Is a 10 year lease too long?

We live in Jefferson county PA.

Eight years ago was the first time anyone was interesterd in the gas under our land. We entered into a 5 year lease for the shellow gas. There was no talk about Marcellus Shale Gas at that time. In the 5 years that passed only 2 wells were drilled close to my land they did not pan out as planed. So all drilling stoped. After that lease expirded we was asked by a different drilling Co. to lease our land again. We opted to only lease it for 3 years. Again no wells were drilled on our land or on adjoning land.

We now have been asked to lease our land for the next 10 years with a one time lump sum payment, but this time they want the rights for oil, gas and coal bed methane by any means.

 

My question is;

Is 10 years to long for a lease? 

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Permalink Reply by Tom F on September 16, 2010 at 10:59am
After reading all the comments on this subject I have compiled the following list for lease considerations. Does anyone have any further thoughts that can be added?

MARCELLUS GAS LEASE CONCERNS

1. Lease to state that it is for Marcellus Shale only at 3,000/8,000 ft. depth
2. Will not exclude the possibility of a wind turbine/s
3. Coal bed methane is excluded
4. Oil is excluded
5. Coal and other hard minerals are excluded
6. Timber is excluded
7. Royalty payment to be determined on net profits/production and not gross.
8. Well not to be shut in
9. Pipelines, compressor station, storage etc to be separate
10. Sign on bonus payment to be made within 30 days or the lease in null and void.
11. The bonus payment is amortized over the lease term
12. No well within 1000’ of any structure
13. Private well water to be tested by lessee before any drilling.
14. Lessee to provide water service to lessor if water source becomes contaminated.
15. Any gas storage to be above the 3,000’ level
16.
Permalink Reply by Brian on September 16, 2010 at 12:06pm
List looks pretty good....one thing I have to bring up though is I believe Royalty Payments should be calculated off of the GROSS not NET. Net means they already subtracted their costs. Thats what we are trying to avoid paying.
Permalink Reply by DP on September 16, 2010 at 6:04pm
It is better to describe the depth limitaions with geologic units. You should limit the depth range to be below the tully limestone and above the onondaga limestone to leases Marcellus formation. 3000/8000 would cover more than marcellus. The shale deepens as you go southeast and most companies will refernce depth ranges and geology by nearby well logs they have obtained (this is the best way). Other items to include as addendums in a leases are a pugh clauses that release land not unitzed within the lease term in case they dont develop all your land, you will have to agree to some degree of shut in, road locations by mutual agreement, no rock or water use unless by seprate agreement, reimbursement for timber and crops damaged, and a per acr compensation for overall earth disrubnec of they do decoide to drill on your property. Theer may only be one or two drill pads per 640 acres wil multiple wells.
Permalink Reply by Tom F on September 16, 2010 at 3:09pm
Brian, Thanks for the advise. I'll change the list to reflect the "GROSS"
Permalink Reply by Monty on September 16, 2010 at 7:01pm
I have heard the arguement about Net and Gross from many different people and many different opinions. I talked to an attorney and he said you want NET not Gross. I also heard if it doesn't go through the pipeline you do not get paid. They are trucking it out and the landowners are not getting paid. It is best to talk to an attorney that specializes in oil and gas leases.
Permalink Reply by Brian on September 17, 2010 at 8:42am
I definitely agree that anyone who does not feel comfortable dealing with the OG Co's themselves should hire an attorney.

12.5-25% royalties of the gross production will always be more than the Net (unless the well is not economic.) The trick is getting the OG Co. to agree to a "no deductions" clause in your addendum. You also need the clause to state that the gross production shall be valued at the point of sale and delivery to, the first unaffiliated third party purchaser, but shall never be less than the actual proceeds received by the lessee. I am not speaking of what I have heard. I am speaking of what I have done. I cannot see any reason why the Net would entail a higher dollar amount than gross. By definition, NET means there were deductions. Thats why a ''No Deductions'' clause is so important.
Permalink Reply by Tom F on September 16, 2010 at 7:02pm
More good advise from DPH. Don't know what a pugh clause is so I'll need to look it up on the internet. Thanks
Permalink Reply by DP on September 17, 2010 at 5:32pm
A "pugh clause" releases a portion of leased property that is not prodcued either vertically or horizontally during the term of the leases. For example, if you and your neighbor have 500 acres each leased for a total of 1000 and a company creates a 640 acre unit with you and yuor neighbor and only uses 140 acres of your land in the unit, that leaves you with 360 aces of undeveloped property that could concevibly be locked up in a leases for the life of the other wells with no royalty. It is common to include a pugh clause to allow you to lease the undeveloped potion if this happens. This gives companies an incentive to develop all your land. You could also negotiate this for deepr horisons like the Utica Shale. If they dont drill to the Utica during your lease you would be allowed to leases deep rights to someone else.
Permalink Reply by Tom F on September 16, 2010 at 7:51pm
This whole leasing process gets complicated. I have searched different forums and at some place in each forum the advise given is "get an attorney that deals with gas/oil leasing." I agree with this advise. When the time comes I would like to have some kind of addenda list that the attorney can look at and incorporate. Granted the Lessee may not agree with everything but you put them on notice that you will not sign a lease that in not favorable to you. Negotiate Negotiate Negotiate I am going to add trucking to my list. Thanks Monty
Permalink Reply by Brian on September 17, 2010 at 9:56am
The Wyoming lease is one of the best in my opinion as well. Too bad I do not own enough property to get the gas company to even consider a lease like that. I doubt any individual will ever get the OG co's to agree to a lease like that unless they hold 1000 or so acres in direct route of a pipeline. They got the OG Co to agree to those terms because of all of the land their group held.
Permalink Reply by DP on September 17, 2010 at 10:27am
Brian is correct. If you want to get the best bonus and best terms as a landowner, you need a lot of acreage or need to be in a high demand location. Talk to your neighbors and try to put together a landowers group, compile everyone's properties on a spreadsheet and establsh a list of lease condtions. Get contacts from gas companies in your area and send it our for bid. Have a qualified attorney ready to represent the group with the final negotiation of lease after you select a company.
Permalink Reply by Tom F on September 17, 2010 at 7:20pm
So.......how would this Pugh clause work under this concept. Four adjacent land owners form a group that amounts to 640 acres. One land owner has 120 acres, another has 250, the third has 150, and the 4th has 140 acres. The driller decides that only one well will be drilled within this unit and it will be drilled on the property with 250 acres. How does the Pugh clause work for the owners whose land will not be drilled upon?

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