Replies to This Discussion

Permalink Reply by Jim Litwinowicz on September 6, 2011 at 9:16am

JRA;  look me up!

Permalink Reply by Todd J. Scott on September 6, 2011 at 9:29am

Jim,

I guess we are being sort of selective as to the areas that we are interested in, and that is the the problem with some of the groups.  Drillling companies generally have knowledge of specific areas and along with that confidence of what they will find in certain areas.  The landowner group that I met with wasn't willing to split their group up to fit in to the prospect area.  It seemed they wanted to aggregate as many leases as they could and sell them to the highest bidder, which fit their business model.  When I sat with this certain group, they weren't willing to agree to the bonus money offered at the time and we wouldn't give on the horizontal and vertical pugh clause they had drawn up.... the conversation ended there.  We have been actively pursuing leases in Lawrence County all along since the fall of 2010, with the exception of the first three months of 2011 until we could get our budget straightened out. 

Shell isn't crying foul, nor am I.  I'm simply trying to understand why this offer has got people excited.  It seems that Lawrence County landowners are considering signing on with this latest offer and its not much better than Shell's on paper, especially once you take out the 5% on royalties and bonus.  Take it a step further and look specifically in to each landowner on an individual basis on a map and the leases that Shell controls around them... I think they have a better shot at royalties with Shell. 

I have nothing negative to say about Hilcorp, I have heard of them before and they are a reputable operator.  My theory is that they are anxious to get involved in this Marcellus/Utica play in the basin and saw this group as a good opportunity to get on the map.  I think if they go through with this deal they will find their own area of interest within the entire prospect area and will hope to sell or trade some acres with other companies in areas where they can't or aren't interested in developing.   The only side effect for a landowner that signs on with this deal is they have to hope if they are in an area where Hilcorp can't develop that Hilcorp will get a deal done in a timely manner so they can be included in another company's plans to develop in time.

Good luck at your meeting.   I know you'll have good questions!!   

Permalink Reply by Brian V. on September 6, 2011 at 3:11pm

I am an outsider looking in on this being a landowner in Tioga Co. PA and would just like to add my 2 cents. Shell and Long Consulting, as their land reps have a strong hold in our neck of the woods but are certainly not the only player in the county, and I have watched this gas development change dramatically over the past 3 years. Shell has been excellent since buying the East lease hold. Shell and the Long reps have been very straight forward for the most part. I'd like to add a few things that one should consider before they sign a lease either with a group or on their own.

 

1) Like Mr. Scott has said before have a good idea what the lease hold is around you. You could get a "good deal" in the group, however if say Shell has a strong enough lease hold around you they could in some cases "cut you out" of the production unit. This can be done if a unit can be formed with your property or a portion of it on the edge of the unit. or if the property is small enough that a lateral doesn't touch it. If the operator can get their laterals in without entering your subsurface than they will. I have followed unit declarations within this county and seen this done countless times to properties that are either unleased or lease to another company. In some cases swaps can and will be done if an agreement can be reached by the two companies, but there are many factors that come into play when this situation arises, including willingness of the companies to deal, the actual terms of the leases to be swapped, and how badly an operator wants the competitors lease, to name a few. 

 

2) Find out if you can, anything you can about current drilling and any completed wells. Get an idea of where transmission lines are. It sounds like this area is in the begining stages. That can be a double edged sword. Most likely any current drilling is being done near a transmission line so that it can easily be taken to market. Usually the drilling and pipelines will spider web out from the transmission line. That being said lands near a transmission line are more vital at the moment than those miles away. Pay attention to anything having to do with production or well preasure. If the "test wells" aren't great the offers and overall interest in these open leases will flatline. If you see many more permits being filed to drill new wells then you are in a better place. It is a game of sorts and can be costly if you hold your cards to long. However, if the "test wells" are good and the market stays consistant you most likely will do better waiting to enter into a lease.

 

3) This point is just my opinion after being in the middle of two different lease booms that groups got deals in. Back in around 2006 East Resources at the time targeted the Trenton-Black River formation in our area and leases went from $10 to about $75 per acre in a matter about 6-12 months and then kind of held steady there until the Marcellus hit in early 2008. The lease offers went up in 2006 because of a group that someone put together. They got better money for their group but the terms weren't anything special and certainly didn't fit our property. We have a nice little chunk of land but the terms of the lease were set up for farm land for the most part. We waited until the group closed their deal and ended up with the same money and terms that fit our land. The thing that sealed it for us was that we ended up signing with the company that held the lease hold in this case ERI (who also signed the group), but we also got the protections we were looking for and one less year on the term of the lease. My favorite part was that I (we) didn't put money into someone elses pocket in exchange for us signing the group lease that didn't fit us or our property. Yes, we went to group mettings and spent a lot of time EDUCATING ourselves but in the end we got what we wanted and have been happy ever since. Somehow we still haven't been drilled and we are negotiating a new lease for current market value. That is fine though because the whole ball game has changed since 2006. In this county lease offers are between $2000-$4000 depending on who is the operator and how close they are to declaring a unit. Shell is the "King" here in terms of lease hold and wells being drilled, however I know of 3-4 other operators that have been active drilling and closing out units in areas that they have put together lease holds. Unfortunately it seems Shell is on the low end in terms of what they will pay to close out a unit or keep a lease hold in an area. There really isn't much competition left in this county. Shell has most of the count under lease. The 3-4 others have secured their areas here and there in various townships and almost all of them have swapped with Shell to strengthen their area and also shore up areas that Shell had the majority lease hold.

 

I guess big picture is there is a lot to consider. There is risk involved in almost every decision. What I would do if I absolutley didn't need the money is sit back and collect all the information possible. Go to meetings. Stop by the Long Consulting offices and be straight forward and friendly and just pick their brains. And let them know it. These companies have way more knowledge of all this than any of us. I've found most landmen to be more than willing to sit down and be straight up and honest and very informative about this stuff. They live it. Most have seen these oil and gas plays play out over and over. And don't buy the group or landman telling you that when this deal is done it is off the table to anyone not on board. That deal may be, but once a $ mark is met it often sets the bar for future agreements. Just be glad you are where you are. Our hunting camp is in PA but we all live and own land in NY and haven't been able to get even a bad lease offer since NY basiclly killed the industry back in 2008 with its moratorium. Cheers and happy lease negotiations. May we all be millionaires and have clean water too.

Permalink Reply by Brad Wiley on September 8, 2011 at 1:42pm

Interesting forum, thanks for all of your imput on this important decision that we as landowners are pretty much forced to make if we dont want to be let out of a huge financial windfall. Just wanted to put my two cents in as far as the Mount Jackson group, and Shell. After a couple of years researching the subject, I and my wife finally signed a lease with Shell and we both feel real comfortable with our decision.  My advice to landowners that are on the fence is this, unsolisited of course....Do your homework as far as addendums that you might want to consider, there are many places on the net to find out which ones matter and If you dont want to put the time in, go with the Mount Jackson group. As far as I'm concerened though, you will be paying a big premium for that privlidge though as the percentages they are asking are pretty high in my opinion. Also, you owe it to yourself to stop by the Shell office and look at the map of propertys already signed. Pretty impressive. Good luck to everyone on here and I look forward to reading and educating myself more on the subject....

Permalink Reply by ShaleAdvice (Steven C. Townsend) on September 8, 2011 at 2:49pm

I just hope that everyone looks a lot more carefully at the lease terms rather than the bonus and royalty numbers.  Leases are like insurance policies...you don't know how good of a policy you have until you have to file a claim. 

Permalink Reply by Joe on September 10, 2011 at 3:07am

Well as a friend of mine says "confusion makes money" The only trouble with that is the one who's confused isn't the one who makes the money.

I don't know if Scott is blowing smoke or not but, I was contacted by a Shell land man about leasing my O and G rights I tried to ask him questions the first being about net or gross royalties and got an answer I didn't understand about it is net but without cost? or something like that. I told him I didn't understand then he ask if I was ready to sign. I tried again to ask questions and was given quick responses that I didn't understand followed with are you ready to sign.

Seeing this wasn't going anywhere I said ok send me the lease so I can have a lawyer look at it. Right away he said I'll get  right back to you. That was 4 wks ago. I haven't heard from him.

Permalink Reply by Todd J. Scott on September 10, 2011 at 5:11am

Harry,

Shell's royalty is a gross royalty, less the usual costs, but then we do have the ability to adjust that clause by adding a royalties without deductions addendum clause.  If you want to e-mail me the name of that landman I can educate him on how this royalty works and have him or another land guy get in touch with you, or you and I can schedule to meet each other at our office in New Castle.  I"m out there about every other week.  Thanks.

Permalink Reply by Joe on September 10, 2011 at 6:50am

royalties without deductions addendum clause. That's what he said. It's just that I never heard of it and don't understand it. I'm fairly new to learning what's going on to protect myself. I only have about 30 or 40 hrs spread out over the last yr Goggling trying to get info. Maybe he didn't have time when he called to explain everything but I didn't get a return call either. 

Permalink Reply by Todd J. Scott on September 10, 2011 at 9:41am

If you let me know who the agent is I'll make sure he gets back to you.  E-mail me at todd@longconsult.com  if you like.  Thanks. 

Permalink Reply by Joe on September 10, 2011 at 2:19pm

Well while we're talking about it what does royalties without deductions addendum clause mean?

Permalink Reply by Jim Litwinowicz on September 11, 2011 at 3:05am

Harry

Permalink Reply by Jim Litwinowicz on September 11, 2011 at 3:22am

Harry S;  What this means is that this clause prohibits them from deducting costs such as compression, dehydration, transportation and many more. Without this addendum, they would have deducted enough costs to reduce your royalty by at least 2%, probably more.

 

And the land man would not have told you about this clause or the consequences of not having it unless you asked.

 

This is just one example of the many loopholes and trapdoors imbedded in their leases.  Want another? Read your lease and it will say they have the right to lay pipelines.  Seems reasonable as they need a pipeline to get the gas to market.  But look again and you note that "pipelines" is plural. This means they have the right to lay any number of pipelines from other wells, compressor stations, terminals, and more that can crisscross your property. It even includes the right for them to sell right-of-ways to interstate systems with large right-of-ways that will put large parts of your property off limits to almost all activities. And all of this at no additional compensation to the landowner.

You need to specify that they can only lay one pipeline serving a well on your property or which serves wells in a unit of which your land has been included.

 

Be very careful dealing with land agents. They will not tell you about any issue unless you ask first. And every clause in their lease needs clarification to protect your rights and your land.

 

My advice would be to get a good O & G attorney.  And join a group of landowners to educate yourself and get a better lease.

 

"Confusion makes money"....Great quote!!

• ‹ Previous
• 1
• 2
• 3
• 4
• Next ›
• Page