leasing in columbiana county
I am within one mile to a well, all my surrounding neighbors have leased with chk, they offerered me 2500 16% last month and I turned them down. Now I have an offer of 5900 an acre 20% royalties from a different company. How would that work as far as royalties if I was to sign with a differnt company other then chk? Will they still produce my land or just cut me out because the well that is near me is a chk well. Any advice is much appreciated.
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Replies to This Discussion
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Permalink Reply by 015334grltd9m on
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You will be dealing with Total now and they probably need and want you....... bad.
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Permalink Reply by matt jones on
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The other company is hilcorp. I am concerned with the royalties because I have a well 1 mile from me that they drilled last month. When DPS Penn was offering me the 2500 16% they told me 6 wells will be drilled and 1 will reach my property possibly even 2. I know all landmen lie but my water has been tested and everything so I do think they want to produce my property. They also said if I don't sign when they are going to drill the 1 well that is suppose to reach me they will stop 500 feet from my property and basically just skip over us and we would get no royaltie or "Cut OUT". That is why I am concerned with sighning with someone other then chk, because they own everyone around me and have already drilled one well. 5900 and 20%is alot more then 2500 and 16%, but only if they produce my land. What do you think about signing with hilcorp?
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Wrong answer, potentially... it all depends on the geography. You can very easily get left out of a unit, I've seen it happen, I've done it myself. If your tract just happens to be crucial to a horizontal well path then your odds are extremely good that you will be included in a unit. If, as the "lying landman" portrayed, you are at the end of a projected lateral and an operator could just as easily stop 500' short then you risk getting penciled out of a unit. If CHK does indeed own virtually everything around you and has declined to accept the terms you have insisted upon... and the price discrepancy per acre and royalty are as significant as you have portrayed then you run the risk that Hilcorp is speculating that they can flip this lease to CHK and make a profit, or hope that CHK will propose the well to them and accept them as a working interest partner...again, it depends upon the geography. Unless you owned a significantly large tract it would be highly unlikely that Hilcorp would lease you with the expectation that they would drill your tract themselves. There is simply very little "critical mass" in owning an island in the middle of leasehold acreage owned by another company such as CHK. Hilcorp wouldn't have the presence to attract a gathering line by itself, and CHK is notorious for laying their own lines... and guess what... they aren't going to be likely to offer to connect a Hilcorp well that potentially competes with wells that CHK offsets. I'm not saying that the high pressure tactic being used by CHK is a realistic threat... but it is something that you should definitely consider as possibly being an accurate portrayal by the CHK representative. You could find yourself getting a short term benefit (higher bonus, higher royalty) but at the expense of never seeing a penny of royalty income.
I realize this information doesn't really provide any comfort to you because you likely don't have the means to ascertain who is telling the truth... but you should be aware of all the potential outcomes.
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I do work for, and am an equity owner of an oil and gas company. We are not active in Ohio whatsoever and my perspective is predicated solely one what I KNOW to be the established practices of companies like CHK. You sir are the one that has a bias...and an uneducated one at that. Companies pay day rates for landmen whether they are sitting in an office doing paperwork or out in the field signing up leases...the only difference would be reimbursing for mileage.
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I have no problem with your inherent bias... but don't project the fact that you possess a bias onto others that express an opinion contrary to your own. I have absolutely "no dog in this fight". What I offered was a detached and neutral perspective that was meant to provide insights into how oil and gas companies work. You can accept that for what it is or continue to operate in a knowledge vacuum. Your choice.
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...and I didn't say that a company WILL work around a landowner and leave them as an island... I said they COULD do so, all dependent upon the geography. Companies like CHK detest having partners (other than the JV partners like Total that they promote the heck out of) in their wells. It would be CHK's preference to simply pencil another company's lease out of a unit, unless as I said it was deemed critical to their projected well path. They also aren't going to buy a lease from Hilcorp at a price that exceeds what they are offering by a factor of 3X.
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Permalink Reply by matt jones on
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Thanks for the info. the points you made make sense. The only thing is how do you know geographiclly where you will be in a unit? I am 1 mile from the access road of the well to my driveway. On the odnr website it shows the map of the first well they drilled with 5 other potential holes to be drilled. The one that is drilled stopped approx 1000 yards drom my land on the opposite side of the road. I only own approx 6 acres so I don't think it will make a difference to chk if they are under me or not, But all of my neighbors behind me and beside me have sighned with chk so to get to them they will need to get through me. This is starting to feel like I am at the casino betting everything.
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Matt... the only intel you can obtain is to check what the path of permitted laterals are. I don't disagree with you that CHK would likely want your tract given the fact that they have leased all your neighbors... but keep in mind that they can run a lateral within 500 feet of your property line without having to include you in the unit (at least that is what I recall the lease line setback is in Ohio)... again, I am not active in Ohio and I am operating from memory. In PA the lateral can literally be one foot off the lease line... and the Rule of Capture is in effect (not sure if Ohio follows that legal premise or not).
I am truly not attempting to influence you one way or the other with regard to your decision on who to go with and what I have disclosed previously is completely unbiased, but it is based upon 35 years of oil and gas industry experience.
I do agree with Marcus that the additional bonus and royalty seems extremely attractive but over time, the lease bonus will pale in comparison to the royalties paid over the life of a well(s). Remember, 20% of nothing is nothing!
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Permalink Reply by Jack Straw on
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RE: " I only own approx 6 acres"
With only 6 acres, I would not be surprised if they were able to bypass you; that is a genuine risk.
If you are interested in money up front you could go with the higher bonus; but as Jim noted, that could very well be all you ever get.
With CHK, a lot less upfront; but if they are the ones drilling, you have the potential of royalties for the next 40+ years.
You make your choices, you take your chances.
All IMHO,
JS
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Permalink Reply by Alan Pavlik on
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Good info...just because you work in the industry doesn't mean cannot accurately explaine how the industry works...being biased for the landowner shoudn't mean you close your mind to the truth. I have seen what you explained above actually happen up in Bradford County, PA. Some people who are biased for the landowner only believe what they want to believe regardless of the facts.
If anything Hilcorp may use this acreage as a bargaining chip for a piece acreage they want from Chk
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Permalink Reply by Kathleen on
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I agree. This would be the common, between co. flips. Now if the property is on the end of a unit for CHK and hilcorp wanted something outrageous in the swap or funds than CHK will adjust the unit. I think it would have to be really outrageous for them to adjust the unit, so I would figure on the flip that you wouldn't even know happened maybe until your royality check arrived. Depends on the lease wording on what you find out and when you do.
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My opinion is that if they needed your land badly enough they'd pay you for it. CHK has so damned many drilling units available that they hold most of the cards right now. That's the consequence of an entire county, Hell an entire third of the state signing with one company. They have a monopoly on Columbiana. If you're surrounded by CHK land and they absolutely refuse to match Hilcorp's offer then I'd have to think long and hard about turning down $5,900/acre and 20%.
And don't listen to the landman when they bloviate on and on about how they're going to drill multiple laterals from one pad. We are years away from that being the normal operation.
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