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Comment by rex roae on April 16, 2012 at 11:41am

Anyone know the difference between mineral acres and surface acres?  I have 35 deeded acres but the survey came i at 51 acres.  I was asked this by ADAPT ENERGY who said they can only pay for mineral acres.

Comment by warjr on April 16, 2012 at 11:13am

I had an email conversation with a gentleman from ADAPT ENERGY< INC.  H ewas willing to offer $1900 an acre and could possibly get me $2000. 5 year lease, 15% on the royalties.  I have not seen all the terms of the lease yet.  Like I had said I had an offer about 5 weeks ago of $1000 per acre from Reserve Energy.  Both told me they needed to get the leases signed as they were already pulling out of Venango and Mercer Counties just like Shell Oil did?  I have heard that Range Resources is going to set some test drilling rigs in Crawford County later this summer.

Comment by warjr on April 16, 2012 at 11:10am

Lease question.  As I start to receive and look at leases what is the bonus payment that comes up front?  It is normally a 5 year lease if I am correct.  The $$$ per acre is that for each year or is that normally just for the entire 5 years of the lease as a single bonus payment?  I had a lease several years back on a small parcel of land it it paid us $300 every year for the full 5 year term of the lease.

Comment by Sam Douglass on April 14, 2012 at 6:30pm

You have a couple questions that lack precise answers.  It is possible that an operator would keep drilling until all the wells for that pad were complete.  It is more efficient to do that if your object is to produce.

But there is another objective that could take precedence.   If the term is about to run out, the producer, having paid you a nice bonus, wants to hold the lease for the future even though he is not in a position to produce aggressively now.  So s/he drills one or two wells in a big unit and moves on.   The good news is that you got your bonus, the bad news is that significant production may wait a while - maybe a long while.

Sometimes it is possible to limit the strata included in a lease or restrict it at a later date with some form of Pugh clause that requires the Lessee to surrender the strata not producing.  But, as you might imagine, Lessees want it all.  So it is a matter of negotiations.  Who blinks first, if at all?

Most lessors know most of what to ask for but they do not always get everything they would like.  This might be particularly true if the producer is not going to move ahead and has time to get what the producer wants and the lessor has some ugly bills to pay.

Comment by Bob Jenness on April 14, 2012 at 12:57am

With respect to "all the square miles to all the different strata all at once", I was under the impression that modern leases included layer severance language so that I'm free to re-lease undrilled strata at the end of the lease term.  I've been told that's true on at least one Hilcorp lease, and it's certainly on my list of negotiating bogeys.  The ALOV language wasn't as crisp on this as I'd hoped to see.  Anybody care to comment on CX, NWPA, and/or market-based targets here?

Comment by Bob Jenness on April 14, 2012 at 12:48am

Thanks for those informative posts,

I guess I don't fully understand the unit assembly process, and conversion to production very well.  My simple model was that when the first well started production, I'd receive royalties based on ratio of my acreage to the unit size, then that the drill rig would stay until all wells on the pad were producing, with royalties stepping up with each completion.  I've been estimating about 160 acres drained per well and  640 to a 1000 acres per pad.  Close?  I do understand the downside prospects for shut-in, and I hope you've already seen or heard my thoughts on that.  I've also been assuming that any properly vetted energy partner has a unit assembly and drilling plan (at least budgetary) before I'm offered a lease.  I've already done a non-drilled lease a few years ago, and even though the Utica has rendered that a big benefit, I don't have enough life left to sign a new lease with somebody who's not serious about drilling.  I'd much prefer to use the shorter lease term as part of the incentive to have drilling plan in place.  The recent market shift away from Dry Marcellus should make this a win-win for NWPA - right?

Comment by Sam Douglass on April 13, 2012 at 4:16pm

I doubt if any [or hardly any] of the leases in the area address flaring to date, but one recent speaker suggested limiting the flaring to say 24 hours and requiring royalties on flared gas after the time.  I will admit to not knowing why so much flaring is done, but the first step may be to put a limit on it - a limit that the producer can realisically work with.  We need to search that out.  Would a clause requiring best industry practices work?  I have tried attaching the same best industry practices to the lease that the producer brags about following on its website, but for some reason the producer did not want it in the lease.  I will keep trying, and there are other sources for best industry practices.

Comment by Sam Douglass on April 13, 2012 at 3:54pm

I hadn't thought about it much, but, assuming any one offers a 3 year primary term, it may not work out so well if you end up in a big unit at the end of the three years with modest production to be shared across all the acreage.  Possibly, it would be better to try for a longer lease with a bigger up front bonus.  I doubt if a 3 year drilling will affect when an ambitious drilling program is done - one way or another.  I could be wrong, but would bet on getting the bigger bonus.  Of course, if the renewal term deal is favorable it might work - but not if the lease is held by production after three years - or worse, if it is held by shut in production.

The reality is they cannot drill all the square miles to all the different strata all at once and the market would not support it.

It if fun to speculate though.  I doubt if any of the experts can tell you when drilling will proceed agressively at a particular location.

Comment by Jim Litwinowicz on April 13, 2012 at 8:15am

Bob; a shorter term lease would certainly be advantageous for the land owner.  In some areas like Washington Co Pa that has been heavily produced you can get a three year lease as they know they will drill soon and have the infrastructure to do it..  But in areas where there is little  infrastructure, companies are unwilling to give such a short term lease. Even a straight five yr is difficult to obtain. 

They want a five yr with another five year option to renew.  I've been told they fully expect 80% of the landowners in Lawrence Co to get the second bonus payment after five years go by because there will not be enough infrastructure in place to get all the land into production.

Comment by Bob Jenness on April 13, 2012 at 6:51am

And on yet another different subject...

Let's compare the relative values of, say, a "standard" 5 year lease with $5000 bonus and a 3 year lease with $3000 bonus.  Simple math would value them equally, but to a landowner in NWPA, it might seem that the shorter term provides the driller incentives to get royalties flowing quickly, and the risk that a new driller might arrive who appreciates the   benefit of either proven rich geology or rising prices.  Any thoughts on this?

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