Renegotiating royalty percentage agreement.

Our gas company wants to increase our unit size 10%.  I feel my relatives got the "short end of the stick" when they signed their Royalty agreement at 12.5%!   We would like 15%-18% if we agree to allow them to increase the unit size. The gas company says no way. If my relatives don't agree to the unit increase the gas company may just abandon the other wells that have not been drilled. I believe this is a bunch of scare tactics.  Now my relatives are afraid they could lose any royalties in the future.  Has anyone been successful in renegotiating royalty agreements?  I believe that if the gas company wants to increase the unit size, that is so that they don't have to construct more pads and drill more wells, thus saving them millions of dollars!  All we want is a fair deal!  Please advise, Thank you.

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Permalink Reply by GM612 on March 9, 2013 at 11:02am

The unit is 640 acres of which my in-laws have 100% of their 76 acres encompassed within that unit.  6 wells are to be drilled with 5 remaining to be drilled and fracked. There is also a series of 18" and 24" pipelines going through the property.

Permalink Reply by Kathleen on March 9, 2013 at 11:09am
I agree this is a scare tactic. One question is where are you in the unit: In the middle, side, end?
If you are in the middle you should be good, but if your on the side or end its a gamble.
Go to a lawyer in your area that works oil and gas leases. Give this lawyer a chance to get you what you want. I really think its worth the money and advise.
Permalink Reply by Billy Park Whyde on March 9, 2013 at 5:03pm

Sounds to me as if you may be the stop sign! If they can remove the stop sign how much more can they add to the unit size?

Permalink Reply by john on March 14, 2013 at 10:24am

IF THEY COME BACK.

AND IF WHEN???

WE SHOULD LIVE SO LONG

Permalink Reply by Mickgyver on March 10, 2013 at 6:42am

Hello read your lease real close ,if they cancel this unit  do they lose the ability to use those pipelines ,also they make will too much to just walk away from the whole unit after they have already put out the initial expenses . Have you contacted the other landowners that need to agree to this 10% addition , I would think if they all ask for the increased royalty as a group they would be willing to work with you , Good luck

Permalink Reply by Jack Straw on March 10, 2013 at 8:02am

RE: "Have you contacted the other landowners that need to agree to this 10% addition , I would think if they all ask for the increased royalty as a group they would be willing to work with you"

Actually, the O&G Company might be more likely to agree to an increase in royalties on your relative's property if they agree to keep any such increase in royalties confidential.

If there is the opportunity to "renegotiate" the current lease, there are many things that might be worthy of consideration.

More important might be obtaining a Gross royalty (if deductions are allowed in the current lease). An important aspect in this regard is related to which State the land is located in. The courts in different States have ruled in different manners; with no consistency (the courts of some States seem to be less Landowner friendly). Also, some Operators have become very agressive in taking (dubious?/agressive?) deductions.

Horizontal drilling and the infrastructure associated with these wells have the potential to open up Landowners to liabilities ... insertion of a strong Indemnification/Liability Clause might  be in your relative's best interests.

Much to think about.

A local Attorney with Oil & Gas experience might better advise than those of us who do not know the exact wording of the existing lease.

 

All IMHO,

                 JS

 

 

Permalink Reply by Ed MYers on March 14, 2013 at 10:16am

If you know they want to put pipe lines across the land. HOLD OUT You are holding the cards. I asked for $4000 an acres and got it then they told me they wanted to put gas lines across me. They are *(*%#%$&^* and will try scare tactics. If they drilled one well they will drill 5 more. Go for at least 18% Don't trust them. I hope you have a good lawyer.

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on March 10, 2013 at 2:57pm

GM612,  Everyone has been approached to resign their leases. In our neighborhood a neighbor took the new lease to her lawyer and he said it did more than change the unit size, and advised her not to sign it. If you got a bad deal on the first lease, I'm sure it won't get any better the 2nd time around.

Find a good lawyer and they can tell you what all has changed in the new lease and the probability of adding some landowner protection and better royalties. I really doubt that an O&G company would give you more if you resigned. We have all been told not to sign a new lease if you have some positive items the O&G companies want to take from you.

Good Luck.   Ron

Permalink Reply by Richard Droske on March 11, 2013 at 5:01am

12,5 sounds very low but without details about your location it is hard to say what the average is. Even 15 sounds lower than what the companies are paying now.

 

Do you have a lawyer that negotiated the contract? If not now might be a good time to get one or at least consult with one that specializes in gas leases and who would know what the going royalty rate in your area is.

 

I would not grant the company any concessions without doing that first. 

 

 

Permalink Reply by Inchworm antenna on March 15, 2013 at 6:32pm

If the royalty in the initial lease is 12.5% royalty, and now that lease was assigned, the assigning company might have negotiated and overriding royalty of perhaps maybe 6.25% for themselves.  The more times the lease is assigned the more complicated it will get, and the mutual interests can be compounding.  (I hear the 6.25% is traditionally common). That might put the newly assigned company at a 18.75% total royalty payout in my illustration.  It would seem there is a breaking point to which the royalty payout would not be economically within desired industry standards.  If you were to ask them, to augment to perhaps, 15% as reasonable, then in this illustration the assigned would be at a 21.25% total royalty payout.  They might be able to work with that.  GROSS IS IMPORTANT!  In addition If you can organize your community to encourage the newly assigned company to get them to volunteer good land owner protections (in an addendum) based on affected property owner feedback, and recommendations it could end up being a win-win for all.  If you can be real, be sincere, be reasonable, be honest, be rational, and be willing to help solve problems and not create them,  you might find them to be more willing to work with you on lease improvements.  Good luck!

Permalink Reply by Inchworm antenna on March 15, 2013 at 6:41pm

Also, making your objectives clear to a good attorney and directing them  to  assist you in a constructive manner from the get go can go a long way.

Permalink Reply by PETE on March 11, 2013 at 11:25am

know your lease--they could probably do this anyway under most pooling clauses

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