Anyone having a problem getting a pugh clause from Range or Chesapeake??

Have been negotiating with Range (we are in Beaver/Independence area of PA). We are being told directly by Range that they are no longer allowing Pugh's clause in the lease and we are also hearing through many attorneys that both Chesapeake and Range are saying the same things. We know that a large group in the area have just signed on with Range...have not figured out what terms they received. We were attempting to get $2700/ 16% with Pughs clause but at this point don't know if it is realistic. We have 100+ acres. We are being told by people at Pennstate extension webinars to accept what you can get but then we hear about Utica...anyone, anyone??

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0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on June 2, 2011 at 4:23am

Henry,  that's a great idea to just lease the parcels individually....sorry we didn't think of that to begin with yet we didn't know we couldn't trust the lessee to do us right even with the clauses as we were told over and over again that our lease would be renewable in five years (no mention of a need to identify that further with a Pugh clause or something to protect our interests in being able to renew the lease with bonus money again).   It ain't over yet...I hope they do us right as the lease still has some time yet.

 

Marc Marie and others here.....here is an example of the Pugh clause online...

http://wiki.answers.com/Q/What_is_a_Pugh_clause

Permalink Reply by Marc on June 2, 2011 at 6:35am

Very interesting strategy, Guy. You seem to be doing good at moving them on a number of issues.  The Pugh clause you're angling for sounds very favorable (as you paraphrase it).  You should be able to cut and paste from the document, assuming you have the lease as a Word document.  

 

Pugh clauses seem like one of the potentially most important "wins" a landowner can get in a lease, depending on how its worded.  Kudos to you for the progress you've made so far - and for sharing.

 

 

Permalink Reply by Mr. Majik on June 2, 2011 at 5:57am

I'm surprised nobody yet has suggested to Terri to try for a vertical Pugh clause.  It seems like that's the issue Terri is asking about in the original post of this thread.  Sign a lease only for the Marcellus but no deeper.  Then a new lease would have to be negotiated if they (or another producer) decide to tap the Utica.

 

At the same time, it is still important to try for some form of a horizontal Pugh clause too but it sounds like you're battling a tough customer in Range and/or CHK.  You might try for some modified version of a Pugh clause too.  For instance, if they unitize more than 50% of your acreage then they get to HBP the rest.  Or perhaps require a higher percentage.  This way you're at least assured of a sizeable income while the producer gets to hold a limited amount of your acreage unused.  It's a true compromise.

 

In addition to the idea in the previous paragraph I would try to consider the likelihood of your lessee wishing to HBP the unused portion of your property.  Try to find out about the surrounding leaseholds and the likelihood that your unused acreage would be part of an area that can be successfully included in a non-producing HBP block.  If it looks like they would need to drill those adjacent leases you may have less probability of needing the protection of a Pugh clause and so you should assign less importance to having it in your lease.

0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on June 2, 2011 at 6:05am

I didn't know that there are even clauses to how far down they go for a vertical?...

 

With all we are having to do with telling others who have yet to sign leases how to really look and negotiate as we that have leased have already found out.   Do we really think that the oil companies are doing their best towards us as landowners?   no, we don't and we are the Americans holding the ownership of the lands that some of the lessee's care only about the profit.   We as Americans and as individuals need to insist on a newer contract to be made by the O & G's that will reduce this amount of surprise and perhaps we could call it cheating because of landowner ignorance (and even ignorance on behalf of some lawyers that did negotiate leases that still didn't give the landowners a fair share).  Pls if you have time how about a comment on this discussion at this link about the need for a new contract instead of relying on addendums to serve what the contract should be doing.   If enough of you post your opinion I may present it to some O & G companies with your support of comments.

http://gomarcellusshale.com/forum/topics/getting-ready-to-sign-a-new

 

Permalink Reply by Marc on June 2, 2011 at 12:51pm

I think that's his point - they won't sign a Marcellus specific lease (or at least haven't so far).  Hence, his curiosity about the things he is hearing about the Utica.  

 

Point taken on how the importance of a horizontal Pugh clause could differ depending on the status of adjoining land.

 

Permalink Reply by Sam Douglass on June 2, 2011 at 2:37pm

They are after all the valuable strata at the cheap prices people will accept now.

 

In Texas they gripe because offerings have gone from a 25% royalty to a 20% royalty and they only talk about one shale, the Barnett.  And the Barnett is not as good as the Marcellus.  You not only have the Marcellus and the Utica, you have the promising Onandaga limestone full of gas and probably some Upper Devonian [Ohio] shale.  They want to sign up people while the can still get leases cheaply.  

Take a lesson from what Texans pay Texans.  Google Barnett and find out what is happening there.  $5000/acre bonuses are still being paid to Pennsylvanians - particularly where they are ready to drill and are not just acquiring reserves to keep the drilling going for the next 100 years.

The companies brag to their investors that with the same infrastructure that in this area they not only get the Marcellus, but they can produce from all the other structures with the same investment.  And more than one company says its costs, including land and lease costs, are less than $1.00 per MCF.  At $4 sale price [soon to be $6], that is an unbelievable margin.

Do your homework before you sign up.  You may have to wait until they realize they have a problem, but the easily can and will pay more.  Of course, if you need the money now, take it and do not complain.  If you can afford to do it, stand with your neighbors and satisfy your greed just as the producers are doing.  Why should they pay more when they can buy for less?

Permalink Reply by Tanya Gabriele on June 3, 2011 at 12:54am
What are texans doing to prevent the oil companies from selling their leases to a foreign country?  What stops the company or nation that buys your lease from changing existing terms?
Permalink Reply by Finnbear on June 3, 2011 at 2:28am
Not much you can do about this unless YOU include a well written assignment clause in your lease (if you have written your own) or addendum. The ALOV lease has a clause that gives the lessor 10% of the increase sale price of any assignment. You could add a clause that stipulates that any assignment requires lessor approval and see if the O&G will agree to it.
Permalink Reply by Tinamarie S on June 2, 2011 at 4:45pm

VG is absolutly right.   So name it something else.   We (my husband and I ) found, thanks to this wonderful website and informational people, this clause is important among other clauses.   Received a lease about 2 months ago and my husband and I are still working on preparing our counter lease.   We have no presure from our landman, however we keep close contact.   If you do it on your own, know your stuff and cross all your I and dot all your T's.   If you pay someone to work it up or write it good.   Either way, VG is right.   Take your time and make sure you protect yourself.   It really is not all about the money. 

0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on June 2, 2011 at 5:14pm

I wished I was right (though I did have some suspicions but was unaware of what to expect) when I first helped my dad with the contract years ago though I did not know what I now know from visiting this forum...so thanks Tina for the encouragement to continue sharing here to help others and myself as I grow with using gomarcellusshale.  

Pls tell others about this website and encourage them to share.

 

When my dad and I told the landman we really didn't understand a clause or wanted to write something different...he had all sorts of excuses and continued to let us know it was only for five years...and of course the other landmen from the other companies (as there was four or five that offered at the same time) had also similar contracts (but not the same) and they all said if you don't like something we can put it in an addendum and of course we didn't know at the time what one would put on an addendum.   So when the landman gave us a sample addendum from a group we were aware of we went with that one but we never checked to see if he gave us the same addendum they were doing (I still haven't checked cause I trusted the landman).  I see now that he was actually working exclusively for the lessee and in our ignorance (though we thought we were doing well with what we did negotiate) we relied on trusting the landmen (and there probably are some that can be trusted...but we didn't know how to get around his answers).   And I must say when you are working 4 lease contracts at the same time, it is a bit overwhelming..and they all would come back with a higher offer (as we would be truthful and tell them we have 3 other offers)..this went on for 4 months.   The landman  would say when we would want to scratch out something in a clause...'oh, the oil company (he would use their name) won't go for that" and we should have told him we wouldn't sign unless they worded it more fairly, but we also liked the amount of upfront money (of course not knowing that the lessee would profit thousands more per acre right after the lease was signed).

 

Remember, this is the only chance you will get in the negotiating seat for about five years (and more if you don't get the right clauses in the contract to protect your right to negotiate five years from now and of course you may negotiate longer or shorter). ....and then you are stuck with what you have unless the lessee defaults on their part of the bargain or you find another way out.  So if you spend the time now to seek the best for your interests and obtain a contract that treats you fairly and if you are satisfied then you can enjoy the process much better and I think that you as Lessor will enjoy working with the lessee much better.  For remember the lessee and their partners are on your property with access for five years or more...so it is your homestead or land that you want to enjoy their being there rather than being at arm's length in distrust or disgust.

Permalink Reply by Dona Warner on June 3, 2011 at 2:48am

This might be a little late for you but:  Get a competent attorney who is knowledgeable in the gas/oil leasing; next, you can go to your local court house - the Office of the Recorder of Deeds - and you should be able to pull up copies of the other leases around you to see what they are getting and other details of the lease agreements (it is public information).  Attorney's are expensive, but there is no substitute for one with specialization in this area.  It took us over a year and a lot of money to hammer out our lease, but now we have a Marcellus well that supplements our retirements; and it was all worth every penny.  We went through about six different companies because they did not want to negotiate anything other than the free house gas.  Everything is negotiable...except things like the state mandated minimum royalty percentage of 12.5%.  We included clauses for indemnification, abandoned equipment and materials, storage of gas, amount of free gas for our use, non-production periods, and even the trees that may be lost (ownership for selling timber and/or compensation amount); there's even one that makes us the absolute approval authority for any location of wells, ponds, roads, lines, etc.   Basically, through our lease, we are involved in every aspect of our well and it's production.  Attorney's specializing in this area are great at addressing specifics that will protect you as the landowner - they have no reason to worry themselves with how much profit the gas company is making.  If you are using the PSU webinars, then you no doubt know that the state is considering taxing each natural resource separately under your property, there is also talk about Marcellus and Utica drilling affecting those of us who are currently on the Clean & Green program - it was discussed that counties want to go back and have the current landowners with Marcellus wells, pay the back taxes because they feel this gas drilling makes the property ineligible for Clean & Green.  And you are right to keep in mind the Utica.  If you address it separately in your lease, you can require the company to negotiate that gas resource separately when/if they want to drill for that.  I learned that you have to watch leasing all of your gas rights - if you do, then it means the gas company gives you the same compensation for any gas they drill from that point on.  So...my advice to anyone out there getting into to this area as a landowner...GET A COMPETENT ATTORNEY!  There are so many things to negotiate that will definitely come back to haunt you...if it's not in writing in your lease, it will not happen.  Our lease is held by production, so for us to renegotiate now would not be possible; but we are happy with our results and have a second Marcellus well coming in the near future.   Remember, this is business.   Good luck!

Permalink Reply by Finnbear on June 3, 2011 at 3:42am
Kudos to you for forcing the O&G to treat you as a PARTNER in this venture rather than a hurdle to get over and then leave in their wake. Only you as the lessor can make this happen. The O&G is ALWAYS going to try to sign you for as little as possible. It is your duty to hold them accountable to the terms that benefit and protect you as the lessor/landowner. No one else is going to look out for you in the process. If its not in the lease, its not going to happen.

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