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 Andrew on November 21, 2013 at 2:33pm

Philip,

Any state-compelled unitization wouldn't change the terms of any private contract or allow a company to defy them. If a lease restricts the lessee's power to pool the lease, they'll still be contractually obligated to comply with that restriction regardless of what a regulatory body does.

For example, a lease that provides that the lessor's property must be at least 25% of any unit, and then the lessee applies for a mandatory unit with only 5% of the unit acreage coming from the lease. If the state grants the lessee's request and forms the unit, that doesn't excuse the lessee from that minimum acreage requirement. The lessee would have to pay the lessor royalty on 25% of the unit production to avoid being in default of their lease obligations.

Permalink Reply by Joseph-Ohio on November 20, 2013 at 3:11pm
Also, Andrew - as we understand the rules in Ohio, before a landowner can be force pooled the E & P / G & O seeking the order must contact and present the landowner a reasonable offer to obtain a lease / drilling rights and also afforded a hearing if ( in the opinion of the landowner ) the offer is inadequate. Also as we understand things, the hearing would be held before the Chief of the ODNR ( again only our basic understanding of the rules ). Does your understanding differ ?
Permalink Reply by Ragnars Repo on November 20, 2013 at 3:29pm
Forced pooling aka theft.
Permalink Reply by Joseph-Ohio on November 20, 2013 at 3:46pm
Our opinions :

The rules appear Pro O & G / E & P / Prospective Lessee interests and Anti Landowner / Prospective Lessor interests - in many big ways.

Hope it doesn't come to that.

Best protection we see would be a good Landowner cognizant lease agreement.
Permalink Reply by Andrew on November 20, 2013 at 5:27pm
Such a requirement would not surprise me if Ohio had it, but I cannot find any official statement of a requirement that an operator offer the other owners anything but a right to participate. The particular laws are under Ohio Revised Code 1509.24-28.

1509.27, which allows for Mandatory Pooling, entitles any owner who could not get all other owners to enter into a unit aagrement to request the Cheif compel unitization. The pooling order itself has to be just and equitable in the Chief's opinion, and he has to notify the affected landowners of the proposed order in order to allow them to appear at the hearing to object to the proposed order. The use of the term "just and equitable" as used in that statute seems to refer to the requested mandatory pooling, not any private agreement. This phrase seems to be consistent with similar language from various other state compulsory unitization laws, and probably only refers to a fair and proportionate allocation of well costs and proceeds among the unit owners under the proposed mandatorily pooled unit(I.e. owner of 10% of unitized land gets 10% ownership in the unit well, not 50% or 0.5%).
Permalink Reply by Billy Park Whyde on November 15, 2013 at 6:00pm

I think a divorce attorney would do better at a Cabellas, lol as long as he had camo on instead of blaze orange. Drill baby drill

Permalink Reply by Joseph-Ohio on November 16, 2013 at 1:43am
BPW,

We're still in the ' Drill Baby Drill ' camp BUT :

As a landowner / natural gas / oil / mineral owner / prospective lessor; if the E & P / O & G interests want to steal our natural resources from us we don't desire their business (speaking for myself and Mrs.).
Permalink Reply by Billy Park Whyde on November 20, 2013 at 6:53am

Well the O&G companies and their supportive structure are fast losing their appeal. That is their fault. For an example http://ohioshaleohiojobs.org/labor-department-keeping-a-close-eye-o...

good video http://www.youtube.com/watch?v=om33DwIG6Xk#t=214

not good http://ohioshaleohiojobs.org/attn-crescent-services-employees-past-...

 I think CHK has really put a bad taste in the mouth of Ohio landowners.

Permalink Reply by skittles on January 5, 2014 at 7:39am

Kevin and Darlene Newton, what you said. We work and struggle all our lives to pay for our  land. We are hoping to have a peaceful life in our later years. Yes this is found money, so is the lottery. However, in addition to everything else that has been said. We never anticipated all the traffic, the tearing up of our land, and no matter what the lease says about having a voice in where the pad goes, or the pipeline, they will finally put it where they want it. That may be in your front yard. Yes, it does cost a lot of money for the G&O company to do this, but they need to work within their means and not come back and decide to deduct more money from our royalties because they are not making enough money. And they do not work efficiently, I have seen how they blow their money. NY Gas Rights sounds like he is jealous.

Permalink Reply by Joseph-Ohio on January 5, 2014 at 8:28am
Not 'found money' Katie.

To us (myself and family), what selling the natural resources that we own amounts to; is a return on our investment in land with mineral rights that we paid hard money for.

Good luck to all of us (landowners).
Permalink Reply by Nancy Mosley on January 5, 2014 at 8:34am

No more "found money" than any other investment, as Joseph-Ohio said. Some people obtain their mineral rights through purchase of just those rights, some through purchase of the fee (including surface), some through inheritance. Even those who inherited and didn't realize it are no different, I think, than those who inherited a forgotten bank account and are somehow found by the bank. 

Permalink Reply by Jimmy Wilson on January 6, 2014 at 2:36am

Hey Kevin

Several months have passed since your original post, I am curious , if you are still willing to share.

Assuming your first check was 3 months production, have your other royalty checks been in line with one months numbers or have they greatly fallen off from your first months totals ?

Many of us, myself included, are seriously thinking of selling all or a portion of our future royalty stream. I never dreamed I would utter such a sentence, but the thought of getting hosed on deductions, paying 40+% tax on royalty income, myself and many of my neighbors are thinking of selling.

Thank you very much for enlightening many of us here with your original postings...huge eye opener for many of us who thought we had decent gross language..kudos my friend

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