Are gross leases a thing of the past?

Have roughly a total of about 330 acres in Belmont county that are unleased. Currently investigating about potentially leasing compared with the alternative, forced pooling. Long story made short, looking at one lease that is the most land owner friendly I've seen yet. The only thing we don't like is its a 20% Net "enhanced" lease...the third party, production, enhancement costs are deducted out of the total, then the net proceeds (amount "realized") are split 20/80. Supposedly (the lease says) that the costs are to be reasonable and at the going rate, by the lessee, "exercising good faith and diligence" in contracting the services.

Mentioned this, and the word from the drilling company is they don't do gross leases anymore. However, we have not gotten to the point of saying we won't lease if its not a gross lease.

We thankfully have a good attorney helping us with this...he thinks this is a good lease aside from the net part, said we should try to get that removed, but "shouldn't make it a deal breaker".

Opinions? Like I said, the rest of the lease looks good compared to the other leases I've seen...while the money would be nice, its not the end of the world if we end up not leasing, as I mentioned, forced pooling is a possibility if we don't, I should note that of the total acreage, the biggest parcel is about 130 acres, so I can see them being small enough that they can force pool. 

Thanks!

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Permalink Reply by Philip Brutz on March 26, 2014 at 4:51am

I am curious why you didn't join the Smith - Goshen land owners group?  Most of the gross leases that I know about were negotiated by landowner groups representing thousands of acres.  

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 26, 2014 at 4:54am

Tell them you'll take an 18% gross lease over a 20% net. 

Permalink Reply by Appalachian on March 26, 2014 at 5:19am

Who determines what enhancement costs are "reasonable"?  Maybe a clause stating 20% and no less than XX% after enhancements?  Or "Enhancement deductions not to exceed X.X%"

I personally would rather have 15% gross than 20% with deductions.  As chesapeake has demonstrated, if there is no limit to the amount that can be taken for enhancements, they will take as much as possible.  I equate the enhancement clauses as a way for the O&Gs to have a continuously variable royalty to the mineral owner.  Unacceptable in my opinion.  If there are to be deductions, the amounts should be specified to the *dollar on the lease at the time of signing.  Anything else allows for abuse of the royalty. 

I see this just like ATM fees.  At first, none of the banks charged for them, then once one did it and people accepted it, all the others followed suit.

How did it become the mineral owner's responsibility to market and transport hydrocarbons anyways?  With your acreage, I would stand fast on no deductions...none...nada.  I myself am HBP, but my lease is trash for the horizontals. The O&Gs can pound sand if they want changes that don't include a cost-free lessor clause.  Market price is already variable, now they want to make deductions variable.

 I'm starting to wonder why we are so hospitable to these folks as it seems they try to fleece or screw us over with any opportunity that arises.  They are not here to do me any favors, nor I for them...just business.  I'm getting tired of reading about people "getting the business" from them.

Permalink Reply by Keith A Williams on March 26, 2014 at 5:29am

Eric K,

I made this journey a while ago. Same deal, an individual landowner will not be given the "sweetest" deal. As Philip stated, groups get those.

I guided a small group at the time, around 5,000 acres. We were not big enough to get the deal without "Market enhancement clause". We got a lot of things that small landowners could not, but not that one.

Most of my group joined a larger attorney group that had a much better lease. We made 250 an acre more (enough to pay lawyer and then some!) and 2 1/2 % increase in royalties and a true gross royalty.

I look at it this way, that attorney group has the most bargaining power. Just like if you went to buy a truck or car. If you buy a car or truck every 4 years from the same dealer, you might get an OK deal. Loyalty and all. The business that buys 10 trucks a year, now they will get the best deal.

Ask more questions and listen. We here have been through much of this before.

HTH

Keith Williams

Permalink Reply by Soundcraft on March 26, 2014 at 5:29am

i don't think i would worry about force pooling seeing how you own potentially half a unit.  receiving gross is not a thing of the past.  i would just ask for 20% gross and see what happens.  

Permalink Reply by Billy Park Whyde on March 28, 2014 at 5:39am

Just think if you were an attorney you don't do anything for less than 30% !

Permalink Reply by jett on March 26, 2014 at 5:30am

All I can tell you is that in the past few months several of us got 20% gross leases, no deductions and we had less total acreage than you. And it was in Jefferson county. We just were stubborn & it was a deal breaker for us and our lawyer knew that. Don't know if that will help you or not.

Permalink Reply by jett on March 26, 2014 at 6:10am

It wasn't just our stubborness - Our lawyer and his team worked hard to get the leases we wanted. Want to give credit where it is due.

Permalink Reply by Darlene Newton on March 26, 2014 at 6:19am

Do not sign anything until the Bill HB 1684 gets passed , I think that would be one suggestion!  I have also seen people not sign with a Company , the Well gets drilled ,and they take it .  I wish you luck be cautious and do not trust anything they say!

As soon as I get my tax papers from my two Wells I will post how much Landowners Made. That could change your mind,  Just be careful !

Permalink Reply by Keith A Williams on March 26, 2014 at 6:48am

Darlene,

You need to slow down a little. Eric K. lives in Belmont County, OHIO. HB 1684 is a PA bill. Does not apply.

Keith

Permalink Reply by Darlene Newton on March 26, 2014 at 6:53am

Ha Ha  sorry!  Should still be leary they like to re-define words in your lease agreement

Permalink Reply by Mark McGrail on March 26, 2014 at 6:41am

Unitization (not forced pooling) is not a walk in the park for the oil and gas company. So it is not a foregone conclusion that if you stand your ground that your property will be unitized. Recent history has seen several oil and gas companies pull their unitization requests. In the long run if a company truly wants your property you stand a better than even chance of having your request fulfilled.

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