Small acreage questions

Forward Twp, Butler County

2000/ Acre offered

15%

Landman said wells around me are getting $10 to $30 per acre / per day average.

 

Small time, only 3-4 acres total in two parcels...  Nothing done on the surface, no pipelines... 

 

Landman sent a letter last year, I contacted him last week (he had changed areas, gave me a different person to call). Gave the above offer and said drilling will occur probably mid 2012. I believe it will because most of the neighbors signed 3 years ago for 1000 12.5%, and they have most of the land locked in for 5 years. I appear to be in a corner and can be easily worked around, so I don't want to lose out.

 

Questions...  Should I get a lawyer to look at the lease? I doubt I can get more money upfront, and I doubt I have much negotiating power. The lease states they will have an independent lab test the water before any drilling takes place, and that was my biggest worry. What would it cost roughly to do a once over on the lease?

 

My taxes show I pay for 3 acres total in school taxes, and the landman said they usually go by that. My rough calculations show the total to be closer to 3.4 to 3.7 acres.  What will they do when the lease is finalized?

 

Happy to see the neighbors getting lots of compensation,  and will still enjoy my little share of the pie.

 

larry

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Permalink Reply by brian kulp on June 16, 2011 at 9:56am
larry in pa they can put you in a unit and just pay you the 12.5% state min and no bonus and with suck little land .   cant see them doing any work on you property. ps state law to do pre drill warter test. read the ohio land owners leesa to compar your make sure the 15% is gross money right out off the well head no tranportation or processing fees come out of you %of the production.
Permalink Reply by Jim Litwinowicz on June 16, 2011 at 10:27am

They cannot force anyone into a unit as there is no forced pooling in the Marcellus.  I have been told that since the Utica is deeper, they may have the right to do forced pooling but I don't know for sure if that is right or how they go about it.

 

My advice would be to contact all your neighbors and try to find others that haven't leased yet, even people with small parcels. Try to get them to work together and you will have a better bargaining position. Also, if you can get some neighbors together, you may be able to pool your resources to hire an attorney to review anything before you sign.

 

Other things to try for, a Pugh clause and a vertical severance clause. Also a commitment to drilling at least one horizontal well. Control unitization size. Restrict any pipelines to only those that serve wells within your unit. And getting a higher royalty % is better than getting a higher bonus unless you need the money quickly.

Permalink Reply by Tinamarie S on June 16, 2011 at 1:38pm

Jim,

Have any language for any of the suggestions above?

Permalink Reply by Jim Litwinowicz on June 20, 2011 at 10:20pm

Sorry, not a lawyer so I won't get into language.  But search  "Pugh Clause" and you will get several options.  Depth severance just says what depths or strata are being leased. Go to tlma.org and read some very good suggestions from Texas.

 

I understand that Ohio does have forced pooling but I don't know the process.

 

Limit units to 1280 or smaller.

 

Have you found any neighbors that aren't leased yet? Get as many as possible to get the most leverage.

Permalink Reply by Tinamarie S on June 16, 2011 at 1:35pm

Larry, Having the same issue.  I am in Columbiana County and have 4 acres.   DP Penn wants us to sign a non-drilling contract which we are re-writing now.    I had questions about the Utica and other minerals above the marcellous and whether I should be concerned about them.  My husband and I are putting together a contract ourselves and wonder if we should not have an attorney look it over to see if we missed anything.   But that could be expensive.   DP is also offering us $2000.00 and 15% rolalitys.   Any advice for us about the contract and the Utica?

 

Thanks in advance,

 

Tina

Permalink Reply by Larry F on June 16, 2011 at 2:43pm

Tina,

 

I don't know about Columbiana County...  I was told the Utica well drilled near here was a bust, but the Marcellus was a real eye opener since it was very 'wet'. Locally, they stopped leasing in Adams Township and started pushing hard in Forward Township to get the richer gas.

 

Wish I new a good lawyer that can just read the lease, make suggestions for a resonable price. I'll have to make a few phone calls and find out what i can.

 

Larry

Permalink Reply by Larry F on June 16, 2011 at 2:38pm

The gas company is Rex, seems to be very big in this area. The lease specifically states 'no pipelines, no surface activity', probably because it's only a few acres. It does say something about transportation and refining costs being deducted. Does anyone know (roughly) what percentage that would be? 1%, maybe 5% or more?

 

A Pugh clause may not apply here, as I appear to be in between two units. Both units are to be drilled at roughly the same time.

 

The gas in this area is very 'wet', and Rex built a processing plant nearby...  I also read another would be built near the high school. The lease does say any type of gas or oil they extract would be part of the royalties. 

 

Larry

Permalink Reply by Brian on June 20, 2011 at 2:04pm

Larry,

 

Put a Pugh Clause in the lease. Just because it looks like they will include it, doesn't mean they will.  Trust me.  Also, try for a depth clause as well.  Rex is planning some test Utica wells.  Limit it to specific rock formations. People are saying that the deductions are normally around 1.8-2% of your royalty percentage.  Try for a no deductions clause as well.  You may or may not get them to agree to it.  

 

Rex is a pretty good company to work with, but the landmen work for them, not you.  Don't forget that, no matter how friendly they become. 

Permalink Reply by Larry F on June 21, 2011 at 9:44pm

Spoke with a lawyer today....  Dropped the lease off last Friday and talked about it today. Cost me a few hundred, but WELL WORTH IT FOR SOME PEACE OF MIND. Even if you only have a few acres, spend the money and sleep better, I know I will.

 

He explained the entire lease to me, made clear a lot of sections and I feel good about what I am about to do. He pointed out the clause that stated NO surface activity without written permission from me. Other clients were mentioned, higher $$ and % can be obtained, but typically not for the smaller landowner unless you were the 'missing' part of the puzzle. One client received 4000 per acre for 50 acres (that was from TW Phillips, just before they were bought out by Exxon). Many, many leases have been reviewed in his office, it seems the Marcellus is a boon for lawyers too.

 

As far as transportation and refining costs go, he said Rex usually would not budge on that...  But if I were going to do it myself, I should call them and see if they would 'cap' the refining/transportation costs. I called the landman later, he did say he could 'cap' the cost at .85/MCF (some kind of industry standard, he said).  Much better knowing in advance that it can not go over 85 cents.

 

The water testing had verbage about '2000 feet from the well', but actually meant '2000 feet from the drilling area'...  All water wells would be tested even up to 2000 feet outside the 640 acre square.

 

Tina, are you still reading here? I really think you need to call a local lawyer and have him read your lease. I assumed it would cost thousands, but that seems to be the case for large landowners that let the lawyer do all the negotiations. 

 

Larry

Permalink Reply by Tinamarie S on June 22, 2011 at 9:42am

Larry,

I am still reading.   I am thinking the best way to go is to get a lawyer to review the lease.  I have been working on putting something together myself but after reading I feel I might miss something.  It is consuming alot of my time.   I am just not sure paying a lawyer $500.00 plus to create the lease is worth it.   I also want to find a lawyer who knows what is going on.  I also have been looking for copies of leases for small non-drilling lots but have had little luck.   Did find some leases and have taken language from them.   Thanks for your help.

 

Tina

 

 

Permalink Reply by Jim Litwinowicz on June 22, 2011 at 11:14am
Tina, get a lawyer.  Its not worth the risk to go alone.  If you can get a couple of neighbors together, you can share the cost.  And more land will give you more leverage.
Permalink Reply by brian kulp on June 22, 2011 at 11:46am

jims right its better to be safe than sorry if you get 6 ppl with small acreage now there looking at 20 to 50 acres not 5 just make sure there close together. and atleast have a lawer read the leese and explaine it to you its the fine print that get you.just my 2 cents

 

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