Should I Start a Landowners Group with CX Energy?

My uncle owns property in Washington Co., PA and his lease is expiring soon.  He formed a small group with his neighbors for his first lease and paid an attorney to help with the contract. For his second lease I suggested he form a bigger group to try to up his bonus payment and royalty percentage.

I decided the best way to research would be to talk to landowners that had already formed groups.  I got tons of great advice from each group landowner leader, but found it surprising that some groups paid percentages to consultants and attorneys, and some just paid normal hourly fees.  This turns out to be a difference of millions of dollars in fees!  What was more surprising, is when I asked the group leaders if they'd go back and not pay a percentage for consultation, they all said no. 

Are there any landowners that are part of a group that paid a percentage for consulting fees that have leased their rights?  Would you still suggest paying a consulting percentage?  Are law firms and groups like CX really better than just paying an attorney to consult?  

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0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on October 16, 2013 at 6:55am
This headline is a joke, right? Patrick, do a search on this website for CX and spend what will likely be an hour or so reading through all of the discussions. At that point you'll have your answer.
Permalink Reply by Patrick Murray on October 16, 2013 at 7:04am

I have seen the discussions on CX, but haven't heard from many people that have gone through them for their leases.  I am hoping to get some insight and opinions from individual landowners instead of the heads of groups I talked to on the phone. 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on October 16, 2013 at 9:28am
Around here CX is about as popular as herpes and with good reason. I fully support the notion of a for-profit landowner group if it's run by professionals and if the results are ultimately worth the costs to landowners. With that said I'll tell you that getting a lease signed isn't the most difficult thing in the world. If you live somewhere that commands attention (and a higher price) then you have some leverage. Washington County is a pretty good place to be and I find it hard to imagine that you'd have any difficulty getting a good lease by simply hiring a competent oil and gas attorney and paying him or her by the hour.

If he has his heart set on doing a group by himself then I will leave the discussion to some of our other members here who have done that before and had success. Good luck.
Permalink Reply by Keith Mauck (Site Publisher) on October 17, 2013 at 4:15am

I agree with Marcus. Getting a lease signed is not the most difficult thing in the world. IMO, it's a much simpler process than "For Sale by Owner" of a home. I think there is a veil of mystery over the process and people are too busy to get into the details. Also, if you are dealing with many smaller landowners, it just adds to the amount of organizing and difficulty level of putting something together. However, if you are talking about a larger tract of property, then for me, things change. The companies will find you and you will have leverage when they do. 5% (I assume of the bonus?) of $10,000 vs 5% of $1,000,000 is very different, but most of the contract issues and legal issues are the same. The legal costs are largely the same for each respective size of property. So, it might make sense for the smaller landowner to go with the right % based fee group because you get representation at a reasonable cost and more headache-free process.

Permalink Reply by Philip Brutz on October 16, 2013 at 9:58am

You may want to contact Larry Cain for advise on starting your own landowners group.  He led the Smith-Goshen group in Belmont Co. OH.

I was a member of KWGD landowners group in Guernsey Co OH.  They wrote the contract and had the gas companies bid on it.  We had to pay them 5% of our signing bounus. Overall I was very happy with the service they provided.

Permalink Reply by Patrick Murray on October 16, 2013 at 10:29am

Thanks for the info Philip, you are right on.  I have actually talked to Larry Cain; he was VERY helpful and very motivating.  At this point with all of the research I've done, it seems starting a group similar to Smith-Goshen, by landowners, is the most attractive.  

If you don't mind me asking, what do you think KWGD offered that made the 5% worth it?

Permalink Reply by Philip Brutz on October 16, 2013 at 11:57am

KWGD was the best landowners group in Guernsey at the time that we signed.  I live in Cleveland 3 hours from my land so organizing a group myself was not an option.  Also Larry Cain and the other board members of the Smith-Goshen group spent hundreds of hours of their own time working to get a good deal for the group.  Unless you have a lot of acreage in an area that the gas companies are interested in you will not be able to negotiate a good lease at a good price.  KWGD was the best choice at the time.  Had I waited 6 months I could have signed with Rex Energy and been part of the J.Anderson well.

 C'est la vie

Permalink Reply by Janice L. Hancharick on October 17, 2013 at 6:29am

C'est la vie is  totally correct.  And for those not familiar w/French it means "That's life!"  Another one ... "It is what it is."  

In this instance focus on the Group's goals and be sure the membership is of a like mind.  What's the quality of available resources to be marketed, and what infrastructure is already in place?  What's the history of O&G development in your area.  If the all the stars are aligned,  gas market prices are high, the economy stable, and naysayers to the drilling industry for energy will be off rubbing their sticks together in another part of the country, then a solid lease comes easily.  A new group that converses on these issues can determine the quality of professional(s) it needs to make its leasing experience successful.  Keeping the group updated on changes relating to markets, to new regulations, to technology growth allows them to know a "good lease" for the area when it comes along.

Groups vary because their situations vary.  Let members be specific as to their needs and wants, then research diligently for the representation that can best serve their needs.  You are involved in that process now, Patrick.  But don't let "too many cooks spoil the stew".  Who best knows the people you wish to serve and the area you live in?

Permalink Reply by Patrick Murray on October 17, 2013 at 10:31am

Very good points everyone, I appreciate it.  Has anyone ever heard of a non-profit consulting company that would help with the process?  I met someone at an event that told me about this, but maybe he got them confused with a "non-profit landowners group?"  

Permalink Reply by Greg K on October 18, 2013 at 5:04am

A difference of millions of dollars in fees?? Maybe....but plug in the numbers...oh wait, you can't , because you don't have them yet !!!  Who will get the highest fee? The percentage guy of course. Who will get you the most money? The percentage guy again...the hourly guy gets the same fee no matter what the landowners get. Our group has a consultant with a lot of years in oil and gas, who will only be paid a piece of what we all get, and not until we get it.

Permalink Reply by Patrick Murray on October 18, 2013 at 5:17am

Thanks for the input Greg.  Do you mind sharing which consulting company your going through and your experience with them?

Permalink Reply by Greg K on October 18, 2013 at 6:07am

Patrick  

Western Pa Gas Leasing Consultants. The guy who owns/runs it is Ed Bilick. Our group has close to 5000 acres, and most of it contiguous, some just close, but all in all pretty tight acreage. But even at that, peanuts to a big energy company. And I know enough to know I DON"T know the oil and gas business. I think between the tight block and a knowledgeable negotiator all of us can get the best deal. Information is hard to come by, ( Well, real information is anyway ), and Ed seems to dig up real information. Leasing has been on hold lately, but I know he has been busy negotiating pipeline rights of way.

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