The Uncertainty of It All

I think I posted this to the wrong group, so I am reposting it.....

I had an interesting conversation with someone last night about the gas and oil business. I'm just a landowner thrown into this, so much of it went over my head.  But I hung up the phone with these basic concepts: even IF you get into a unit, and IF there is a well drilled, there are a thousand and one ways the gas and oil company can screw you.  You might have a pad and get no royalties. You might be in a unit and get no royalties.  You might not get royalties for all the wells in your unit. Plus, no one REALLY know what they are pumping out because there are no "meters" on the wells. So you are automatically screwed there--yeah, they're going to give you royalties on the whole amount--not.

Honestly, it seems that selling the mineral rights (if the price gets high enough) and just selling the whole mess and getting a new place somewhere is beginning to make more sense.  Can anyone comment on the above?  If it is all true? And how often does it happen? And what is the difference between a drilling unit and a production unit?

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Permalink Reply by Philip Thackray on February 27, 2014 at 2:32am

“Vic”

The methane, ethane, propane and the butanes all travel down the pipeline in gaseous form.  Most of the pentanes + (condensate) and water are removed by the separator at the well pad.  Each well has its own separator.  Some condensate and water go down the pipeline.  The water can create freezing problems and the condensate may pool in low lying areas of the pipe.  When this happens, a special “pig” is introduced into the pipeline which, when pressurized from behind move the condensate on to cryogenic plant.  This is one of the reasons why the gathering system for wet gas is more complicated than that for dry gas.

 

XTO injects methanol (the alcohol) into the gas stream at the well head to help deal with the water problem.

 

Phil

Permalink Reply by Jim Litwinowicz on February 27, 2014 at 4:09am

INVICTUS; I have been telling people to work together on audits and share the costs.  Every landowner/royalty owner in a unit should all work together to ensure that the O & Gs follow the law and their contracts, from environmental issues to royalty payment. They could hire an experienced auditor and share the cost based on their percentage of acreage in the unit(s).

Permalink Reply by frank speaker on February 27, 2014 at 5:33am

Isn't it even more complicated than all the above since royalties are based not upon production but upon sales. How does one know when and if their gas was sold or stored or sold on a futures market?

Permalink Reply by INVICTUS on February 27, 2014 at 11:00am

My neighbors are all scared. They don't want to make trouble.

Nearly all simply want to know "when is my check coming, and how much will it be?

And because I own the pad, some think I'm in "Cahoots" with CHK to screw them.

I simply cannot force my help on them.

It's better to lay low and be Low key and shut my trap.

To them (And many farmers) it's "Found Money"; sort of like finding a $100 bill on the sidewalk.

I do have to acknowledge folks whose life situations necessitate the sale of their royalties or mineral rights. My one neighbor is in that boat, with no offspring, and he is quite a bit older than me. 

He wants to play now and live life.  I cannot, in honest decency, criticize that choice.

Again, my current expectations will be $10k-$20k/Year to audit.

BTW, I started a conversation "This is what comes out of gas wells..." in order to draw out some of the good expertise out there concerning know what and what value comes out of these wells.

I think we got some good advice, I know I'll be paying attention to it!

Many thanks for those who tip their hats with advice to Landowner/leaseholders.

Permalink Reply by Bill F. on February 28, 2014 at 3:33am

Most people are afraid to speak out about anything related to NG drilling .It's not only the royalty issue it's the issues people are having with their water ,and health too .I blame our state of PA for not having the proper controls in place before they allowed the NG industry to start .We were all taken by the claim of them being "Our neighbors " which now after time has shown the true positions ....

Permalink Reply by Ken Barton on February 27, 2014 at 5:44am

I've notice more and more comments and selling minerals.  If someone is seriously trying to purchase your oil and gas interests, you can be absolutely certain that they know more than you do, and would not be paying any money, (much less the low-ball amounts that they usually offer), for your interests.  O&G companies are required to report production of their wells to the state.  These records are public, and there are tremendous penalties for under or over reporting.  Royalty checks will fluctuate every month, as they are based on the market price of gas, (or oil, or whatever), how much is pumped from the well and what costs may or may not be deducted, based on your individual leases.  If your looking for a guaranteed level stream of income-look elsewhere. I would strongly advise anyone to never sell their interests, unless the amount offered is at least three times the going lease rate in an area, they absolutely need the money now for an extremely important reason, (medical, losing a home to foreclosure, paying a ransom to get your kid out of Mexican prison, etc.), or if you have no heirs. The sale of these valuable resources is tantamount to Esau selling his birthright for a bowl of soup, in my opinion.  I am skeptical of many of the comments from this Forum.  I know that companies and individuals that attempt to prey upon the uninformed regularly read and comment on this site.  I'm not saying that your question is not legitimate, however, your concern about an O&G company "screwing" you, while not acknowledging that the purchasers of O&G rights may not have your best interests in the forefront of their minds when they make their offers is very shortsighted and disingenuous.  As the proverb reads: "A fool and his money are soon parted", another good one is: "Beware of Greeks bearing gifts".  Your mineral interests are valuable today and will only be more valuable in the future, but beware of "bottom feeders" that try to poison your minds against O&G companies, whom you need to get this valuable resource to market, by whipping up self-serving statements about the O&G companies screwing the little guy, whle portraying themselves as "White Knights", who can relieve you of this burden. (For a price, of course-the discounted value of your assets).  It  I wish everyone reading this the very best, (except for the "Bottom Feeders").

Permalink Reply by Susan A Tippel on February 27, 2014 at 6:43am

I have no way of knowing if and when (10 years from now?) anyone is going to drill or if I am going to be in a unit.  I have no way of knowing if the well will be good, or how many there will be, or what I am going to get royalties on.  I even read here that some landowners pay to have there wells audited every year. What a hassle.  Plus, if I do get royalties they will be taxed as income out the wazoo. Plus, I don't live on my land. If I were 35 years old it would be fine to wait and an interesting gamble for sure.  But I'm not. What good is the money going to do me if I'm 80 years old or dead?  I would like to enjoy some money before I die. But I do agree--the price has to be high before I sell my mineral rights. I have determined what I consider to be enough money to live well through my retirement and if I can get that it will be--ENOUGH. I mean, how much does a person need?

I do not believe the mineral rights buyers have my best interests in mind at all. I know they will make money off of this. Someone made an analogy about this to the lottery. Do you want to take a lesser lump sum right now, or do you want the higher amount spread over time?

Permalink Reply by Kathleen on February 27, 2014 at 7:15am
Susan,

In your situation, I agree, selling your minerals is something to look into.
One thing people fail to do before they sell is call the driller/lessee.
Many people have no idea they are in a unit, especially if they do not live local to see activity around them. Markings on trees, pads being surveyed, pads being build, actual drilling taking place, Etc.. They find out a year or more later, after all those things are done, by being sent "a declaration of a pooled unit" to the address on record.
I found out a year or more, on my own, I had land in a unit, before I was notified by the driller/lessee. Certain markings had me suspicious enough to call, but I was still real green on this subject and believed my minerals had to be in the leg of a well. A few months later I found the "pooled unit, on my deed at the courthouse. A year later I was offically notified by the lessee. By now the well was drilled and fracked.
Please just make sure you are not in a unit all the way until the day you sign over those minerals.
Permalink Reply by Susan A Tippel on February 27, 2014 at 7:46am

I thought they had to notify you that you were in a unit. I don't call it notification after the well is drilled. What difference would it make if you sold your mineral rights when you were in a unit?

Permalink Reply by Philip Thackray on February 27, 2014 at 7:53am

Susan,

In Pennsylvania there is no notification until you get your Division Orders from the Operator/Producer.  Furthermore, units can be changed at any time.

More uncertainty!!

Phil

Permalink Reply by Susan A Tippel on February 27, 2014 at 8:03am

Oh, that's terrible. Wow, I sure am getting an education. I think I am going to go with a bird in the hand if possible.

Permalink Reply by Kathleen on February 27, 2014 at 8:13am
Not up until royalities start.
Many people would change their mind about selling, since now they know, its not 10 yrs down the road. The money is now and they still own the minerals.

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