Comment

Comment by justLTD on August 25, 2012 at 4:53pm

Not to change the subject, but . . .

Range Resources and Guardian Exploration were active buyers at the Crawford County 4-H Livestock auction.  They both purchased several animals.  One of the steers Range Resources purchased will be processed and donated to Crawford County Women's Services.  It's nice to see the big guys helping out the kids and the community.

Comment by Sam Douglass on August 23, 2012 at 3:16pm

Lauren

I am not sure what gross royalties means [and I am not trying to be cute].  It may mean the price the nearest gathering line will pay for the stuff as it comes out of the ground.  Ask for something in the lease that will assure you get a royalty[ies] based on the prices for which the separated constituents [methane, ethane, propane etc.] are sold.  Otherwise you may just get a royalty bases on one figure for "gas." It is necessarily complicated and you will want to see specific detailed examples from the company on how the calculation will be made.  Measurements need not only show quantity, but also quality of each constituent.  What's the use of being in a "wet gas" area if you do not get paid for wet gas.   Maybe if the royalty were at least 25% you could let the producers play there games. 

Comment by Sam Douglass on August 23, 2012 at 3:00pm

Check with your accountant to find our if a commitment to pay a bonus over 5 years will really spread out the taxes.  Possibly receipt of an absolute  promise to pay money in the future could be treated  as received when you get the commitment.  If you get a promise that you can take to the bank and cash in - it sounds like receipt of money now.

Comment by Sam Douglass on August 23, 2012 at 2:48pm

It's possible to write what you want into a lease, but I think we have to accept that there just is not going to be a drilling program everywhere.  These guys are planning for the future and want the reserves there to deliver over time.  But as any corporate CFO will tell you, a dollar you get 20  years from now is probably worth less than a penny today after discounting to present value at a realistic rate.  So I think we have to look for other answers and the Advance Minimum Royalty is one of those answers.  I have no idea how close I am to the right numbers for either party but I think at least I have some basis.  There are some other wrinkles like cost of living type of index adjustment periodically because prices have and will go up {and down}.

Comment by Jim Litwinowicz on August 23, 2012 at 6:10am

If you go with a Range delayed rental lease make sure you get a solid commencement of operations clause. If not they could always file for a permit and delay the drilling for a couple of years. And even if they drill you will might have a long wait for royalties. The well near Dempseytown was drilled and flared last summer but I don't think it is online yet.

Lots of wells have been drilled and capped because of low natgas prices and/or lack of pipelines and infrastructure. That means you also need to limit the length of shut-in periods.

Comment by rex roae on August 23, 2012 at 4:47am

For us, we would stay within a certain bracket if we received the yearly bonus payments while the lump sum would mean we would have to pay an additional 5% in taxes on 2/3 of the bonus.   According to my CPA, there's not much we can do about paying taxes on bonus payments as it's counted as personal income rather than capital gains.  All depends on your situation.

The biggest risk for myself and I assume others with the Range offer is only getting the 1st bonus payment and then they drill negating any future yearly bonus payments.  On the upside,...they drill.

Whether we go with Range or see what CX can do, we feel we're in a win-win situation.  If we signed today and the bonus reached $5k or 6K/acre,..oh well.  We did well and won't look back.

Good luck to all.

Comment by warjr on August 23, 2012 at 4:07am

@ Kris & Rex, with a little tax planning in advance I would want mine all up front if possible. 

Comment by Kris on August 23, 2012 at 4:05am

i understand the higher tax bracket but if you get if every year It can push you there every year as it would do that to me.  i would rather have one hit and move on.  If they just hold the land, as they can, it is not a tax bother every year

Comment by rex roae on August 23, 2012 at 3:37am

Kris, my personal opinion is that CX will get us the best deal when factoring in a land owner friendly lease with many protections.  The Range offer may help certain people with their tax liability because the bonus is paid over 5 years.    For us, if the bonus money was paid in one lump sum, we would be pushed into a higher tax bracket so we're taking that into account.

Comment by jim hall on August 23, 2012 at 3:28am

thanks rex...sounds like they are having $$$$$ problems as i have been hearing recently.this is definitly not a good deal

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