"Updating" existing lease?

Hello. I am from SW PA; received a call from company that our natural gas is leased to. They have had wells on our property for a good number of years. They want to “update” our original lease and have offered a mere $500.00 total signing bonus. Throughout we have received minimum payments … 12.5% royalty payments, of which they remove a considerable portion each month for expenses. Can anyone advise; do I need an attorney? Also, this lease makes us part of a 600 acre drilling. I am out of the country and do not have my original leases with me. My siblings have signed but I think they might have prematurely. The agent wanted to send my check immediately to me while I examined, signed and returned docs but I told him not to send it until I have signed. Not sure if this is the right place to seek initial counsel but I am confused. Can anyone get me headed in the right direction? I'd be grateful.

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Permalink Reply by Gringo on July 17, 2017 at 11:29pm

Sounds like there is no Pooling & Unitization clause in your lease. unless your property is large enough to accommodate a Horizontal lateral within its self the gas company has a unusable lease for Utica or Marcellus. Good time to fix your old lease or get a new one.

Permalink Reply by CR-FayetteCounty on July 18, 2017 at 4:09am

Thank you Gringo. Sincerely appreciate your thoughts. I have not been comfortable with the documents they sent. Let me be honest here and I am sure others have felt the same way at times before signing. I do not want to resist signing in the event it hurts my siblings. I don't want to have the gas company decide against drilling. I do not want to "play hardball" but I know our past deals have been poorly negotiated. My part of the property is just over 40 acres so in the scheme of 640, I am nothing, but I cannot shake the feeling - that for starters - a 500 dollar signing bonus is a pittance. Would you advise counsel?

Permalink Reply by G.H. on July 18, 2017 at 4:23am

At the very least I would try to find others who have signed these amendments and see if you can find out what they got for signing them.  If you don't have a good idea of what you are doing, it might be a good time to talk to an attorney.  It also depednds on how big your interest is... if your interest is very small, is it really worth hiring an attorney?  

Basically, this is a good time to try to fix some of the things in your lease that you are unhappy with.  Some companies will negotiate on this more than others... but they need to give you something to get you to sign it.  How much they are willing to bend really depends on how active things are in your area, how much they want to get your property in the unit, etc.  One thing to consider is your interest in the property vs the total size of the property, vs the total size of the unit you are keeping them from drilling.  If you have a larger interest it is going to be more costly for them to give you what you want, but maybe more important for them to get your interest.  If you have a smaller interest they may be a little more flexible because it may not cost as much for them to give you what you want.  Also, maybe they can just cut your property out of the unit?  I don't know.  You kind of need to do your research and then see if you can feel out the situation.  Just my two cents.

Permalink Reply by CR-FayetteCounty on July 18, 2017 at 4:52am

Your comments were exactly where my mind was going. Thank you. I think I will speak with one of the neighbors regarding his portion, to see if I can learn what he got. We have mineral rights that are leased in 2 areas of SW PA, but I only have a quarter of the royalties of this farm. It has, however, yielded well, despite the lease we had. I appreciate your "two cents" on this. Thanks much.

Permalink Reply by jett on July 18, 2017 at 7:14am

This was happening a lot a few years ago to oil/gas owners with old leases and was a big deal. Your old lease probably does not give them all the permissions they need to proceed with their current plans. I strongly recommend that you talk to a good experienced lawyer before signing anything. They have leases that are lop-sided in their favor and would like you to sign right away instead of having time to consider your options. Now is the chance to  protect yourself. They are looking out only for their interests which is of course natural. You need to look out for yours.

Permalink Reply by G.H. on July 18, 2017 at 8:37am

Happy to help where I can.  I agree with jett, and I think the most important point made by jett is that you should not make your decision on this hastily.  Make sure to do some research before you agree to the amendment.  It is in your best interest to agree to it eventually so that you can get more royalties, but evaluate what they are offering and do some research to figure out what is reasonable for you to get out of it.

Permalink Reply by Gringo on July 18, 2017 at 10:24am

Play Hardball, They are playing the "lets work to together so we can all make money"game. Set this issue aside and call said gas company and offer them $500.00 to raise your existing royalty rate and see what they say. Do not give away this opportunity to make things better. For example I had same thing with one of my leases, net result went from 12.5 net to 15 gross, pugh clause on ununitized acreage which allowed new lease  and signing bonus 5 years later that one has expired, will get another signing bonus.A gift that keeps giving.

As others have said do your research and know your leverage. 40 acres running east to west can screw up a whole unit, closer to the pad would prevent them from doing shorter laterals and leaving you out, remember with the Utica they is a 330 ft setback from any unleased property. On the flip side is the forced pooling law which to my knowledge has yet to be tested. Feel bad for your siblings but we 10+ years of knowledge, no one at this point in time should be just signing anything the land man presents to you.

Attached is a unit map just in case you have not seen one, will help with the what ifs.

Attachments:
Permalink Reply by CR-FayetteCounty on July 19, 2017 at 5:58pm

Thank you. Your input has help me to develop a sense of what we can and should do.

Permalink Reply by S S C on July 18, 2017 at 11:09am
Say no and speak to a knowlegable lawyer. Your lease is a thing of value. They are attempting to take advantage of you.
Permalink Reply by CR-FayetteCounty on July 18, 2017 at 3:41pm

Another thought ... and question ... my sibs and I divided our land, but the mineral rights we simply split 4 ways, under the entire farm. Do you think this changes anything you have told me? By not signing it may affect the entire property. The signing bonus for the property reads as 2K, but divided portion is 500. I did tell the agent not to send the check until he got my signature. Does this give helpful information?

I appreciate your thoughts on this very much. Would it help to know the company we are dealing with? Is it unwise to mention it here? I suspect it is VERY public record.  I suspect that the leasing agent probably reads this and can realize who is seeking advice.

I am long past thinking that "we are all in this together" because the evidence shows otherwise. I don't want to be difficult but ...

Again ... thank you for all the input.

Permalink Reply by G.H. on July 19, 2017 at 4:37am

Real property can be divided a couple ways... into "divided" interests, or "undivided" interests.  Let's call your farm 100 acres here to make things simple.  A divided interest would be if you took this 100 acre farm and split it four ways, basically creating four parcels, and you and each of your three siblings each own one of those four parcels, entirely.  All of the surface, all of the oil and gas.  No other sibling has an interest in your 25 acres.  If there is oil and gas production on your 25 acres, all of the royalties go to you.  If there is oil and gas production on one of your siblings' parcels, you get no royalties.

An undivided interest would be if the four of you retain ownership of the 100 acre farm and it is not split in any way.  Each of you owns 25% of every inch of that 100 acre farm.  Each of you owns 25% of whatever oil and gas royalty is paid for the entire 100 acres.

Now, what it sounds to me like you did is split the surface of the farm into divided interests, but remain undivided owners in the oil and gas rights.  Meaning you own a 25 acre portion of the surface that is yours and yours only, but you own 25% of the entire 100 acres of oil and gas rights.  I may be interpreting what you said incorrectly.  If your amendment offer shows gross acreage and net acreage, an easy way to figure this out is if the gross acreage is 100 acres and the net acreage is 25 acres.  If you had a divided interest instead, it would have a gross acreage of 25 acres and net acreage of 25 acres.  Make sense?  The oil and gas companies don't necessarily like to put net acreage on things, but your payment will be based on net acreage... but if your gross acreage is 100 acres and you are being paid for 1/4 of that, then that should tell you the answer.  From your $2000 signing bonus for the property vs divided portion (net?) being $500, I would guess you own a 1/4 undivided interest in the entirety of the property.

If you own an undivided interest in the 100 acres, then yes, not signing would affect the entire property.  But, if you think about it, this can work to your advantage if your relatives already signed and were paid :)

By the way, you are "in it together" to the extent that the oil and gas company needs your property to make money, and you need them to drill a well because you can't do it yourself... but that's about where it ends haha.  If you keep things civil and friendly with them, and at the same time try to get what you want but don't expect something completely unreasonable out of them, I think things can usually work out for both parties.

Permalink Reply by jett on July 19, 2017 at 5:44am

Think: the oil/gas company has years of experience behind them on how to maximize what they get out of the deal. So you need to protect yourself, your future income and the future impact this will have on you. Be polite but stand your ground even when they may not be civil themselves. Yes, the oil/gas guys keep a close eye on this site but what does that tell you? That what you decide to do with your lease is important. Hopefully, your not signing the lease yet may work out to help your siblings depending on how your ownership shares work. A good oil/gas lawyer can save you grief and gain you thousands and thousands of dollars over the years - no exxageration.  

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