I was going to post this at the Allegheny County board but there isn't much activity there. But a property of ours in northern Allegheny County has drawn some interest from a drilling outfit that has already entered into agreements with other landowners in the area. Their current offer to us is $500/acre up front, plus 15% royalty on our share of the total monthly take for the full acreage involved in this group (2-year offer, I believe). My initial thought was that the up-front offer seemed a bit low, and maybe even the royalty is slightly lower than it should be, but I haven't been paying close attention to offers in that part of the state since it seemed like there wasn't much activity of late.

So, is the above a fair offer for a parcel that is slightly over 10 acres? Not a huge piece of land, I realize, but it may be one of the larger ones involved in this group since the area is not all that rural anymore.

Thanks. 

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NY,

First: your property is in a great area.

Second: if you are serious about leasing your land you should have the advise of a competent oil and gas attorney. Don't be put off by the idea of working with an attorney , the reputable firms offer free initial consultation.

The upfront money is low.

However, if the company will agree to 20% gross royalty then negotiate the up front money from there.

My only caveat is acceptance of an addendum addressing  multiple issues of interest to land owners.

Thanks for the reply. We're in the process of negotiating with the company now, so, if we sign on, it'll probably be soon. They've already signed up a number of properties, including an airport in Washington Township (?), so it sounds like they are serious.

Range Resources deal with Deer Lakes Park in Allegheny county.

http://marcellusdrilling.com/2013/12/ranges-big-money-deal-to-drill...

$3000/acre @ 17%

You want to be dealing with one of the big players.  Otherwise you are just talking to someone who will bundle your property up and sell it one of the big players - I suspect that is the reason for the low ball up front money offer.

Allegheny county has some of the best stacked plays in South West PA.

Phil

The company that we are talking to is conncected to Range Resources, apparently.

Sorry to be ignorant, but what do you mean by stacked play?

NYPA,

Are you dealing with Huntley & Huntley?  I don't understand the low up front $ number?

Stacked layers:

In much of Allegheny County, PA there are three prospective shale layers.  The well known Marcellus but also the Utica/Point Pleasant below the Marcellus and the Upper Devonian shale (Burkett and/or Rhinestreet) above the Marcellus.

Phil

It is indeed H&H. OK on the stacked layers. This is supposed to cover tthe Marcellus Shale, so it sounds like there is two layers that are untouched up to this point.

NYPA

The H&H / Range combination should be sound.

Summer of 2013, H&H (on behalf of Range) was offering up-front payment is excess of $3000/acre in Middlesex Township, Butler County, PA a Township that borders Northern Allegheny County.  So $500 ??? – May have something to do with your specific area??

The lease will include all of the stacked layers. 

Phil

They actually paid $6400/acre to the owner of a much larger tract of land, so yes, the offer is low. We probably won't get $6400, but that should be a starting point.

 

Also, back to the layers, reading through the lease, this is what it says under Royalty Payments:

"A) For Oil and Gas and other hyrdocarbons produced with gas, removed and recovered, from the surface to 650 above the top of the Tully Limestone formation, to pay Lessor...

B) For Oil and Gas and other hydrocarbons produced with gas, removed and recovered from 650 feet above the Tully Limestone formation to the center of the earth, to pay Lessor..."

Not sure what that is describing, exactly, but it sounds to me like it includes more than just the Marcellus Shale, which is what we were being told. Also, part A features a 12.5% royalty, while B has a 15% royalty. And yes, we do have a O&G lawyer looking at this, but I figured I would post it here for further review.

Your offer could be affected by the 2 year duration of the primary term. If you do not get held by production within 2 years, their money was wasted. A longer term, such as 5 years could yield a better payment.

NYPA,

Part B contains all the important horizontally drill-able shale layers.

I’m sure your lawyer will tell you to remove part A and/or rewrite that region to specifically remain with you.  Otherwise it is possible that your property could be subleased to a shallow vertical driller and you don’t want that unless YOU want that.  I don't think anyone would fight that.  In fact, the current XTO leases specify that that region A remains with the landowner.

Phil

OK, Philip and Mike, thank you for your replies. As I'm doing my reading, one thing I'm noticing is that the Utica Shale seems to be strictly an Ohio thing. Is that simply because it isn't as expensive to drill wells there, or is it simply because PA hasn't been explored at that level yet? Also, it looks like Ohio is popular now in part because of the oil that is being produced from the Utica Shale. Does this mean there is no oil in the Utica in the western part of PA, or again is it simply because this hasn't been explored yet by the O&G companies? 

Spoke with the O&G lawyer today, sounds like H&H aren't willing to negotiate much at all, pretty much take it or leave it. They were willing to boost it to $2000/acre and 15.5%, but aren't willing to drop the expenses being deducted. Landman says that what is being offered is pretty much the going rate for that area, and others have signed on for that. So, if we don't sign on, they'll just say thanks and move on. No guarantee that another company would come along later and include us in a different land group, so it is mostly take it or leave it, it appears. Any thoughts? Is this company truly connected with Range Resources, or just using that as a hook? The O&G lawyer hadn't heard of them at all, but he isn't located in Allegheny County.

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