Am I leasing for too little in Brooke County?

Good morning. We have just under 6 acres in Colliers, WV (Brooke County), and we've been approached by a landman about signing a lease. I talked him up to $2200/acre with 18% net royalty, but he said we don't have a lot of leverage because we're right at the top of the unit, about a mile from the wellhead. Apparently because we don't have a big section of land he says Chesapeake will probably just stop short of our property rather than pay us more than that, because they couldn't go much further than our property anyway due to how far away it is from the wellhead.

Honestly, that does sound reasonable to me, but on the other hand I read a report of someone getting an offer for $7000/acre in Carroll County OH as recently as 2 weeks ago, which is only about an hour away from us.

I'd appreciate any opinions! Thanks.

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Permalink Reply by JK on December 2, 2013 at 5:58am

First of all, no net lease or your royalty percentage will go down alot.

For CHK to offer you $2200 sounds very good and I would take it.

You can find out where the unit boundries are by contacting the DEP and they will send you a copy of the unit maps. Plus you want this for your records.

A mile from the well head is not that far really.

As you have seen on GMS, get an O&G attorney to review the contract for all formations, depths, O&G included. Good luck!

Permalink Reply by Tim Tarr on December 3, 2013 at 4:14am

Get an excellent O&G Lawyer. Even more important with a CHK lease, with their pricing schemes.

  Make sure to get a "no surface rights" clause. I assume you don't want to end up with them using 5 acres for who knows what. Even an access road/pipeline could take more than you expected.

Everything must be in writing.

So I'll say it again get an O&G Attorney.

Permalink Reply by martin on December 3, 2013 at 7:04am
IMO yes that is not enough. Right across the river Jefferson Co was up to 7200/ 20% the last I heard.
Mike MurphyPermalink Reply by Mike Murphy on December 3, 2013 at 8:50am

HOW DOES THAT LANDMAN KNOW WHERE THE WELLHEAD IS GOING TO BE .........IF THEYARE JUST GATHERING LEASES THEY DONT HAVE A UNIT LAYED OUT YET .......IF U LISTEN REAL CLOSE HE IS JUST SPECULATING THE WORST CASE AND REALLY HAS NO IDEA IF THE PAD IS GOING TO BE NORTH SOUTH EAST OR WEST OR IF YOUR LAND IS GOING TO BE RIGHT IN THE MIDDLE OF IT ........2200 IS A LOW BALL ......IN MARSHALL COUNTY I GOT 2700 2 YEARS AGO IN CARROLL COUNTY I GOT 3750 A YEAR AGO ...........THERE ARE SEVERAL DIFFERENT FORMATIONS UNDER US THAT THEY CAN DRILL INTO ....MARCELLUS,UTICA,CLINTON,DEVONIAN,ROME TROUGH,ROSERUN, AND PROBABLY A FEW MORE I AM NOT THINKING OF RIGHT NOW GET AN ATTORNEY TO LOOK AT ANYTHING U ARE OFFERED BEFORE U SIGN .......MAKE THEM PAY U GROSS ROYALTIES ON EVERYTHING PRODUCED FROM UR ACRAGE ........WE ARE SETTING ON A BIG OIL AND GAS FIELD THAT IS JUST GETTING STARTED .......BEWARE OF CHEASEPEAK .......REMEMBER THE LANDMAN IS JUST A CARPET BAGGER HERE TODAY GONE TOMORROW LOOKING FOR THEIR NEXT SUCKER  SOME LAND MEN ARE OLD USED CAR SALESMAN ......ONE I DEALT WITH WAS AN EX CELL TOWER LANDMAN TIL THE CELL TOWER LAND GRAB SLOWED DOWN THEN HE STARTED GATHERING OIL AND GAS LEASES AND RIGHT OF WAYS FOR PIPELINES ......BEFORE THAT HE WORKED FOR A CAR DEALER 

Permalink Reply by Todd on December 3, 2013 at 2:27pm

Phil,

I'm in Hancock County.  Do not sign a NET lease.  Make sure your lease has no post production costs or any other deductions.  That's MORE IMPORTANT than your royalty percentage.

Good Luck,

Todd

Permalink Reply by Kim Paine on December 5, 2013 at 5:13am

Hi Phil, The best answer I can give you is "it depends". It depends on "how muscular you want to get" in terms of dealing with CHK (I'm assuming). If you ask for more you must be willing to walk away with nothing. The landman will attempt to rattle your cage so to speak, and it sounds like they already are.

Considering you only have 6 acres the difference in $2200/acre as opposed to $7000/acre is $28800 (before taxes), for the lease bonus payout, so you should consider this. Eighteen percent royalty is a good deal. Make sure the lease states zero deductions (distribution, etc)  will occur .

You also should consider future wells in the area in which you may be closer to.

7 K an acre in Carrol county may be what they got, but do you know the details?

- did they have lots of acreage?

- where they in a co-op?

If you haven't already I would strongly recommend having a qualified Oil and Gas attorney review your lease for all sort of legal loopholes that in the end would surface as hidden costs (ie less money in your pocket) and many other issues.

Good Luck

Permalink Reply by william george allison on December 12, 2013 at 7:12am

WHO IS SIGHNING PEOPLE UP IN BROOKE COUNTY IS IT HONOR RECOURCES I HAVE SEEN PEOPLE GETTING 3,000 TO 4,000AN ACRE RECENTLY

Permalink Reply by Todd on December 16, 2013 at 7:58am
Thanks William George,
Is Honor Resources signing up folks for Chesapeake?
Permalink Reply by william george allison on January 4, 2014 at 10:53am

HI TODD DO YOU KNOW WHERE THE PROPOSED DRILLING SITE IS IN COLLIERS? ALSO A COMPANY FROM IAMS LAND MANAGEMENT IS SIGNING PEOPLE UP IN COLLIERS AREA    THANKS BILL

Permalink Reply by Todd on January 5, 2014 at 7:54am
Bill,
Here's the WV oil and gas well viewer website:
http://tagis.dep.wv.gov/oog/
There's already a couple drilling pads in Colliers.
Is Iams also signing up folks for Chesapeake?

Thanks, Todd
Permalink Reply by Todd on January 6, 2014 at 5:00pm
Bill,
Do you have a contact phone number for Iams Land Management? I have a friend who needs to lease in Hancock.
Permalink Reply by Mark McGrail on January 4, 2014 at 2:06pm

For What It's Worth,

A friend was in almost the identical situation that you describe.

He called and asked my opinion, I called a friend who was lasing foe CHK and asked if it was true that my friends property could soon be in a drilling unit. He sent me a plat showing that the landowner would indeed be included in a drilling unit. In fact the well was drilled within 6 months. Now all they are waiting for is the pipeline which is under construction as I write. My friends (the land owners will be receiving royalties shortly.

However, prior to advising my friend that he should sign the lease I suggested some simple changes to the lease.First: the signing bonus offered was $2,500, it was increased to $3,500 (I believe CHK allowed this because they had paid this much in the area in the past). More important CHK offered 15% net; we were able to increase that to 17% gross.As for so many issues involved in a lease they did not apply to my friend .

So the issue was get left out of the drilling unit or take their lowball offer. My suggestion to you is to understand that they can leave you out of the unit if you play to hard. I would focus on a gross royalty clause and try for $3,500 per acre (but don't let the up front money kill the deal, the "true" gross royalty is more important). I would also demand a non-surface lease that should take care of most other issues.

Finally; no market enhancement clause.

I know someone will jump on me and say what about this and what about that. I am just trying to write a simple answer and I admit I may have missed something. But remember my friend, he truly would have been left out of the true bonus - royalties, if he ahd played too hard.

As a P.S. - since the landman threw out that you could be in a unit ask him (or her) to prove it I always do when they throw this out. Get a plat showing your property in a unit; each time I have asked I have gotten the plat if the land was truly in the unit.

Just my thoughts

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