Signing with Big companies vs. Small independants.... food for thought...

My experience with my acreage in SW penn and NE penn....

I have 600 acres total, divided into 2 seperate locations. I signed 1 lease with a big company and the other half with a small independant. The bigger company is still yet to pay me the initial bonus and it is hard to get in contact with them. The independent has been in contact with me throughout the process (I've gone fishing twice with a managing member, haha), and I just recieved my check. The bigger company says they might not even drill my land after all! They have hundreds of thousands of acres and my land is just a dot on their screen. What are the chances they drill my 300 acres out of the 500,000 + they have? Practically zero :-( . The smaller independent is planning 3 wells by the end of this year already and they say the royalty checks will be steady for the next 20 years. Just thought I'd give you all a first hand experience of these two cases. They're both great companies, but I'd definately go with the closer relationship with a smaller independent. Thats just my two cents though. Good luck everybody! I'm sure we'll all be fine!

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I agree and to be honest, starting from day one when the lease is signed you are looking at a good 6 months to a year to just get the title cleared. If no porblems on title than you could most likely see that cleared more towards the 6 months but that is still pushing it. Once that is complete it is time to stake and hope you can get the permits needed. If you are not buying water from a large supplier, the permit process is extensive and time consuming. The company wants to see the check as much as the landowner wants to see the check. If you got a couple companies looking at it, take your time, ask questions, and go with what you feel is the right company because remember you are the one signing. hope everything goes well.
In a lot of these areas, infrastructure is a problem - the drilling companies have to have a way of getting the gas out - personally we have been trying to get a small pipeline in for over 18 months, and still can't get past the permitting for the state keeps changing the rules on us mid-stream. Now, 18 months later, we haven't even broken ground, and if it is 3 year lease, we have to quit trying, for there is no way to get the pipe in the ground, the well drilled and completed int he remaining 18 months, so you will get your three year lease back, but a 7 year lease is worth considerable more to us, and we are more willing to allow addendums, for we know we have time to work around it - all the true drilling/exploration companies are anxious to get into the field and drill, but many of the areas do not have the infrastructure in place to do so, so a longer lease period, at least until infrastructure is in place, will likely put you in the front runnig for a well - especially if you look to lease to a smaller company where you can develop a relationship, rather than just a lease number.
Re: Mowing's question about Alta -- There are answers to many questions like this in the wiki!

-- Tom
makes perfect sense.thanks for the insight. EK
"...and they say the royalty checks will be steady for the next 20 years."

I would be very careful with a statement like this!! Shale gas wells experience very high declines in the first months/year of production. So your royalty check could come in very high for the first few months and then decline rapidly and then eventually level out a a much lower rate. In the Barnett Shale, for instance, wells come on at 5 MMCF/day but by year 2 or 3, are down to less than 1 MMCF/day. So don't expect your royalty check to be "steady for the next 20 years" at those rates. Now maybe they meant the checks would arrive steadily...keep coming each month. That is probably true. But the value of the checks will be much smaller.

And the check amount is also highly dependent on gas prices. So the volume of the royalty could decrease but if prices increase, then maybe the check stays the same. Or if prices drop in half, you check could go down a whole lot.

Bottom line: after that first royalty check comes in, DO NOT START MAKING FINANCIAL PLANS BASED ON THE SIZE OF THAT CHECK! Future checks will vary considerably! Don't quit your job and assume they'll be paying you big bucks for 20 years!!!
Any company that tells you that your royalty checks will be steady for the next 20 years is really sticking their neck out. I 'm not sure the company would put that in writing. Would you?
Okay. Obviously I don't mean they will be steady as in the same amount for the life of the well. But consistently coming on a monthly basis, yes. After a year of production these wells will level out - but there wont be much decline over the next 20-40 years, Your payments will be less than that first year, of course, but after that your checks will be steady timewise (monthly checks) and now steady in dollars. Check out the typical decline curves of thesse shale gas wells - that curve will determine your royalty payment amount. Production will decrease less than 2% every year after year 5. You can take into account prices, but lets be serious here - the demand for gas isnt going anywhere but up over the longrun.
You are correct Roy...just wanted to make sure folks don't get the wrong impression. You'd be surprised at what some of our royalty owners believe!

And in terms of the rate "flattening out" after year 5, you are very correct. However, that flattened out rate will be but a pittance of what it was in year 1. A well that comes on at 2500 MCF/day at the beginning will end up producing about 700 MCF/day at the end of year 2 and then level out to about 2-300 MCF/day in year 5 and produce with a 5-8% decline for a long time. I have seen people make very bad decisions when they saw that first 3-6 months of royalty checks rolling in, only to have the checks decline by a factor of 10 over the next 3-4 years, and then they sit all dejected! That's the key issue I was bringing up!
Yep, understood - well you figure one day these people would stop being clueless about the industry when theyre planning their future. It's not their fault theyre clueless at first - after all, this should be new to most people, and thats why I try to educate people who actually want to learn. I'm clueless about a ton of things, but I'm not planning my future around those endeavors. Good point though.
OUR U LEGALLY BOUND NOT TO SAY WHICH COMPANIES IM DEALING WITH RANGE RESOURCES WHO HAVE A SIGN UP IN BEAVER COUNTY PA NOT FAR FROM OUR ACREAGE THE FIRST OFFER CAME IN AND IT WAS LOW (so ive been told) AT LEAST AS FAR AS THE BONUS ,DID YOU USE A LAWYER HOW DID YOU DECIDE ON THAT IF YOU DID CCAN YOU BALL PARK YOUR BONUS/percentage
Was the big company Range Resources? If so, who was the landman? I am trying to negotiate with the right now and I am experiencing slow responses and questionable behavior.

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