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!

Views: 2529

▶ Reply to This

Replies to This Discussion

Permalink Reply by EWK on March 27, 2014 at 4:20pm

Thanks a million for the input and ideas its most appreciated, excellent thoughts!

We didn't join the Smith-Goshen group as at the time, things on our end would not allow it. For sure on the advantages of the being in a landowner group...however, on the flip side, I would say if someone would actually need the property to drill a well, that giving the same deal as the other landowners got would only be fair. 

Very interesting on Jefferson county and that kind of number, own acreage up there too, and I thought leasing was pretty much dead at the moment, as have not gotten any offers recently.  

Permalink Reply by jett on March 28, 2014 at 4:30am

Not sure where your acreage is but we're in the southern most tip of Jefferson County. Friends further north were not contacted. And we were not part of a group. It is be vital to really review your lease closely before signing. Look at the thread on GMS that discusses "If you could redo your lease..." for ideas to protect yourself before signing. Do not allow a "net back" clause - those are very bad for the landowner. And remember the lawyer is being paid to work for your side of the deal. Unless he's the company's lawyer. Then get your own lawyer to be your advocate. It should be that if you ain't happy then he ain't happy!

These leases can basically tie you up forever to the Oil/Gas company.

Permalink Reply by Gunner Ostergard on March 27, 2014 at 11:50pm

We signed a gross lease and we were not part of a land group.  I just want to encourage you not to listen to the land man about what they can and can not do.   Decuctions from royalties is opening up a can of worms.  You need to mail down the certainty of your royalty payments with no decuctions. 

Permalink Reply by EWK on March 28, 2014 at 1:46am

Thank you for the encouragement! Was it recently you signed a gross lease? Have gotten gross lease offers in the past, but the rest of the terms were such as we did not feel comfortable signing the lease. After reading some of the thoughts here, I really think its worth holding out for a gross lease...might be why the one we're looking at now is so favorable with the bonus money amount and other terms, they plan on making up for it on the royalty end...

Permalink Reply by Frank Walker on March 28, 2014 at 2:57am

Gross lease is obviously preferable.  Negotiations with land men were never for me.  With that much land your either need to be in a group or you need to be negotiating with the gas company's officer in charge of land procurement.

While I'd neither sign nor recommend others sign anything except a gross lease, I realize personal circumstances differ and we all face our individual situations.  Still, signing of a net lease should not go forward without a stated numerical ceiling on deductions.  

Permalink Reply by Philip Brutz on March 28, 2014 at 4:34am
Permalink Reply by Janice L. Hancharick on March 29, 2014 at 8:11am

Try including wording that says PRE- and POST productions costs will not be deducted from the royalty % ... be sure that marketing expenses aren't deducted either.  W/O extensively explicit language (whatever your intention), companies will not recognize what's not in black and white.

PA is all in a turmoil now because a law written 30+ yrs. ago didn't have Marcellus in mind when it was passed.  The language supplied "intention", but not specifics.  Companies have taken advantage.

Permalink Reply by deer spotter on March 29, 2014 at 9:18am

Our lease reads 18% no deductions what so ever  whether  directly or indirectly. Then goes on to spell out all pre and post production cost not allowed

Permalink Reply by Janice L. Hancharick on March 29, 2014 at 4:43pm

You are fortunate.  I wish folks in PA had been so fore-sighted.  MANY thought they had the clauses you obviously have, but companies found a way to back-door them that the state's Supreme Court agreed with.  It happens.

RSS

© 2024   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service