Pooling Clause -- ideas

My parents have a lease that they signed in 2008 for $5/acre and 12.5% royalty. It is set to expire in May of 2013.  There has been no work on the property up to this point. The lease stipulates that the company can include my parents land in a gas development unit not to exceed 240 acres. (They have about 100 acres under lease). There is no automatic renewal.

 

Recently the company approached them about expanding the pooling to 640 acres, in exchange for a $5000 cash payment. I think this is ridiculously low (obviously). I'm wondering how they should proceed. Should they simply do nothing and hope the lease expires? Or should they ask the company to redo the lease for another 5 years, with higher royalty and much higher signing bonus? Should they sign the pooling clause, but ask for $100,000 (or something like that?)

 

Anyone else in a similar situation?

Thanks

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Replies to This Discussion

Permalink Reply by Rick Cancelliere on October 10, 2011 at 1:07pm
If I were you I would consult a good attorney to insure the prior lease will expire or can be terminated under the clauses of the lease. That would allow you (your parents) to explore and pursue a lease at the current market rates.
Permalink Reply by Brad M on October 10, 2011 at 1:36pm

Thanks Rick

 

That's my thinking too. Worst thing they could do would be to agree to pool it in that 640 acre block. That would allow the company to put a well anywhere on that block, and the royalties would be diluted between all of the landowners in the block (pro rated to their acreage in the block).. Worst thing is, that land would then be locked up for the life of that single well.  I think their best bet is to do nothing.. that way the company can either come in and put in a well in 18 months on their land (relatively undiluted royalties), or the lease expires... if my assumptions are correct.

 

but you're right.. the first step is to determine if indeed the lease will expire if no action is taken by the compay.

 

 

Permalink Reply by Jim Litwinowicz on October 18, 2011 at 11:02am

Thats a tough situation. If they are forming a drilling unit and will drill very soon, I would try to get the royalty % boosted with no deductions permitted. A boost in royalties will be worth much more than a small bonus payment.  And with that many acres, I would also insist on a good Pugh clause so they can't tie up the entire parcel.

But it would be hard to confirm they are doing so as a landman will tell you anything to get you to sign. Just make sure that the lease still expires in May of 2013. That way, if they don't place you in a unit and drill, the lease expires and your good to go.

Top priority, good Pugh clause, then a bump in royalty with no deductions, and no extensions whatsoever. And if you get some bonus money all the better. I would also try to get some protective clauses, in order, no compressor stations, no regional ponds, no foreign gas.

Thats how I would approach it but you must decide on your own personal situation.

Good luck and keep us posted!

Permalink Reply by Brad M on October 19, 2011 at 2:30am

thanks for your reply. Do any of you know of some good oil/gas lawyers that they could talk to in the New Castle/Lawrence County area? Someone that knows what a Pugh clause is, understands drilling units, etc.. thanks

Permalink Reply by Brad Wiley on October 19, 2011 at 3:24am
Robert Clark New Wilmington...
Permalink Reply by ShaleAdvice (Steven C. Townsend) on November 7, 2011 at 1:11am

Come to one of the upcoming landowner meetings:  Nov. 10 (Wayne Township Fire Hall), 14 (Mahoning Township Building),

Permalink Reply by Jim Litwinowicz on October 19, 2011 at 3:06am

Unfortunately I don't know any lawyers in Lawrence Co that are up to speed on O&G leasing. I have heard of Robert Clark in New Wilmington but I don't know if he is good.  He did a lot of the old vertical well leases but this is a different animal that needs taming.

PS are you part of that group just west of New Castle off of 224?

Permalink Reply by Brad M on October 19, 2011 at 3:26am

No.. they're north of 422.. in Pulaski

Permalink Reply by Jim Litwinowicz on October 21, 2011 at 2:22am
Pulaski is a hot area that is high in wet gas, which is more valuable.  I'd be patient and tough in negotiations.

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