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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Replies to This Discussion
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Permalink Reply by Joseph-Ohio on
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Got it.
So how can landowners fix it ?
Looks like to us that it's easier ( and perhaps perceived by those we landowners / lessors would hire or have hired ) to throw the landowners / lessors ( us ) under the bus than to assist them ( us ).
Feeling a lot like a deer must feel during open season.
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Permalink Reply by Joseph-Ohio on
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Actually that's the way I've most always felt since coming of age and becoming self aware !
Targeted.
No lol - as we 'ain't'.
We think this is about as serious as it gets.
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Permalink Reply by george m. on
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Joe,
That's why a GOOD lease runs for at least 30 pages.
It's part of the Lawyer Full Employment Act.
Why do you think lawyers take out ads on this and similar web sites? It's like a divorce attorney handing out his business card at a strip club (LOL).
Now suppose you (landowner) have a good lease and the lessee violates the terms. Guess what, the lawyer that prepared that great lease says "it's enforceable BUT you'll have to take them to court". Guess who racks up the billable hours? By the way, he probably won't take it on contingency 'cause "you don't have that strong a case".
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Permalink Reply by Joseph-Ohio on
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Reading ya' loud and clear george m.
Need a GOOD Lease.
No post production / market enhancement costs paid by landowner / lessor.
Then if they don't comply anyway it's on the landowner to sue and pay their attorney. So the best outcome would be the judge ruling in the landowner's favor awarding damages including legal fees.
The lease degenerates into legal fodder.
Would not a stronger circumstance be the landowner not signing but being force pooled / force unitized into a deficient lease that assigns unwanted post production / market enhancement costs to the landowner / lessor. Still legal fodder but perhaps an attorney would represent on contingency ?
If that's fact then the safest thing a landowner can do is NOT sign a lease and wait to be force pooled / force unitized.
There ought to be a law prohibiting this kind of landowner oppression if you ask me.
Development hits the wall.
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Permalink Reply by Joseph-Ohio on
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Pretty good !
Unleased and instead of looking forward to a decent return on our investment we find ourselves girding for the possibility of legal tribulations !
Who would've 'thunk it' ?
Like I wrote above - there ought to be a law !
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Permalink Reply by Joseph-Ohio on
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Apparently ( to us anyway ) we have to choose our ground and dig in again.
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Permalink Reply by Joseph-Ohio on
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Wondering if anyone knows of any precedents that have been established ?
ie : a landowner / lessor successfully contesting being force pooled / force unitized into a leasehold that assigns post production / market enhancement costs against the landowner / lessor's will / to the detriment of the landowner / lessor ?
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Permalink Reply by Darlene Newton on
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Joe
I think we are the ones that need to do that! Make a precedent! That being we are sick and tired of being screwed by lying evil scum!
Those that signed leases are no dumber than those buying into the Obama Crap Dream so I do NOT want to hear how stupid the people were for signing them!!!!!! I want to work together with EVERYBODY t make the Gas Companies as well as our Pres to make them commit to their promises!!!!!!!!!!!!
If people do NOT work together with different ideas NOTHING will work and we need OUR VOICES heard that we are SICK OF IT!!!!!!!!!!!!!!!!!!!!
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Permalink Reply by Andrew on
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If you're in Ohio, you won't be "forced" into any kind of lease. If you're force pooled then you'll be minority owner in the well, who bears his share of all well costs and enjoys his share of all production. Not only would you share the operator's post-production costs if a well is completed, but you would also have to pay your portion of the costs to drill, complete, and continuously operate the well.
If you don't pay your share of drilling and completion costs in advance, you're still liable to the operator for all of these costs, but only out of your share of production, which he keeps to repay the costs he paid on your behalf (meaning he can't sue you for the costs if the well is a dry hole). So until the well becomes profitable (if it ever does) you wouldn't get anything. On top of all of that, the Oil and Gas Commissioner can asses you with a penalty of up to 200% of the drilling and completion costs, which would be paid to the operator to reward him for undertaking to drill the well at his sole risk and expense. Meanwhile, the vast majority of wells drilled in the US don't break even, let alone return 200%, so you may be waiting quite a while for your payments to start arriving.
Some states, such Arkansas, will convert mineral estates of non-consenting owners into leases on that owner's behalf, so that he would get a 1/8th royalty (subject to liability for post-production costs) and then assess stiff penalties on his 7/8ths "working interest." Other states, such as Oklahoma (and unofficially Mississippi), ensure that the unleased owners who are forced pooled can lease to someone on the same terms being paid to other owners in the vicinity. Ohio has no such system. The mineral owner's options are to either lease on the best terms he can get or participate in the well.
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Permalink Reply by Joseph-Ohio on
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Andrew,
The negative aspects you describe should a landowner choose to not sign a lease are tantamount to being forced.
Don't take us wrong - we are Pro Development / Drilling - as long as the binding agreement is also favorable to us as landowners / lessors.
You have to be a 'Landman' - right ??
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You are absolutely correct that Ohio's mandatory pooling regime is definitely "forced." My point was that the Commission would not compel any owner to enter into an actual lease, or any other contract carrying liability for the nonparticipant. While he is "forced" into a minority ownership stake in the well, there is a number legally significant differences in "forced pooling" and "forced leasing." But I agree that either way, a nonconsenting owner is being compelled into to an arrangement he didn't agree to.
As to my occupation, I'm a professional mineral owner, which does involve "Landman" activities occasionally, but typically only for myself and not a paying client. I don't have a political axe to grind or a "pro-industry bias." If I have any bias, it would favor the mineral owner.
As a mineral owner, I view forced pooling as a net positive for most mineral owners, because it allows them to force themselves into a pool to get the benefit of production obtained from someone else's land. No drilliste owner would want anyone else sharing his royalties, and the lessee generally doesn't care how royalties are allocated as long as they are the same in either case. Lessees initiate unitization either in anticipation of drilliste's neighbors doing it, or to prevent the neighboring owners from drilling their own wells which would drain or permanently damage the reservoir. In exchange for taking away the mineral owners right to drill their own wells, forced pooling gives them a share of the production being obtained from someone else's land.
Practically, if you have a small tract or mineral interest that won't support a well on its own, forced pooling is the only way you'll ever share in mineral production. In Texas, where there is still no forced pooling, these owners are muscled out of most production by large mineral owners who prohibit their lessees from pooling them. This becomes even more egregiously unfair when the only means of economic development is by an extended horizontal well. The owner of a small tract who has been gerrymandered out of the unit is then left with the non-option of drilling their own horizontal well within their tract's boundaries.
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Permalink Reply by Philip Brutz on
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Andrew,
Do you think that force pooling could be used by a company like Eclipse to get around the pooling restrictions of the old Oxford leases?
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