Beware of all the gas companies!

I signed two lease's back in 2011 with Gulfport Energy on 80 acres that I own in Belmont County, Ohio. Let me start by saying don't believe anything that any of the land men tell you, the are working for the gas companies and their own benefit not yours period. While I was negotiating my lease with several companies at the time in 2011. I clearly explained to them that any lease I would sign would require a Pugh clause, and that I would not except any lease that required me to pay any of the cost associated with the production or marketing of the finished product from any wells drilled onto my property. I ultimately ended up signing with Gulfport Energy because of the higher bonus payment and higher royalty percent, and the land man assured me the Pugh clause and the deduction clause weren't a problem, that a lot of people were requesting it. Well the land man was lying through his teeth after receiving my first royalty check and statement there were $14,574.11 in total deductions. Beware of any lease that includes the language below.

 

"All oil, gas or other proceeds accruing to Lessor under this lease or by state law shall be without monetary deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other proceeds produced hereunder to transform the product into marketable form; however, any such cost which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as they are based on Lessee’s actual cost of such enhancements.  However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee."

 

It was explained to me that this was exactly what I wanted and that the second part of this clause only meant if they did any advertising to enhance the selling price of the finished product I would have some associated cost from that. Well I have since found out that this is the language that the big oil companies have adopted to lead land owners to believe that they are getting a no expense deducted clause in their lease. If you find this language in your current lease be assured be ready to pay every single cost that is associated with bringing the product to market. Don't sign it! Ask clearly for a no production cost clause and have it reviewed by a gas royalty attorney.

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Permalink Reply by Philip Brutz on October 24, 2013 at 6:51am
Permalink Reply by Rick on October 27, 2013 at 3:31am

I've had the suspicion for a quite while now, that this is the reason that the price for natural gas dropped and remains below $4. I believe most of the initial wholesale buyers are owned by or have significant share holdings by the energy companies.. chesapeake, atlas, range, chevron, shell, etc... they sell it to themselves subwholesale at $3 and change, and that company then wholesales it to the distributer columbia gas, peoples, dominion, etc for $8 to $10.From what i understand, residential users have not benifited from the gas glut.. in fact i believe some residential suppliers have been applying regularly for rate increases from the PUC in pennsylvania. I dont think you will ever be able to get your fair share.. 12.5% or 20%  of a real market value no matter what your lease says.

Also, some people on here that are berating others for "signing a bad lease" without proper state of the art language, will one day come to realize that their state of the art language aint so state of the art... So please dont be so pompous!

Permalink Reply by Greg K on October 27, 2013 at 7:04pm

Now that I read this I remember reading an article about Mexico buying nat gas at $7.00, seems almost illegal !!  Who sets the price ??

Permalink Reply by Francine Booker on October 27, 2013 at 8:19am

my parents received a bill for $2,678.34, not a royalty check.  The well on their property went to stripper stage in less than a year.  Gas corp is saying they won't be fracking more, production not worth it and they won't plug the existing well because it is still "producing" - go figure

and yeah, they were told they wouldn't be charged for post production costs by the landman.  Unfortunately, my brother-in-law convinced them to sign before I had a chance to look at the actual lease.

Permalink Reply by Ragnars Repo on October 27, 2013 at 8:46am
Post a photo of said bill or I call BS.
Permalink Reply by CRUDE on October 28, 2013 at 2:15pm

The averaging all production leases within a 'horizontal' unit contains an innate fairness.

This is currently done in a few states.

Why should others get a larger cut of my minerals due to being in the same horizontal unit?

015334grltd9mPermalink Reply by 015334grltd9m on October 28, 2013 at 2:27pm

Hi Crud!

Permalink Reply by CRUDE on October 29, 2013 at 3:20pm

Yo Brodie...

How's the renovation?

I've some old growth 1850 pumpkin pine and white oak sweet t&g. (seriously)

Brings back memories ........

       Where have all the  old growth trees gone, long time passing?

       Where have all the flowers gone, long time ago? 

       Where have all the flowers gone?
       Young girls have picked them everyone.
       Oh, when will they ever learn?
       Oh, when will they ever learn?

015334grltd9mPermalink Reply by 015334grltd9m on October 30, 2013 at 12:55am

Ahhhh...one of those incognito stalkers, creepy at the least.  Maybe you do not belong here bro?

Permalink Reply by RAYMOND bAUMAN on October 29, 2013 at 5:26pm

If you have the witnesses and the landman's statement is as you state. You may have a good case  of fraud and or misrepresentation THAT MAY VOID THE LEASE.  Find your witnesses and a good hungry lawyer and sue the landman and his land company. You may also have Gulfport involved, so propose your settlement to Gulfport but do not keep it private. Surely you can find a lawyer to take the case for the expenses' ( Deductions  to date) and damages from the landman..  Your landman was not a professional but an insurance man who does not read and understands what he signs is a stretch.

Permalink Reply by Kevin in Belmont County on October 29, 2013 at 11:23pm

I am glad you bring up the point about  under standing the lease , because that has been my point of writing on here the whole time. I do understand business and have negotiated thousands of contracts through out my years as a regional and district manager all the way back to when I started in the business years ago as an agent. I have learned through out the years that a really polished and smooth lying sales person can twist and mold things into what he wants you to believe. You have to remember something about most people that sign lease's, it is probably the first an maybe the only gas and oil lease they will ever sign. A land man will sign hundreds if not thousands of them through out his career. It gives the land man lots of time and practice to perfect his sales talk and to learn to say what he needs to get the contract signed. Insurance is the same way, except there are laws from state to state that govern most behavior and infringements upon insurance laws and fraud.

 I have actually tracked down both of the land men that where here at my home and isn't it ironic that neither of them still work for the company that the above named O&G company contracted out to get their lease's they needed signed. They needed my acreage  to complete a 640 drilling unit. And as far as a witness to the statement they both made, you bet I have a witness to all the conversations. As a matter of fact she is a licensed court reporter and a licensed Notary Public in Ohio, Pennsylvania and West Virginia. My only regret is that I didn't have her transcribe and produce my conversations with these two land men. But as a sworn officer of the court in the county in  which the lease's were signed I think her testimony may do a good enough.

My point has always been though and please understand this, I don't think that all land men or women are bad, as a matter of fact I think many of them are good. But with all of the money and promises that are made between the O&G companies and the Lessor's when signing a lease I think it is imperative that a governing organization be developed in states to license and over see the contracts that are signed between land owners and the people that negotiate them on behalf of the O&G companies. If this can be done to someone with business experience and contract law experience, what about it happening to someone who doesn't. Maybe someone that's reading this or maybe their mother and father or grand mother or grand father. Its time for the state governments to clean this part of the industry up.

Permalink Reply by Dakota Rush on November 3, 2013 at 11:10am

I have read the comments to this point on this and all I can say is that there are good and bad in all industries.  So I agree with Kevin.  However, some of the landmen that make a living working for the oil & gas industry are licensed.  We are members of the AAPL ( American Association of Professional Landmen) and IRWA ( International Right of Way Association).  We are educated, knowledgeable and credentialed.  Same as the insurance business.  That said, the Gas Enhancement clause is in most leases in some form.  It is NOT solely a gross proceeds clause, as it stands in your lease and many others.  There is a way to not [pay any deductions.  You can "participate" in a well.  That means simply that you will bear the proportionate share of the total cost of the well as it relates to your ownership.  You own 320 net mineral acres in a 640 unit, you can pay half of the roughly $15 million to drill and get a well to market.  Then you can continue to pay 50% of the costs until the well is 100% paid out and then you can receive 50% of the gross proceeds that remain.  Of course, then you will have more costs associated with production and maintaining the well during its lifetime.  As in insurance, there is risk.  When you sign a lease, you limit your risk.  Keep in mind that the company you leased to is standing 100% of the cost of the well and you are standing none.  Also keep in mind that simply drilling a well that has "potential" does not get it to market.  Infrastructure has to be built and then the product must be transported through it to a sales point.  It is only at that point that the product has tangible value.  So the deductions were not for 100% of the cost but merely from the 20% you kept as part of the lease agreement.  

All things considered, you have a good lease, if not a great one, if you have these things in your contract.  You signed in front of three witnesses and the lease agent did not force you to do so under any type of threat or duress.  It is a binding agreement from which you and the oil company have both profited.  Which brings me back to the issue.  You are making a lot of money at no personal risk but since the  amount is less than expected you are upset.   I understand.  When my home burnt to the ground and the insurance company began to depreciate my home and all of the contents, I was upset too.  

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