Anyone having a problem getting a pugh clause from Range or Chesapeake??

Have been negotiating with Range (we are in Beaver/Independence area of PA). We are being told directly by Range that they are no longer allowing Pugh's clause in the lease and we are also hearing through many attorneys that both Chesapeake and Range are saying the same things. We know that a large group in the area have just signed on with Range...have not figured out what terms they received. We were attempting to get $2700/ 16% with Pughs clause but at this point don't know if it is realistic. We have 100+ acres. We are being told by people at Pennstate extension webinars to accept what you can get but then we hear about Utica...anyone, anyone??

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Permalink Reply by Marc on June 2, 2011 at 6:44am

That's creative...

Do you actually know of a company be willing to lease land in that way?

 

 

Permalink Reply by Henry on June 2, 2011 at 8:55am

Marc,

I learned that trick from a company, who had a gazillion tracts of land in the Haynesville Shale.  They told me that they lease each and every tract individually. 

Permalink Reply by FXEF on June 2, 2011 at 6:47am

Henry,

 

That is good for small separate tracts, but if someone has a large tract and the O&G company only includes a portion of the tract in a drilling unit the entire tract will be HBP unless the lease has a horizontal Pugh Clause.

Permalink Reply by Henry on June 2, 2011 at 8:54am

FXEF,

Good point.  Good to see another GHS.com person on this site.  I would hope we can share what we learned with others, to help them get the best possible lease.

0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on June 2, 2011 at 8:58am
that's the right attitude!
Permalink Reply by Timothy M. Greene on June 2, 2011 at 2:16am

Negotiate for what "YOU" want. If you want a Pugh Clause then stand firm. Of course the gas companies do not want a Pugh Clause. If Chesapeake and Range are not reasonable then find another gas company to lease the property to.

 

The Pugh Clause is a reasonable requirement that helps protect the mineral owner. Please do not give up on it.

 

Tim Greene

Land & Mineral Management of Appalachia

www.landandmineralmanagement.com

304-545-7644

Permalink Reply by Richard Fanelly on June 2, 2011 at 2:32am

I proposed to EQT that they pay me $1000 per year, escalated at 25% every five years thereafter, for each acre covered by the lease but not included in a drilling unit after the primary term. EQT said they would get back to me if and when my immediate area is "proved - out". If the Lessee does not include acerage in a drilling unit, the Lessee should pay to keep it under lease, at least in my view.

Richard

Permalink Reply by Marc on June 2, 2011 at 12:58pm
That's impressive that they are considering it.  Where is your immediate area and do you have a particularly large parcel?  I'm wondering how transferable that tactic might be to areas/parcels around me (Belmont Co. Ohio).
Permalink Reply by Richard Fanelly on June 3, 2011 at 2:50am

MM: I can't say EQT is considering my proposal since I included other terms EQT found objectionable. They simply backed-off and said maybe we'll talk later. The land is in WV and totals 75 acres. But the concept would work anywhere.

Another way to get at the horizonal Pugh result is to demand a royalty that is based on the assumption that all of your acerage is included in a drilling unit. Instead of a royalty at a stated percentage applied to your acres included in a drilling unit, as the typical lease states, you demand a royalty rate applied to the gross revenues of any well that includes any of your acerage in the drilling unit for that well. Assume you want 18% royalty and have 100 acres. You calculate that your 100 acres represent 15.63% of the minimum drilling unit size of 640 acres. The royalty rate of 18% multiplied by 15.63% is 2.81%. Therefore, you demand as royalty 2.81% of the gross revenue from any well that includes any potion of your acerage in the drilling unit. This protects you from some of your acerage not included in a drilling unit and protects you from unnecessarily large drilling units, say, 700 or 750 acers (that the lessee has to make to satisfy someone else's Pugh Clause).

Richard

Richard

Permalink Reply by Guy Smith on June 2, 2011 at 4:00am
Marc - If you can tell me how to paste or add a word doc to here, I can give you the exact wording of the Pugh Clause from the contract.  It read something like if the leasehold covered  by lease  more than 50% or 50 acres are not included in production. Lease shall terminate two years after primary term.   I have not gone over this wording  in detail with my  attorney so I can not tell you exactly what is means.  At this time I am not sure  I agree to the way its worded,  but my goal is to insure that any thing less than 50 acres of my 60 is NOT put into a unit to tie up the rest of the acreage.   CHK (DPS) gave me two Pugh Clause options.  I am not sure how the other one read. 
Permalink Reply by Henry on June 2, 2011 at 4:05am

Guy,

Do not trust the landman to give you the language for your lease.  There were many people in the Haynesville Shale who took the language offered by the landman.  Guess what?  The operator claimed the language was not adequate for the desired protection. 

Permalink Reply by Guy Smith on June 2, 2011 at 4:17am
Terri - It was not  difficult to get them to agree to the terms so far.  I have a NO Surface clause which they backed out of when I was going to sign 6 months ago, so I told them I would not sign.  They called me 3 months later and are now willing to add the No surface..... but now they are preassuring me to sign by the end of the month and they say they will not make any more changes to lease.  If I find I still want a change and they are unwilling then I will Not sign... I am NOT part of a landowner group.  I do however keep in close touch with all the neighbors as we have all been approached by EQT, CHK  and others.  EQT is not willing to do a Pugh clause, so I will NOT sign with them.  In my opinion  it is a very BAD idea to sign a lease without a Pugh clause and also a Clause to prevent shallow vertical.   Unless of course you are only concerned about the bonus.  I did NOT contact CHK They (Dale Property services) contacted me. 

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