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 Todd on January 5, 2014 at 8:11am
Excellent advice Mark!
That's probably some of the most useful advice as I've seen in awhile.
Could you elaborate on why you recommend no market enhancement clause?

Thanks, Todd
Permalink Reply by Mark McGrail on January 5, 2014 at 8:19am

The market enhancement clause essentially cancels out the no post production costs (PPC) wording of a gross royalty clause.

Permalink Reply by Todd on January 5, 2014 at 8:26am
Thanks Mark,
I was suspicious of the market enhancement clause as well and agree.
Do you view "at the wellhead" royalty as gross?
Permalink Reply by Mark McGrail on January 5, 2014 at 4:20pm

I have seen "at the wellhead" interpreted to mean a gross royalty. I don't agree. To me at the well head means prior to any deductions being taken. Therefore it is a net royalty not a gross.

This is one reason, among many, that you should use a "true" oil and gas attorney. Writing the royalty clause to mean a true gross is tricky

Permalink Reply by Todd on January 5, 2014 at 7:22pm
"At the wellhead" royalty depends on the law of the state as well. In PA, they interpret it as net. However, WV law does not allow any deductions to be made from "at the wellhead" royalty unless it is expressly written; therefore, in WV, it is a gross royalty under law. Of course, always consult an experienced oil and gas attorney.
Permalink Reply by Mark McGrail on January 6, 2014 at 2:25am

Todd,

Your example is just another reason that land owners should seek assistance with an oil and gas lease; as you state an experienced oil and gas attorney (not one of these wannabes).

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