Comment

Comment by Bob Jenness on May 18, 2012 at 3:51am

I understand the inefficiencies of multiple lessees, but your proposal still gives essentially 15 years of free leasehold to about 3/4 of each drilling unit.  I'm totally convinced that modern computerized accounting can do better than that.  How about a lease phase over to production based on a reasonable and comprehensive drilling plan for all the known resources being leased?  In this model, prorated leasing payments would continue until all planned drilling had moved to production, then all payments would fairly and naturally be on the royalty side.  I know the geologists, engineers, and accountants can do this math, so can the lawyers and executives do the equitable business practice and precise lease words?

Comment by Jim Litwinowicz on May 18, 2012 at 3:34am

So what happens if you lease the Utica to company A, the Marcellus to Company B and the Trenton Black River to Company C?  You end up with a mess of pads, access roads, compressors, dehydrators, tank farms, and more. Much more expensive for the companies and bad for the landowner/environment. Plus there are huge liability issues.  Who will be blamed if a water well goes bad? Or methane in an aquifer or river? A spring dries up? How do you determine which operator caused the problem?

I have talked to industry people about leasing different formations and this is why they object to it. What may be better is a continuing development clause that states that they must drill several wells over a set time period, say 15 years, or they lose the right to HBP the land.

Comment by Bob Jenness on May 18, 2012 at 3:32am

As a layer-ing alternative, could a lease include defined lease values on a per-formation basis, so that leasing/bonuses would continue for layers not yet producing?  That way, the original lessee gets the business advantage of full control and the landowner gets revenue from all geologically interesting layers based on their estimated values for that region, until they're actually drilled.

Comment by Bob Jenness on May 18, 2012 at 3:26am

On the subject of lease prices, can anyone quote any public-domain geology knowledge to compare potential values between Mercer and Crawford, especially as pertains to Utica Shale?

Comment by Bob Jenness on May 18, 2012 at 3:24am

I like the "deep only" lease term concept.  I'd like full layer independence even better.  Ideally, a lessee would have a E&P plan, and lease only the formation or formations that they plan to exploit in the next few years.  I want to see that plan (or have my landowner group see it in full detail) before I sign a lease to know that our lessee can actually deliver on the promise of the energy under our land.  Seems to me that horizontal drilling technology benefits the drillers more than the landowners if they can hold a large drilling unit by production from a single well in a single layer, then in the distant future expand production onto land that they've not had to pay to lease for many years.  A nice freebie that I don't want to give away.

Comment by Jim Litwinowicz on May 17, 2012 at 4:35pm

Yes, after the fees it will be $3619. After a deal is announced, the fee goes to 8% and the net paid to the landowner will be $3542. All that is assuming the same deal is offered to Crawford, which I cannot guarantee at this point.

If you join the group, you do not have to accept any deal.  And there is no fee only if and after you get paid.  If you sign a lease and then the title work determines you do not own the rights, you owe nothing.  And you only pay fee on the net mineral acres that you are paid. Say you enlist 75 acres. Title shows you only have 55 acres of rights.  You will pay a fee based on the 55 acres, not the 75.

Comment by rex roae on May 17, 2012 at 12:14pm

So $3850 per acre would be $3619 per acre after your fees correct?

Comment by Dave on May 17, 2012 at 11:53am

So how does this work.  If i join the group and a deal happens to i have to take it or can i say no?  Also does it cost anything to join the group? 

Comment by Jim Litwinowicz on May 17, 2012 at 11:24am

The 8% is for people that join the group after a deal is announced. Join before and it is 6%.

Comment by Dave on May 17, 2012 at 10:56am

That seems like high percentage?  Where do you get the other 2% if you taking 6% of the first bonus payment?

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