ohio, trying to hem in trillion dollar industrial giants and all the political influence that they have worldwide.

Again, those of you who think you have outsmarted these trillion dollar companies with a lawyer you hired for a few thousand bucks.. think again. You may think you have something that will stand up in a court of law... if so, they will pay someone to change the law.... it has already been done several times in pennsylvania. So please dont try to ridicule someone that made a mistake on a contract, you will find out in the end that we probably ALL made one or two ourselves.

Oh, and those of you with "no deductions" ? they will find a way around that, if they havent already with artificially low wholesale prices.

Permalink Reply by george m. on November 8, 2013 at 7:50am

Larry's industry talking points are great.  We do need a profitable O&G industry.  I worked in the Finance and Tech areas for a  Major for  24 yrs.  "Transfer Prices" is the term used to value product as it moves around within an integrated co.  In my experience, this area was the subject of investigation by the Feds several times.  There are obvious advantages to integration in the oil business, ever since JD Rockefeller, so please cut the crap. 

 

The Landowner should receive the current, posted spot price for the lifted hydrocarbons,  Any "adjustments" should be spelled out explicitly in quantitative terms (x%) in the lease.  Midstream value added (or subtracted) is not the farmer's area of expertise.

 

Finally, let's get REAL.  Unless the Ohio farmer owns 10,000 acres, he/she is in no position to shop around for the best deal.  For people to say that an Ohio landowner with 50 acres can influence the terms, even with a "good attorney" is theoretical. The landowner is faced with essentially a "take or leave it proposition" beyond a certain point.  That "certain point" always falls in favor of the companies, cause they have the economic power  ... "take it or leave it". 

Permalink Reply by Joseph-Ohio on November 8, 2013 at 8:26am
Well, just now learned it was c--p.
From what Mr. Kevin writes however, some of the c--p is in court and some ruled upon / determined.
Mr. Kevin also made the point in consideration of the litigation that more regulation of the ' landman ' and leasing industry is in order.
I agree with Mr. Kevin.
The Oil and Gas development / land leasing industry needs more landowner protections built into it.
What we have now appears to me to generate too much litigation and hampers development.
The process suffers and appears to me to be inefficient.
Permalink Reply by george m. on November 8, 2013 at 8:43am

I agree, Joseph,

Way tooo much litigation: one well at a time.

Who in the Ohio legislature would sponsor an OHIO Landowner Bill of Rights?

Does anyone know of any candidates who need the farm vote?

Surely there must be someone in the General Assembly that is an Ohio Landowner?

Permalink Reply by Joseph-Ohio on November 8, 2013 at 8:50am
Searching.
When we find them let's identify them to all Ohio landowners.
Permalink Reply by Rick on November 8, 2013 at 10:40am

Ya, well, beware of a wolf in sheep's clothing... we have one of those already in pennsylvania... there is a guy Garth Everette that says he is looking out for the landowner while he is leading the charge on legislation to screw the landowner... hope they vote that snake out as soon as possible!  And remember big money can probably buy a pretty good sheep outfit!

The other thing is... the farm vote that is involved in the utica play doesnt really amount to a lot of individual votes when push comes to shove.... less than 50,000 or so i bet, out of millions of ohio voters, and many representitives across the state. It just sucks... but thats the way it is... worth a good fight though!

Permalink Reply by Joseph-Ohio on November 9, 2013 at 12:18am
Reading ya loud and clear brother.
Permalink Reply by bo boboski on November 9, 2013 at 7:57am

I feel that chkp. is willing to screw the landowner & take their chances of going to court. Even if they lose, the will just have to pay the landowner what he had coming anyway. they have bookoo attorneys on salary,may need something to do!

Permalink Reply by Gas heir on November 9, 2013 at 9:43am
Yep, we have an absolutely ridiculous situation that would take 2 pages to explain.....but the short version is that Chesapeake holds our deep rights based on a shallow well on another property that was pooled with ours 30 years ago. It never produced until recently, because a private person opened it up and is selling gas to some businesses close by. But no production has EVER been reported to the state. Last thing that we were paid was $100 shut in in 1987 when it was put in shut-in status with the state. Chesapeake just walked away from it. Chesapeake refuses to answer any correspondence with the 5 different landowners that are in this pool, or their lawyers. Sooooo we have to go thru suing for quiet title which is gonna cost Chesapeake and landowners money. But as you state, that is the Chesapeake game. They don't do anything until they are forced.
Permalink Reply by george m. on November 8, 2013 at 10:06am

Joseph,

Excellent. Staying out of court is good for everyone (including the co.s).

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