Trying not to get ripped off.

We are almost ready to sign a lease with chevron in Greene county PA. we have 6 acres of leasable property and we will only be about 400 yards from the drill site. Chevron is offering us $3000/acre and 16% gross royalties. I have added an indemnification clause and a no surface operations clause. We are waiting to hear about the depth provisions that I want which are leasing from the bottom of the Tully layer to the top or the Oriskany formation.

What I want to know is does chevron really NEED our land because we are so close or could the just "go around"? Any help would be greatly appreciated!

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Permalink Reply by Amber burkett on September 13, 2014 at 3:01am
Hi Jason. So a representative straight from chevron called me because he saw my post, which truly never occurred to me. We will be leasing from the bottom of the Tully layer to the bottom of the oriskany formation. I would like to get more. But I'm nrevous they will leave us out and like the others said-- I don't have a lot of bargaining power with 6 acres.
Permalink Reply by Clinton44 on September 13, 2014 at 2:33am

Hi Amber,

Please read the story in the link I have pasted below this story was on this site a while back. It shows exactly what happens when people decide to hold out.

The bonus payment and royalty percentage they are offering you is close to what we got five years ago. Always remember the royalties are what adds up as time goes on... 

http://files.dep.state.pa.us/PublicParticipation/MarcellusShaleAdvi...

I can tell you the final outcome of this particular saga as we are in this unit. The Smith's ( who I understand are/were very opposed to drilling) got there wish and were not included in the unit. It took a while but the unit was simply reconfigured and the sixth well was drilled, leaving the Smith's as well as some VERY UNHAPPY neighbors out of the unit and therefore out of the $$$.

Permalink Reply by Amber burkett on September 13, 2014 at 5:39am

Thanks Clinton. That is an interesting case. I feel bad for the neighbors who lost out on money due to the Smith's. I have a friend who feels the same way as the Smith's. I may share this with her. I tried to explain it to her before but she didn't get it.

Permalink Reply by Mark McGrail on September 13, 2014 at 4:14am

Jesse,

Great analysis.

Of course then the ball is back in the landowners hands.

How hard do they draw the line in the sand?

After all, I do believe there is a point where the company will walk away, it becomes a matter of economics for them.

At that point the landowner must decide which is most important, being included in a unit receiving royalties or playing hard ball and possibly being left out (possibly forever).

Permalink Reply by Amber burkett on September 13, 2014 at 5:38am

Jesse and Mark,

Are you both leasing agents? From my standpoint, the gas companies are making PLENTY. Especially were my property is because I believe that it is in the Rome trough. As explained to me by the rep from Chevron, the formation would be exposed to folding and faulting and may not very easy to drill if they must go up and down, however the drills are capable of that. So a landowner like me just wants to make sure that they are getting a FAIR deal. PLUS, chevron bought Atlas's deep well rights and that includes most of the large farms in the area. As for economics, if a large group of landowners got together the gas company would pay what they had to to get the leases, however, when we are picked off one by one that's when us smallies get backed into a corner and have no choice.

Permalink Reply by Amber burkett on September 13, 2014 at 5:15pm
Ok good to know.
Permalink Reply by bo boboski on September 14, 2014 at 1:57am

what if? her neighbors leased years ago and got the going rate back then, not todays rates?Some things appreciate. like real estate, and minerals.

Permalink Reply by Amber burkett on September 14, 2014 at 2:47am
Yes Bo I think that is what happened in our area. I didn't know that gas companies were buying up leases. Had I known what I know now I would have called my neighbors and we could negotiated as a group.
Jesse. Thank you for your insight. It IS helpful.
Permalink Reply by Amber burkett on September 14, 2014 at 2:48am
One other question Jesse. What happens when a large group of landowners negotiate together?
Permalink Reply by Finnbear on September 15, 2014 at 3:46am

IF the group remains cohesive, it is possible to do what the Smith-Goshen group did in Belmont County OH. We got OUR terms in a lease, a fantastic lease bonus per acre, a high royalty%, and an excellent producer who later partnered with the other major leaseholder in the area to more fully develop the 38,000+ acres our group brought to the table. This took over two years of hard work, planning, and negotiation but our area IS being drilled/developed and I recently learned that my property will be included in one of the wells that was just permitted. My neighbors on a couple sides who will be included in these same wells signed early for about 30% of the bonus per acre the S-G group received, their lease only pays 70% of the royalty percentage the S-G group signed for, and their lease has considerably less desirable terms when compared to the S-G group's lease. Our group's outcome is probably not the norm for landowner groups. Many groups are led by law firms or real estate agents where the focus is to get the group leased so the leaders can collect their fees and move on to the next opportunity. The S-G group was lead by a board made up of landowners who received no compensation other than the lease they eventually signed for their own land. That and the good will of their neighbors who were also able to sign with the same lease terms.

Permalink Reply by Finnbear on September 15, 2014 at 5:05am

Numerous players in Belmont. Gulfport and XTO and others signed lots of acreage early on, mostly through middlemen who collected a cut in one manner or another. The S-G board met with dozens of producers (every one currently drilling the Utica in OH plus more) over a couple year period and after much negotiation and planning, one revealed itself as a good "fit" for the group's objectives and as a group we decided to sign with them.

Permalink Reply by Jack Straw on September 14, 2014 at 6:12am

RE: " Especially where my property is because I believe that it is in the Rome trough."

The Rome trough is the elongate basin within which the Marcellus and Utica shales were deposited (although I understand that the Utica does spill over into the Michigan Basin, to the extreme west).  Essentially everyone with prospective acreage can think of themselves as being in what is referred to as the Rome trough.

RE: "As explained to me by the rep from Chevron, the formation would be exposed to folding and faulting and may not very easy to drill if they must go up and down, however the drills are capable of that."

Reality is that extreme folding and excessive faulting have not proven to be present or to present a serious problem. The above statement is a rather meaningless generality that is not at all likely to apply.

If anyone from Chevron (or any company for that matter) makes statements such as you related ..... ask them whether they are licensed Petroleum Geologists .... I think that they would quickly change the subject.

Landmen frequently bandy about geologic terms, terminology and suppositions for which they have little or no understanding .... kind of like having your postman explain the details of performing open heart surgery.

All IMHO,

                 JS    

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