ONLY LEASE THE MARCELLUS

Many on this site think that only the Marcellus Shale lies below them, when in fact there are many  formations that go all the way to China. Don't shoot yourself in the foot by leasing all depths below you when these companies are only looking at Marcellus. Google Carlos Marcellus and you will find that he was a simple fruit stand owner in New Orleans but it turned out that he was much more.

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Permalink Reply by Steven Hunt on October 1, 2010 at 3:48am
I understand that there are some wells being drilled in Potter and Mckean countis that are targeting the Oriskany sand stone. Whats the deal with this. These are I believe all just vertical wells. Any input from anyone?
Permalink Reply by Two Dogs on October 1, 2010 at 6:15am
Probably to HBP the section with a cheap well and hold the Marcellus rights.
Permalink Reply by Marty Wittstrom on October 3, 2010 at 10:24am
Yes, this is an important point. An addendum that limits an oil and gas lease to the Marcellus is the probably the most important protection that a mineral owner can add to their lease in this situation. The other is a horizontal pugh clause which disallows holding acreage covered by a lease beyond the primary term that is not within a producing unit.

Oil companies have spent an enormous amount of money leasing land; so much so they probably cannot drill it all within the primary term of the lease. A tactic that is being used to hold the lease beyond the primary term is to drill cheap shallow wells that establish modest production and hold the lease on which the well drilled, and adjacent leases that are spaced into the production unit via the HPB clause. At present the greatest economic benefit the mineral owner will receive is from a Marcellus well, so mineral owners need to protect themselves from delayed economic benefit.

There are conventional gas plays and shale gas plays, both above an below the Marcellus, that are viable now or will be in the future. Actually the Oriskany is below the Marcellus, but the point is well taken.

If someone has examples of these limiting clauses to an oil and gas lease within the Marcellus play, it would be great to see them posted to guide other in their leasing efforts.
Permalink Reply by Two Dogs on October 3, 2010 at 11:23am
Marty, I am not an attorney but this may be a guide as to wording that may apply in certain states, here you go.

2) It is agreed and understood that this lease covers only the oil and gas lying and being between the surface and ________________ feet below surface, not to exceed the total depth that a well be drilled to and casing set to during the primary term. If this lease extends beyond the primary term by production, Lessee will have a period of 6 months after the end of the primary term (or until ________________________) to develop any other horizon between the depths named above; but after this extended development period, Lessee will automatically release all horizons from which there is not production at that time. Further, Lessee will supply Lessor a written release in proper form within ninety (90) days after the expiration hereof releasing all horizons from which there is not production at that time. Failing which, after Lessor has made written request for release instrument and if Lessee fails to deliver a release within thirty (30) days of written request, Lessor shall have the right to file suit to cancel this lease as a cloud on the title to said lands and Lessee covenants and agrees to pay all costs of suit incident to such cancellation and all damages and expenses sustained by Lessor, including attorneys’ fees, as a result of said failure. The obligations of Lessee under this Paragraph 2 shall be in addition to, and not in substitution for, any imposed by the statutes of the state in which the leased premises are located.
Permalink Reply by Steven R. Rothenberger on October 5, 2010 at 3:41am
Is this clause something that has been succesfully used? if so how do you determine the depths to insert, and should it not have a range of depths of say (just using #s here) 6000 and 8000 and not surface to say 8000 Ft.?

Thanks
Permalink Reply by wadea william saad on December 14, 2010 at 6:03am

IT MADE SENSE TO ME 4 YEARS AGO AFTER i  READ A LOT ABOUT WHAT IS THERE UNDER THE SURFACE AND LOOKED AT GEOLOGICAL MAPS [ SHALES] , LEASE ONE SHALE SEPARATE FROM THE OTHERS , DEFINE ON THE CONTRACT WHAT THE COMPANY IS DRILLING , MARCELLUS OR UTICA OR HERCKIMER ..

Permalink Reply by Frank on October 4, 2010 at 3:42am
Operators are not only interested in the Marcellus Shale, but the Rhinestreet Shale (located above and shallower from the marcellus), and the Utica Shale (about 4000' deeper than the marcellus). Range Resources Utica test well in northeast Beaver County came on-line at 9 million per day. With regards to "shale wells", I would recommed signing a "formation specific lease" - Rhinestreet, Marcellus, or Utica. Not an all encompasing lease.
Permalink Reply by Two Dogs on October 4, 2010 at 4:10am
The thing about a formation specific lease is that they may hit the motherload in some other formation on their way down and not be able to produce it. I think its only fair to give the company a time line to produce a new discovery they may find while probing the Marcellus but after the time runs everything above and below will be released back to the mineral owner. Without cut offs the shale players will own it all, surface to China. In my state mom and pop companies have been drilling for over 100 years and have made plenty of folks rich. The shale players, if they have their way, will put mom and pop out of the biz.
Permalink Reply by Alan Pavlik on October 6, 2010 at 5:27am
Frank- So the Range Resources well is on-line and producing?
Permalink Reply by daniel cohen on October 6, 2010 at 4:10am
For what it's worth, when I raised this issue with a Landman, I was informed that any attempt to 'split the horizon' would be a deal breaker. This was sort of confirmed in other conversations with landmen from Chief,Chesapeak and Fortuna(before they were taken over). I haven't heard of this being permitted by these larger companies, but I have heard that for smaller companies there have been allowances made. Not often, but some.
Dan
Permalink Reply by Pam S on October 7, 2010 at 1:32pm
When I leased with Fortuna, I told my attorney that this was something that I wanted. He told me that Fortuna would not do this. He had tried with them before and they would not even consider it. I figure that the 20% royalty that I would get goes for all of the shale below so what I would be missing out on is the bonus for each shale layer. Am I wrong in this?
Permalink Reply by wadea william saad on December 14, 2010 at 6:14am

YOUR ARE RIGHT ON THE LOGIC OF ROYALTY MATH IF YOU CAN PUT IT IN THE CONTRACT , IF THE GAS COMPANY FINDS SEVERAL DIFFERENT SHALES UNDER YOUR PROPERTY SURFACE , , IF YOU DONT HAVE THIS CLAUSE IN WRITTEN FORM AS AN AGREEMENT YOU WILL BE OPEN FOR RENEGOTIATIONS AND YOU END UP WITH THE SHORT END OF THE STCK , MORE THAN LIKELY

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