ATTENTION Landowner Group Members

The IDEA of "strength in numbers (acres)" is quite apparently agreed upon by many members. Let’s not forget that a portion of those "numbers' will not have a chance at the lease being paid.  Because if your "numbers" are not connected/contiguous to other "numbers" the valve of your numbers are not as appreciated by the potential LESSEE. And an outfit, no matter how financially secure, only has so much capital it is willing to spend/risk on a project.

Hypothetical Question: What if a group of 25,000 acres agrees to sign but only 10,000 of those acres are contiguous, what would be the incentive to pay the remaining 15,000 ac scattered all over the area? After-all, 10,000 ac would be quite enough leasehold to form producing units.

Also remember lawyers are paid directly from the amount of time spent "consulting" with the client(s) board leaders and it is very profitable to drag the process along for themselves. Every time a call/letter/email/fax is addressed concerning the process of your group.....cha ching, time is being billed. Another thing to remember, your area is not the
only area.....rather than drag it out, an outfit (especially a proven profit making producer not a flipper) just may pack in it and move to another more open-minded area and spend their money there. Which would leave your area open for another round of negotiations with another outfit and the much anticipated billed time for your friends at the law firm?

Hope you didn’t have plans for the bonus money anytime soon, yet the possibilities of a royalty check. Don’t worry, that new roof on your house/barn can wait (it isn’t leaking "that bad"). You can always wait for next year’s model of the truck/tractor you were planning on buying.  Paying off those loans can also wait...after all you've been paying on them for
years already. College tuitions can be paid for by the loans you were planning on getting anyhow. Your daughter’s/son's wedding will be fine downsized, their so in love it won’t matter. Vegas....you can do just as good at the local casinos that are closer to home and are popping up everywhere, you can’t afford to take that much time off of work anyhow.



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Permalink Reply by Schnoozie on November 15, 2011 at 8:05am

Jim, can you answer my question please, see below. There are two.

Permalink Reply by Jim Litwinowicz on November 15, 2011 at 9:21am

Schnoozie; 

The depth severance clause; they have rights to all strata during the primary term of the lease. Once the primary term expires, they lose all rights to any strata they have not drilled into.  Thus if they drill a Utica well or twenty Utica wells but no Trenton Black River wells, then they lose all rights, after the primary term,  to the TBR or any deeper strata that develops in the future. Thus you will not have the situation we have with shallow wells HBPing land for decades and the poor landowners being stuck with no bonus payments on the new developments and worse, stuck with a 12.5% royalty when their neighbors are getting 17, 18, or even 20%.

Its not in writing but Co-eXprise has said at their public meetings that they will do random audits for their own self interest just to be sure they are getting their proper royalty payments. And if they find a discrepancy, they will get it corrected which will also benefit the the landowner.  They want to be sure they are getting the right payments just as much as anyone else.

Permalink Reply by Schnoozie on November 15, 2011 at 10:03am

It sounds good but I dont see that Co-Exprise will have any obligation after the deal is done. The second 5 year term is allready set by Chessy or Hilcorp from the terms of your lease.

The way it has been stated before, its like you could go to them for your own issues.

Permalink Reply by Jim Litwinowicz on November 15, 2011 at 10:43am

They will do random audits just to protect their own financial interests.  And if a problem arises they will correct it which would also benefit the landowner.  That is the extent of their interest after a deal is signed. Attorneys will tell you that disputes over royalty payments is the largest segment of all oil and gas litigation.


If you hire an attorney to negotiate a lease for you, they have no obligation to help you years later if a problem develops. Their obligation ends when the deal is finalized and payment is made.

Permalink Reply by Finnbear on November 15, 2011 at 2:06pm

Vertical Pugh clause is the term for releasing unproduced strata back to the landowner.

Permalink Reply by Little Cougar on November 15, 2011 at 4:28pm

Great, Jim...but the key to all of this is "when" you get your royalties.  I already am getting royalties...2 wells producing, 3 more drilled and should be seeing those royalties either in the next month or so or right after the new year.  My first landman showed up little more then 3 years ago too.  As I said...and I will preach it to the day I die, the money is in the royalties and until they drill a well...all you got is that bonus payment...and you will wait.  Even though I had HBP...they still needed to modify the lease but they wanted to drill so they were welling to work with me too...and I wanted a well now not 5-10 years down the road...a group was good for you and many others.  But not for me...I prefer to do my own research and find out my own answers...not depend on some land management group...when it comes to my money and my future, I depend on no one but myself to get the answers I need...

Permalink Reply by Jim Litwinowicz on November 15, 2011 at 4:47pm

You got a well because you are in Washington County where hundreds of wells a have been drilled, there are hundreds if not thousands of miles of pipelines, and there are related facilities like compressor stations, dehydrators, cryogenic separators and more. Had nothing to do with you negotiating your own lease. And being HBPd by previous wells makes it difficult to join any groups.

 

I'm in Lawrence Co where the one and only well was drilled and flared just this summer. And it hasn't been put online yet as they need to put in a pipeline. The company that my group attracted has stated they will drill three or four wells next year.  And many more in the next two years. Don't know if I will be any of those units but at least things are now starting here. Going it alone would not have sped up the process for me at all. Maybe even slowed it down.

I am happy you are getting royalties which we all know are much better than the bonus payment.  And I hope that your lease is as good as you say.  We are all novices here playing with the experts. Some will lose and some will do much better. And every landowner has to look at his/her situation and decide which will work best for them.

I never tell people they have to join a group, just to look at all the benefits and decide which is best for them. All depends on what is going on around, the level of knowledge they have, and their own personal situation.

 

Permalink Reply by Little Cougar on November 16, 2011 at 4:38am

jim...I am not in Washington County...I am in PA.  I did not say I had a perfect lease...but it is reasonable and it works for me.  The infrastructure for getting the gas to market is there and because of the old shallow wells, sometimes the HBP can be advantageous when they want to drill these new deep Marcellus Horizontal wells...the pipeline is already there and it does require lease modificatons.  You are right, we may not get the big upfront bonus payments...but we get wells drilled very soon after modifications are agreed upon.

Keep up the good work for your groups.  They have their purpose.  I just don't like having to give anymore of my money away then necessary.  Its as someone said here in this discussion...."to each his own"...

As to you comment about Texas...not everyone in Texas is a big rancher with thousand of acres...but I would tend to listen to their experiences since they have been doing this much longer then we in the North.  We can learn from them...and I say, Hey Texans...give us your stories and what should we look for and what is reasonable to expect...

Thanks...

Permalink Reply by Nelson Roe on November 15, 2011 at 4:48pm

LC, For many... the upfront bonus is the only $ they will ever see.  Just because you are leased initially does not guarantee that you will ever see a well.  That was one of the things I was flat out told at the beginning of researching this process.  If you have clear title to your O&G rights & get a deal with a company to where they really can't walk away from paying you, then the upfront signing bonus is as close to "guaranteed money" as you can get in this process.  Yes, the royalties are where the major money is, but it is also an extreme gamble as to whether you will actually see any royalties.  As I stated before, just because you get leased does not guarantee that you will get drilled.  Therefore, holding out for the larger bonus may benefit more people than signing earlier in the hopes of getting royalties that may or may not ever come.  I am glad that this worked out in your favor LC, but I also know of quite a few people that leased at an extremely low price, are held under the terms of that old lease, are still waiting to be drilled, and from the looks of it may never be drilled, and now are unable to take advantage of the current lease market.  You are fortunate that your circumstances worked out for you the way they did, but you almost make it sound like it should work out this way for everybody that signed early in the leasing game, which I highly doubt will ever be the case.

Permalink Reply by Little Cougar on November 16, 2011 at 4:57am

Nelson, I apologize if I seemed overbearing and bragging.  But I don't understand...who told you that some of you would never see a well, the landgroup company or the O&G?  Why would a O&G company lease all those acres and pay those big upfront bonus paments if they are never going to be part of a drilling unit.  I guess I am just an idealist...I want everyone to have good fortune...so I still pray that you all get your royalties too.  You deserve it. 

BTW...look at Finnbear's response in this discussion...about how the O&G (chesapeake) flip all those acres to other companies that will drill...

Permalink Reply by Finnbear on November 16, 2011 at 5:18am

The reality here in Ohio is that there are more acres leased than there are drilling rigs available in the next 5 years. Because of this, some landowners will only ever profit from the signing bonus and never see a royalty check. They may end up free in 5 years to sign again IF the production holds up. If all the rigs in the USA came here tomorrow, they still can't drill enough wells to hold all the acreage inside of 5 years. While a number of oil and gas producers are planning to send rigs here at an increasing rate over the next couple years, many of those existing rigs are working elsewhere in the country and will continue to do so. The Utica shale is not the only oil play in the USA today. Also, CHK isn't "flipping" those leases to others - they assigned a partial working interest (25%) in a joint venture but still control/hold the majority interest (75%) in all those leases. They are basically using another company's money to develop their leasehold and giving that company the right to 1/4 of the proceeds. They did not sell off 25% of their holdings outright.

Permalink Reply by time will tell on November 16, 2011 at 5:54am

LC holding the acres is the best investment for the o-g companies going . It's tangable and will never go down in value . Not many things like that these day's .

I would hold my shallow production - everything other than the marcellus and the utica shale .

Kinda makes me wonder about some of the Law firms and flippers getting payed on  the sign-up fee    they get there's no matter what if you agree the there deal .

I sure hope they are looking out for the landowners rather than the o-g companies that they work with all of the time .

Just sayin,,,  been there done that .

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