Comment

Comment by Ronald L Wilcox on December 21, 2012 at 4:50am

I have read the average acreage/landowner in any given unit is about 50.This amounts to about %4 of a 1280 unit.I have also read the cost for completing a well is between 6-7 million and the company expects to recover that sum in a very short period.If the unit share is between 15%-20% that means the unit share amounts to about $1million(4%)=$40000,granted this amount will decline over time,but hopefully a new well kicks in.Besides, what a legacy!

Comment by Samuel J. Orr on December 20, 2012 at 8:51am

Your idea of a minimum advance royalty perhaps paid annually is a great idea but I do not know of any O&G company that has agreed to something like that. It very much does show some creative thinking on your part because it provides the landowner with some minimum amount of guaranteed income while drilling is postponed or while a well is shut in because of adverse market conditions or for other reasons. Having come up with a great idea, I now challenge you to come up with a strategy to convince O&G companies to accept the idea so that it may be written into leases.I think an O&G company who offered such leases would have an advantage over those who did not. Best wishes for a joyous holiday and a prosperous 2013.

Comment by sldouglass on December 20, 2012 at 8:30am

The design of a unit would seem to have little to do with horse trading. Once the size is agreed to under the terms of the lease, the lessee-producer makes the decision of how and where any one well is drilled based on geology. The specifics of how wells are drilled are pretty much dictated by the producer's geologists and engineers.
When wells are drilled is another matter. This is guided by market decisions. Currently, producers are taking leases for future development - long in the future. What other reason can be given for 2 square mile units where the lessee drills only one or two wells after the 5 year term to hold the leases in the unit as well as acreage outside the unit -- indefinitely. And the landowner with only 128 acres will get 1/10th of the royalty from that well. The unit might be capable of 32 wells. The remaining wells may wait a long long time.
And this might be the right way to go - but the only way for the lessor to assure future income is to requite a significant advance minimum royalty.
And remember it is not just the 1280 acres in the Utica - it also holds the same acreage in the Mount Pleasant, the Marcellus and and.....

Comment by Ronald L Wilcox on December 16, 2012 at 3:36am

sidouglass,thanks for the details on a possible fragmentation of your property after signing, in good faith,a lease by the land owner.It would seem to me you better go after top dollar and terms on a lease as who knows what pittance of a royalty payment you might receive.  

Comment by Bob Jenness on December 15, 2012 at 11:01am

Sam...

So your bottom line is that in any leasing deal (especially in a place with the rich O&G history of PA), it should be expected that there'll be some horse trading between leasing and unit definition, and most probably again between unit definition and drilling.  The result of any such horse trading is a division of revenue across all interested parties.  This would be just one more aspect of the extreme complexity of making a fair lease. 

It would seem that one aspect of a fair lease is that a small sliver of land to complete an adjoining unit should not cause HBP to a large acreage in a single landowner's lease.  Is that part of most leases?  Is there a standard clause that makes it fair?

Comment by sldouglass on December 15, 2012 at 9:21am

Ronald

it is not so much subdividing as it is making workable units that satisfy the objectives of the producer.  A producer may own thousands of acres that are split into neighboring units.  A unit of 1280 acres might have 8 well pads and each well pad might have space for 4 wells. 

wilthin the unit of 1280 acres are likely to be all or parts of several leases- with some or all of the leaseholds extending beyond the unit boundaries and perhaps extending into the next unit.

In come cases adjoining leaseholds could be owned by another operator.  In that case, the two operators are likely to split leasehold between each other along logical unit lines.  When necessary lessees can cooperate to make things work for both of them.  This would be done before drilling.  It would be highly unusual for a lease to have a restriction on this kind of assignment  Each unit would be accounted for separately and the Lessor would get separate checks if both units were operating.

I believe your "ouch" is a correct reaction whether the next unit is operated by the same operator or a second operator to whom part of your lease has been assigned,  Drilling a well anywhere on a unit of which you are a part extends the lease beyond the primary term - all of the leasehold - unless you have a clause that states to the contrary - which isunlikely.

Comment by Ronald L Wilcox on December 13, 2012 at 9:29am

sidouglass,I found your last entry very interesting,in that I was unaware that if your  your property is under lease it can be subdivided,so to speak to more then one company?How would that work when it came to royalty payments, if say division was amongst three different companies and only one drilled in you unit.If you say only that one pays you for the acreage in that unit,ouch!  

Comment by Jim Litwinowicz on December 13, 2012 at 8:37am

Ryan;  the next meeting is scheduled for January 10, 2013 - Thursday 6:30 Venango Rockland Twp. Fire Hall 995 Pittsville Rd Kennerdell PA 16374

Where are you located? I will see about having a meeting there. email me at landownerslease@hotmail.com  

j rick; I would be happy to sit down with you and/or neighbors.  We could meet at a local diner, someone's home or barn, or anywhere else you would like. If there is a firehall you would recommend, email me also.

Comment by PennCrude/NatGas Go! on December 13, 2012 at 7:52am

j.rick,

These meetings you speak of, where are they? I've been trying to find out where. By time I get the information it has already happened. I belong to a volunteer fire department and I'm sure they wouldn't mind hosting a few of these meetings for community outreach in regards to the natural gas industry. I could discuss the possibility of having our departments building's social hall used for some of these meetings with our boards president this evening. More than a few in our area would like to learn more on what is going on and mostly to be informed. In long run and to begin with, knowledge is power and wouldn't want to be left in the darkness on these things developing. I'm sure as they begin to drill and set up here they will have meetings. But by then, I fear it may be little late and there'll be a overwhelming feeling.

Comment by Jim Litwinowicz on December 12, 2012 at 4:41pm

j rick; First off, I work with Cx, thanks for joining. But I my be biased.

My own story was over four years ago my neighbors and I had about 600 acres in agroup...couldn't get a deal. ix months later we had grown to 1200 acres but still couldn't get a lease even close to what we wanted. After two years , with the 2008 recession in the middle, we joined up with M&P and Cx. They got us a great deal about 8-9 months later.

My main point is that 640 acres is a single drilling unit and doesn't give you much leverage with companies that deal in the tens of thousands of acres. Being in a larger group is definitely better whether it be Cx, the NWPA LG, or some other group. Large contiguous groups like yours is great but they do much better when there are multiple large units working together.

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