Lease Renewal - 1 yr vs 5 yr

My lease is set to expire June 30th (originally with Marquette, now owned by Ascent).  I was approached by a landman from Purple Land Management saying that Ascent wants to renew but only for a 1 year term and the bonus and term is 1/5 of what it was supposed to be ($500/acre for 1 year rather than $2500/acre for a 5 yr renewal).  Has anyone else been approached with a renewal like this? Any thoughts or input would be appreciated.  By the way, my property is in Richland Twp, basically surrounded by other wells.

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Permalink Reply by Barry D on March 11, 2016 at 1:57am

Is it a 1 year lease or a 1 year lease with 4 1 year extensions making it a 5 year lease?

Permalink Reply by JB on March 11, 2016 at 2:32am

I haven't seen the paperwork yet, this was just the first discussion from the landman.  It just feels like this situation is giving them more time to drill a hole and HBP so they don't have to pay a full bonus. 

Permalink Reply by Tom S on March 11, 2016 at 3:32am

I am under a similar, soon to expire agreement.  An attorney explained to me that they are trying to amend/extend the 5 yr agreement to a sixth year with no additional money (read the agreement closely - it's intentionally confusing).  Then they are offering $500 each of the 4 years following. Basically, they are trying to trick people into to a poor agreement with the excuse that the gas/oil prices are too low.  This buys the company time to get people tied to a well site, and held by production. Once you are Held By Production (not the same as a drilled and producing well), they don't have to pay out more lease money.

I'm not signing any agreements.  Many land owners in the area are going to let the contracts expire and then watch as the lease prices go up.  Which is the same thing that happened 5 - 7 years ago, when offers were at $100/acre and then went over $5,000/acre.

Permalink Reply by JB on March 22, 2016 at 12:18am

Tom S - I just got the paperwork for the extension and its just as you stated. It actually amends the original lease to set a primary term of 6 years (vs. 5) and then pays an annual extension for the following 4 years. I'm definitely not signing this. 

Permalink Reply by Barry D on March 22, 2016 at 1:26am

JB,

I believe that Tom is (possibly) correct. Once the amended lease is in place the company will work to include the property in an existing drilling unit. Or in a new unit of extremely large acreage.

Although it might be nice to receive some royalty payment, there is a down side:

First - the royalty will be extremely small due to low oil and gas prices and the large amount of acreage in each unit.

Second - the company may attempt to draw out the actual development of a drilling unit. Currently, many leases contain language that requires a company to engage in "continuous" development operations. It appears that this language has been altered in the new amended lease extensions. Once those amended leases are in place the company decides what constitutes continuous operations.

Bottom line - with the company unwilling to pay reasonable acreage bonuses there really is no benefit for the landowner to sign the amended leases. With oil and gas prices remaining low it may be of more benefit to landowners to leave the oil and gas in the ground.

Permalink Reply by Jefferson on March 22, 2016 at 9:59am

We are in the same situation.  They want 500/acre but also want to change the wording of our operations clause eliminating words like "drilling, spudding etc." and just using general terms.  They also wanted to change the Pugh clause wording.  I see this as they want everything for nothing and are going to drive a bulldozer or truck on someone's property and say look you are HBP. I told him I would sign exactly what I did 5 years ago but I guess they can no longer honor those terms.  Which when we signed 5 years ago the deal was in 5 years if they still wanted us we would resign the same agreement at the same money.  

Permalink Reply by BIG on March 24, 2016 at 1:33am

Good luck with that.  The reason they rose from $100 to $5000 an acre is because they play was just developing.  The majority of the land is leased and now the companies are in a trading mode to put together their units.

Prices are unlikely to go back up to former prices.  Go look at Carroll County, Ohio or Beaver County, PA.  Prices rose to $6,000 an acre 3-4 years ago and today its under $2000 and acre if you are lucky.  In Beaver County, PA its even less.

Good luck getting big premiums. 

Permalink Reply by Barry D on March 11, 2016 at 3:34am

JB,

If they are asking for a 1 year lease with 4 1 year options I would not accept the $500 an acre.

You are correct, it appears they want to tie up your property for as little out of pocket money as possible.

But, of course we are discussing this without seeing the actual document. Might be better to finish this discussion when you know exactly what they are proposing.

Permalink Reply by JB on March 11, 2016 at 8:38am

Thanks for the input here.  I expect a draft agreement soon from them, so I will post an update on what it actually says once I get it. 

Permalink Reply by Doc on March 12, 2016 at 2:02am
I also received a call from Purple about our XTO lease now under Ascent control. No documents, only a discussion about changing from a paid up lease (bonus) to a delay rental (annual payment). Several weeks ago, expecting a call soon, I checked the Belmont County Recorder records and found out that Ascent has offered our lease and hundreds of others as collateral on millions of dollars in loans. The documents were filed In 2015. This morning, I checked the recorder's site and the collateral filings had been removed. Going to be a very interesting negotiation.
Permalink Reply by Jonathan H on March 22, 2016 at 3:26am

How do you remove fillings from the recorder? That shouldn't be able to be done - they can be amended or voided by future filings, but the original document should still be there; that is the point of having a recorder, so that there is a paper trail for the future.

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