Negotiating a Unitizing Amendment For an Old Gas Lease

I own 75 acres in Upshur County, WV, subject to a 1979 gas lease (12.5% royalty, no Pugh Clause) with 2 old low producing vertical wells. The leaseholder/gas well operator wants to amend the lease to add a unitizing clause, not in the current lease.

I know I can't lease to another party as long as the current leaseholder maintains the current lease through production. Other than for that factor, is my negotiating position relative to the unitizing amendment with the leaseholder as good as the negotiating position I would have if no current lease existed, respecting up-front cash payment, royalty rate for other than the existing wells, and rental fee for surface occupation unrelated to the current wells?

I suspect there are many mineral rights owners in WV in the same situation as mine.

Richard

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Permalink Reply by Richard Fanelly on June 11, 2011 at 4:37am

I have 50 ares under lease with 2 30 year old vertical wells still producing minimally. Three Marcellus wells have been permitted within a five mile radius of my property.

Are you suggesting I should not expect more than a nominal signing bonus in exchange for a unitizing amendment to the existing lease?

Richard

Permalink Reply by edward bilik on June 11, 2011 at 6:42am
                The shallow well developer is most likely getting the spread between the twelve and a half percent you are recieving and the percentage negotiated with the Marcellus developer. He also is being paid a per acre payment. He is probably transfering thousands of acres of deep rights. He is loathe to let anyone know he will pay anything for a unitization agreement. Everyone will want money. Unless you are critical to a unit, you have very little leverage at 50 acres. Generally speaking, I like to see several hundred acres contiguous with the same issue before I Ifind leverage in negotiating an unitization agreement. Do your neighbors have the same lease? You need to do some research. Which marcellus developer is the likely buyer of the deep rights from the shallow well company? There are variables involved. The overwhelming solicitations of unitization agreements are being made while landowners are "asleep" as to this issue. The agreements are sent out in the mail hoping you blindly sign and return them. A significant number of landowners oblige the companies. I am suggesting this is a decision made after significant research. Going it alone on 50 acres merely being in the drilling area isn't significant leverage. I preach the adage "talk to your neighbors". This site is a very educational tool. Unfortunately, I believe it takes much more research and expertise in each locale to draw the proper strategy. I think I am safe in saying that you will not be offer some attractive lease renegotiation by a developer in that your acreage is modest. Today, when a company pays for such a modification, a confidentiality clause is included to preclude the tsunami of landowners that would follow suit. It is the reality.
Permalink Reply by Richard Fanelly on June 12, 2011 at 1:54am

Thanks for the input.

The leaseholder and shallow wells operator is EQT Production Co. - one of the big boys and a Marcellus developer. I also own 25 acres adjacent to the 50 acre parcel. The 25 acres have never been leased - no Mother Hubbard clause in the 50 acre lease. Strangely, EQT had little or no interest in a lease to the 25 acre parcel. I thought that was odd.

By "critical to a unit" you mean a Marcellus well plan that contemplates a well bore under my property (since WV is a pure capture state)?

Richard

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