Hello, I’m not very knowledgeable about mineral leases, and, have never really felt the need to educate myself on the matter until now. I was approached by a Landman last week and was informed that our 1.4 acres falls within a proposed drill site in Fayette county (our property is in westmoreland). He offered us, what we feel, is a lowball bonus offer and just above the minimum 12 1/2% royalties minus our share of the post production cost. Can someone give me any sound advice on what a fair bonus $/acre would be? Do I have any negotiating opportunities considering the fact that our property is only 1.4 acres? Thanks in advance for any opinions/thoughts.

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Of course you can negotiate your terms no matter the size you have.

12.5% minus production costs leave you with a very low percentage.

It's always good to have an O&G attorney advise you.

I would..

Thank you for the advice.
They offered $1000/acre bonus and 14%...minus post production costs. From looking at different forums, and consulting with others who have signed leases, $1000 seems low to us but, I’m not seeing much info on recent leases. I’m also reading that a legal ruling on the “rule of capture” may potentially have an impact on mineral leases and landowners current and/or future rights.

James, 

It is also a good idea to get a Lawyer involved because there are so many many other terms of a lease that you don't even think about that you can get screwed on even if you just own the O&G rights and not the land.  Even the wording.  The leases can say one thing and then they can add on an addendum with seemingly something better but in reality they are still screwing you.

We do have an attorney looking over the agreement and, we fully realize that there is a lot more at stake than the numbers. In our situation, I’m most concerned with any language that grants them full access to our property, as, there is an access lane (which we own a portion of) to the larder tracts of land behind us. We just purchased our home 3 years ago and the biggest selling point was the fact that it’s quiet. The elderly woman ,whom we purchased the home from, stressed to us at closing “Remember, you own that lane”. From what the Landman told us, the drilling site is 2 miles from us, which, is odd because he told the Neigbor that it is one mile. Either way, I don’t think it would be wise for us to sign over unlimited access to our lane or any other portion of our property. Thank you so much for the advice.

The cost of legal fees would likely consume a good portion of the the royalty and bonus payment on 1.4 acres .

1.4 acres can easily be drilled around.  Many examples are documented on well permits on the PA DEP web site.  There is no set back requirement for the Marcellus layer since it does fall under the conservation law. (above the Onondaga layer)

I would ask for a no surface agreement. 

These is no state minimum in PA.  The existing law did not define royalty and hence the court throw it out.  The legislature has not bothered to amend the law.  It is probably most important to have a cap on deductions of $0.80 MMBTU.  Without a cap the royalty rate is somewhat meaningless. There were situations in mid 2016 where landowners were actually paying to have the gas removed.

A reasonable agreement would be 18% royalty with $0.80 MMBTU cap on deductions.  In practice this might yield 10% on the point of first sale. 

But again 1.4 acres has no bargaining power.  Probably most important to get a no surface agreement. 

Hopefully your neighbors with more land are savvy enough to talk among themselves and get a bundle of property of 640 acres or more.

Be careful many attorneys are willing to help but know very little.  

This is based on first hand knowledge of thousands of acres and many leases.

Thank you very much for the advice. We do have an attorney friend who’s looking the agreement over, and, who is also somewhat familiar with the leasing process. The Landman is pressuring us as we wait to hear back from our attorney friend. I finally called the guy back yesterday and told him that one of the things that I’m not comfortable with, is signing away surface rights. His reply was that, the surface rights paragraph won’t pertain to us because the drill site is 2 miles south of us so I shouldn’t worry about it. The guy refused to tell us where exactly the drill site will be but claimed that the pad was allready in place. I thought that was rather odd, but maybe he was “hush hush” about the location for other reasons. Either way, there is zero chance I will sign anything in which would give them all surface rights. With my luck, they would put a gas line directly up through our property. Also, I know we aren’t going to get rich but, with the “Rule of capture” legal battle in Pa not decided on, wouldn’t you think that they would be inclined to give us a more fair contract, rather than have us hold out? I have no idea...just a thought. Thanks again
Good advice. I know of a couple cases where they offer you same deal as neighbor providing you request same. But get with other landowners as a negotiating unit if possible. Signing bonus of $7500+/acre if leasing both Marcellus and Utica+ $0.80 MMBTU cap on deductions with 18% royalties is good target.
Thank you for the advice. I still have yet to sign but, the landman I have been dealing with has still only offered $1000 and acre bonus and swears that “they” won’t agree to offer more than 15% royalties. He also balked at my suggestion that the post production costs being capped and acted as though he has never heard of such a thing.

Getting a gross lease (no post-production deducts) is more important than the actual royalty percentage.  Consult an oil and gas attorney, and explain that you would only agree to 15% on a gross lease.  He/she should understand your stance, as this is a common negotiating chip.

I'm in northern westmoreland county, near beaver run, and leasing rates from CNX start at $500/ac/year with 15% gross. The leases are structured so that CNX has the option to extend the lease for 9 one year renewals at the bonus rate of $500/ac. By way of example if your property doesn't get added to a drilling unit until year 6 then the effective bonis rate would be $3000/ac for a 6-year primary term. Keep in mind CNX is drilling the Utica up here.

I've been holding out since the early days (2010) of the marcellus drilling for good leasing terms. What i have learned is that your bargining power comes down to timing and location. Both need to align to get the best deal.

I suggest you access the westmoreland county office of deeds website and do a search on the gas company making you this offer to learn who else they have leased around you and if there are any unit declarations near you.

Good luck!
Thank you

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