Is it time for a HBP landgroup ?

  With the huge number of acres in the Marcellous & Utica held by production & the old leases that go with them , the general concensus seems to be "you're out of luck", yet many of those old leases have unitization limits too small to suit the horizontal drillers. Why are these acres just out of luck ? Usually landowners are told, well they had to buy the lease from the current operator or JV with them, so no bonus or higher royalty for you. Let us rewrite your old 1/8th lease to suit us or we'll go around you. But if enough HBP acres combined & said no, we want a little something too, then would we not have at least some bargaining position ? Just a thought, opinions please.

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Permalink Reply by Jim Litwinowicz on January 8, 2012 at 12:20pm

This is an excellent idea. Organizing into a significant group could be very helpful, it for nothing more than educating people on the potential gains they could get when re-negotiating leases. This is a very different business now and people need to understand it better. Being in a group would also give landowners much better leverage in getting a fair lease.

The downside is that by fighting the company, you may delay drilling and the much higher royalties the new technology brings. There is so much land to drill they can afford to bypass land that is HBP'd. And if you end up in court, it may be years or even decades before it is resolved.

But beware of attorneys that are claiming they can get people out of a lease.  It is very rarely successful and I think they are just trying to get some billable hours. If an attorney tells you he/she can get you out of a lease asked him/her several questions.

1.  What clauses or issues are they attacking to break the lease?

2. What case history is there to back their claim?

3. How successful have they been in the past, especially on the same or similar issues?

I would not pay by the hour but pay on a contingency basis only if they are successful in breaking the lease. If they are not confident enough of winning that they insist on being paid hourly, then you have little chance of winning the case.

I say start a group but be reasonable in what you ask so that the companies can proceed with drilling.

Permalink Reply by Robert Bond on January 8, 2012 at 3:12pm

Many of these old leases define drilling units as being more than 40 acres but less than 60 acres.  Also some of them have unitization clauses that state they can exceed 80 acres but must be less than 90 acres.  I think you may well have a good idea.  It would need to be approached on an aera wide basis to be successful.

 

Mahoning and southern Trumbull counties have a lot of land in this situation!!!!!  Keep in touch!!

Permalink Reply by Paul Martinelli on January 8, 2012 at 3:48pm

I agree 110%

I know there is some room for getting better terms for the land owner....this a 3 way deal...existing leaseholder, the deep driller and most importantly the landowner,,,,,,we should not be left out!

Can someone on here comment as to what a typical deal is between current leaseholders with HBP acreacge and a driiler that wants to drill horizontal wells?

This is important information that we as landowners need to know....so we have some idea of what new terms we could expect to get.

HBP landowners, time to unite! 

Permalink Reply by Little Cougar on January 8, 2012 at 7:05pm

There is not a lot that can be changed with these old PA HBP leases...I have been in this situation and can speak from experience.  The sudden onslaught of supposedly experienced O&G attorneys in OHio and PA are not as experienced as they claim...and are more interested in billing hours.  They know they can't break these leases but will lead you on.  For example, I had one attorney in Pgh. tell me she and her firm have been doing this for 20 years.  20 years...I don't think so...they haven't been drilling horizontal wells in this area for 20 years.  She wanted 8% of my royalties.  I said no way...and she said then it would cost me 20 hours and that would be approxiately $50,000...just to write me an addendum...and addendum that the O&G's are so  use to seeing. I told her no way...I will take my chances before I give her that kind of money.  In fact, with a recent attorney review by 2 different attorneys, they missed a major error on the modification/ratification of my old HBP lease.  Thank goodness I caught it and the O&G corrected it immediately and sent me new papers.  I was able to negotiate some protection for myself and an upfront but as I have said in previous posts, those old leases were written with long-term vision and by smart attorneys who worked for the O&G's only and that is all they did.  It has been discussed on this site lately regarding the upfront bonus being better then the royalties to come.  In my situation, the HBP has been more of a plus then a negative. And the company I am HBP is more interested in drilling wells and growth.  They are drilling on the their leaseheld acres.  For those of you who have new leases and got these great upfront bonuses, I applaud you...because as someone said on here, it could be years before they drill.  I have this kind of philosophy...I prefer working with the smaller O&G who is more aggressive and more transparent in their business plan...they want to grow and make money now...so someday they can compete with CHKP and others.  They aren't going to give away their strategy to the big boys but have learned that more and more of us are more informed. But then I really didn't have a choice...I am HBP. However, I think a group might help the HBP lease holders but not to break leases...but to learn what they do have and who is truly experienced and can help educate each other...which is more or less what is happening on this forum.  And I will say one final time...the O&G's are too big and too powerful and control this country...I am not going to lose what royalties I am getting to fight a battle I have no chance of winning.  I chose to work with the O&G and knowing that they still were getting the better deal.  So I thank them for what they did agree to...I thank them for insuring that I will be able to retire and pay my taxes, my mortgage and take care of my mother and myself in comfort.  I can't comment on too much because I did have to sign a confidentiality agreement...but I can say this...it was a heck of lot better then I was advised on this forum 2 1/2 years ago.  So as far as I am concerned, my experience being part of this forum helped to get what I did, and not some PA attorney.  They almost lost me all my royalties!!!  Oh and one more thing, the only O&G attorneys that probably know this business inside and out and not work for the O&Gs are probably all in Texas...maybe they can advise us northerners if they are feeling generous of spirit.

Permalink Reply by Little Cougar on January 8, 2012 at 7:21pm

BTW...I shouldn't generalize...there are good attorneys...but I guess I am too cynical...its sort of like this old joke which I'm sure I got wrong but you will get the gist..."Why don't sharks eat attorneys...because they don't eat their own"

Permalink Reply by Jack Straw on January 8, 2012 at 7:30pm

I am intrigued to learn that you were able to negotiate an upront bonus on an old HBP lease.

That is the one thing I had been led to believe was uterly non-negotiable.

I have reminded myself never to play poker with you.

Well done!

 

JS

Permalink Reply by Little Cougar on January 8, 2012 at 7:42pm

Jack...  I sometimes wonder if we all are missing something...the only thing I can come up with...they really need this modification and I was the last to sign...I was the last hold out.  I don't believe they did it out of the goodness of their heart but they did make me sign a confidentiality so I can't say much more. There is some hope...and maybe for those who are still waiting...PA and OH may look into this more and help the landowner/mineral right owner...but I don't have a lot of hope...its politics as usual in Harrisburg and as I said, the oil companies own this country...we actually once had a VP who was a major player in the O&Gs and also a President...how could I forget old George W .  AND GO STEELERS....!!!! JUST GOT ANOTHER TOUCH DOWN...REMINDS ME OF FRANCO HARRIS YEARS AGO IN THE LAST 5 SECONDS OF THE GAME...WON THE GAME!!!!

Permalink Reply by Jim Litwinowicz on January 8, 2012 at 9:40pm

LC I understand why you can't give any details and do not ask for any. But maybe you could say if I am in the ballpark as to how one should proceed......

If I were HBP'd  and they came to me asking for modifications I would ask for some bonus money, say $500 to $1000 per acre, a good Pugh Clause and a 15% royalty with no deductions.  These are reasonable requests when unleased lands are getting much better offers.

Then maybe waive the upfront bonus if they commit to drill with in two years since the royalties would be so much higher. Maybe put them in as a delayed penalty payment if they fail to drill in the allotted time.

If you ask for too much, they will just say they will wait you out since it cost them nothing to continue to wait on HBP leases.

LC is right...too many attorneys claim to be O & G experts, some just because they did the old leases years ago.  But these new wells with all the new technology is a whole new ballgame with many more complex issues. I had to explain some of the issues to several attorneys.

Permalink Reply by Gunner Ostergard on January 9, 2012 at 8:33am

I can't say it enough.  Don't trust the gas company to tell you weather or not you have a producing well.  Get an indepent inspector to examine and go to your state's agency and request production reports that are required by law.

 

And way to go Courgar,  knowledge is power.  Always double check your lawyers work and take the time to read up   on it yourself.  With the money that is exchanging hands,  learining about Oil and Gas should be everyone's second job if they own more than 30 acres of mineral rights.

Permalink Reply by caualie on January 9, 2012 at 10:23am

 Yes, my idea is a group of landowners who are ligitmately held, but either through unitization or otherwize, the driller may need to rework the lease. Jim has an excellant idea, of maybe trying to get drilled early, since it would make buisness sense to me from the O&G point of view to at least start drilling the units where you have 5 years or else repay bonus'. The held acreage with producing Clinton wells will be there whenever they want them as things now stand.  Gunner's point is something else altogether. I too have heard stories of people with old wells sitting there, having received nothing for 2,3,5 years & then suddenly a nice round figure check shows up, & "oh yea, that well's producing, or people getting free gas backfed off a transmission line & told the well is still producing when in fact their hasn't been a truck in to look at the thing for years & nothing has been reported to the state in years. Those people need an attorney even it means going to Texas.  Other factors will influence landowners bargaining power too. Results of nearby drilling, the byproducts produced & value of them.  And yes,we'd all like to see the details of deals between the big drillers & the small operators, but I don't think we will.Thanks to everyone responding.

Permalink Reply by Tom Knosky on January 18, 2012 at 2:07pm

you can get production reports on line website pa dep oil & gas reporting

Permalink Reply by Little Cougar on January 9, 2012 at 11:26am

You can ask for all those things...but don't hold your breath...the bonus can be negotiable...but for NG, I think 1000 too much, but then in a few years, you may be able to...rules are made to be broken.  An increase in royalty...maybe but not with no deductions.   As to the supposedly high royalties being negotiated today on those new leases, I betcha my bottom dollar that they will average out to be what the minimum the state law allows when all is considered.  The Pugh clause is tough.  And from what I have learned, the Pugh clause is needed more when they are drilling vertical wells and not as much with horizontal, at least with all the research and advice I did get.  Its a tough negotiation for a Pugh Clause, at least in SW PA, to get one for an HBP well for a modification to drill horizontal. I was told many times that was an absolute no...they would not budge.  They want those acres to extend the laterals and frankly, the Pugh Clause on contiguous land for that type of well might not be in your best interest.  They will drill North first, then will start drilling South and that would mean more modifications if they allowed that Pugh Clause on mH wells. Go look at the map of all the spuds/well sites in Greene Cty, PA...and see who is drilling and how close...also go to the DEP site for PA and look at the permits in Greene Cty.  That will give you an idea as to who is drilling in Greene Cty.  Of course the O&G will not update the well production website until about March for MH wells because PA allows that and the O&G don't want to give away too much info on production to their competitors.  And as an aside, someone on here suggested a site to get all this info that cost $20 to join...I did and found out that all that info is free on the PA DEP site and I already had it all.   As to getting it in writing as to when they will drill the first horizontal well...no way.  But generally the company that holds the old lease in Western PA, is going to drill as soon as possible once they have all the modifications in place anyway, at least so it seems where my land is located...so it was sort of a moot point for me.   Like I said, I got some concessions, I got some money, I got some other protection, more then I expected, and it didn't cost me an arm and a leg with the so called expert attorneys...so I guess I got what I paid for. And like I have said before, I look at it as found money...I didn't work for it and it was not a surprise when they first came after me to modify the lease on my grandfather's farm.  I held out for almost 3 years and took the time to learn everything I possibly could absorb and understand. So I probably got what I did because they really needed my acres and figured it would be a drop in the bucket for them anyway.  As to my maternal great grandparents land, I had no input to that modification/ratification because of the way the Will was written...only entitled to royalties.  And as to your comment about the O&G attorneys that wrote those leases years ago...they all worked for the O&G companies in their legal departments.  The old timers/farmers didn't know or couldn't afford to pay an attorney.  There are no real O&G experts that I can find in PA that work for the individual landowner.  Texas has them all IMHO...and I think we should ask for their help...or at least some of our Texas colleagues to share with us.  Maybe some day I can share more...I want to be able to help as much as possible but I'm still a "greenhorn"...I love all your posts and never miss a day reading.  And one more thing in response to Gunner's reply, I know they play that game and I did research it...couldn't beat them.  The O&Gs were 20 steps ahead of me on that one.  Now I got to get to work or my boss is going to kick me to the curb.

LC

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