ATTENTION Landowner Group Members

The IDEA of "strength in numbers (acres)" is quite apparently agreed upon by many members. Let’s not forget that a portion of those "numbers' will not have a chance at the lease being paid.  Because if your "numbers" are not connected/contiguous to other "numbers" the valve of your numbers are not as appreciated by the potential LESSEE. And an outfit, no matter how financially secure, only has so much capital it is willing to spend/risk on a project.

Hypothetical Question: What if a group of 25,000 acres agrees to sign but only 10,000 of those acres are contiguous, what would be the incentive to pay the remaining 15,000 ac scattered all over the area? After-all, 10,000 ac would be quite enough leasehold to form producing units.

Also remember lawyers are paid directly from the amount of time spent "consulting" with the client(s) board leaders and it is very profitable to drag the process along for themselves. Every time a call/letter/email/fax is addressed concerning the process of your group.....cha ching, time is being billed. Another thing to remember, your area is not the
only area.....rather than drag it out, an outfit (especially a proven profit making producer not a flipper) just may pack in it and move to another more open-minded area and spend their money there. Which would leave your area open for another round of negotiations with another outfit and the much anticipated billed time for your friends at the law firm?

Hope you didn’t have plans for the bonus money anytime soon, yet the possibilities of a royalty check. Don’t worry, that new roof on your house/barn can wait (it isn’t leaking "that bad"). You can always wait for next year’s model of the truck/tractor you were planning on buying.  Paying off those loans can also wait...after all you've been paying on them for
years already. College tuitions can be paid for by the loans you were planning on getting anyhow. Your daughter’s/son's wedding will be fine downsized, their so in love it won’t matter. Vegas....you can do just as good at the local casinos that are closer to home and are popping up everywhere, you can’t afford to take that much time off of work anyhow.



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Permalink Reply by rfnkmk on November 6, 2011 at 5:51am

The group can deal with this by the way they negotiate the lease. Groups in my area of the state (PA) have required companies to take all or none. Wording in the lease that it apply to all members of the group or the lease is void is included in some way. I do not know the exact wording used since I was not close enough to be a group member.

Of course, in forming their group, they limited the location of landowners qualified to join, though they did not always require contiguous land. Some also kept abreast of the scientific presentations available online from university scientists so they would not inadvertently include an area known to be undesirable.

I also know of one group that, near the end, took any landowner that was contiguous to existing group members in an effort to accept the maximum number of members.

Permalink Reply by mike4t on November 7, 2011 at 6:26am

Very well said !!!

 

Thanks!!

Permalink Reply by Jim Litwinowicz on November 7, 2011 at 2:54am

The biggest reason that negotiations get dragged out is stalling by the companies. They know people are hurting and need the money.  They figure that by delaying things, people will get frustrated, break away from the group, and sign. 

They also know groups have deadlines that must be met or the group dissolves. In my own experience, we got very minimal offers until a month after our original deadline passed.  The group decided to stick together and within two months we had several offers to consider. It was only after they saw that we would stick together did the negotiations get serious.

As for the group holdings not all being contiguous; Some groups have erred by being too large and spread out. Companies do want concentrated holdings. But if done properly, groups can concentrate on specific areas.  And if they have a large area, they can divide the group into segments so that different companies can bid on the segments they find most attractive. Not all will get the same financial offers but all will get better leases than they would have without working together.

Then the blndsquirell closes with a bunch of emotional buttons and scare tactics. I could do the same and point out that if you don't get in a group and get a lease without all the loopholes and trapdoors then you can forget about sending your kids to college, cancel that honeymoon trip you never got to take, and no early retirement for you. See, the company will deduct every cost they can find, tie up the land for decades from a small shallow well, and put two acres in a unit but hold the entire farm by HBP. Worse, you will have to sell the farm at a huge discount because the company put in a compressor station, crisscrossed it with numerous pipelines, and has a ten acre regional pond on it.

Protect yourself....find a good group.

Permalink Reply by jb379 on November 11, 2011 at 5:48am

The scare tactic you use at the end is a nice touch.

Permalink Reply by Jim Litwinowicz on November 11, 2011 at 10:10am

Thanks, kinda liked it myself.

Permalink Reply by Little Cougar on November 11, 2011 at 8:30am

Don't agree with all this landowner group stuff...its good for some but if you do your homework and research everything you can get your hands on AND get a good reputable attorney...you will do well on your own too.  No matter what anyone tries to sell you...these O&G's have some of the best attorney's in their employ and you are not going to beat them.  I would never give any land group a percentage of my royalties...and I would never give an attorney a percentage of my royalties.  However, my situation was different then someone who never had a well on their property.  All my acres have had old, very old wells, either still producing or used for storage...so I was caught in the HBP thing...but I will say this...I am not waiting for wells to be drilled...they are drilled and they are Marcellus horizontal wells and producing and I'm getting royalties...and still more wells to come on line.  I was patient...listened...learned...and researched.  And this site has been quite an education.  Some on here really are trying to help...and some are with the industry and some on here are not so on the up and up!!!  So always be on your toes...go with what feels right for you.  I think there is too much worrying about getting leased and that up front bonus money and not so much interest in the royalties.  When I hear about these 17% or more royalties...I wonder if by the time you deduct the landgroups fees and all if you don't end up with the state required minimum or even less.  At least in PA there is a minimum of 12.5 %.

Just MHO.

Permalink Reply by R. East on November 11, 2011 at 9:06am

Excellent! Great post L. Cougar.

Permalink Reply by Jim Litwinowicz on November 11, 2011 at 10:08am

LC; so you had old wells and were HPBd  Being in a group or even having  good lawyer doesn't help much since you are held by the terms of the old leases. You are getting royalties only because they decided to drill under those old terms. And you are probably getting 12.5%

It amazes me that people that were not part of a group will tell you how wrong it is to pay a percentage of bonus. I've told my story several times...that the best offer I could get was $1500/15%..."take it or leave it"... from a company  that said they controlled so much land in my county that no one else would ever drill here.  My group....52,000 acres.... got together and brought in several outside companies and got the bids to $3000/17% with no deductions with solid addendum. I am confident that there is no way I would have gotten anything even close without being in a well-run group. The fees came to 10% of the added bonus value. Once wells are drilled and royalties are figured, the fees will be less than 2%. Thats a bargain.

Permalink Reply by Little Cougar on November 11, 2011 at 1:32pm

Jim...

not necessarily so...they were willing to negotiate...when I was first approached...it was by landmen about 3 years ago and I was playing that game...I knew I had something they wanted...but they would come and go.  Finally I got sick of the up and down of it all and got educated.  When the O&G was serious, they came to me directly.  We talked and by then I was educated and had an attorney...they needed a modification, and we didn't throw out the baby with the bathwater...we said ok...it was reasonable...but what about this and that. I will admit that on some of my wells, I only have royalty rights but did not have executor rights...however, the executors were not unaware.  On my other acres in Greene Cty, I have total ownership and that was a little different.  I want to see permits and wells...and I will gladly talk.  But when you figure all those fees, so many dollars per acre, donations, consulting fees, attorney fees, and now percentages of your royalties...I bet the landowners receive about 12.5 %.  All I can say is that these royalty checks each month are very generous.  And that is where the money is...the royalties...while you and others are waiting for that big sign on bonus and you probably will get it, but divide that over the years until you get a well drilled and receive royalties...I bet I far exceed that in less then 2 years with the royalty checks I'm receiving now.  I just think IMHO...that there is too much emphasis on that bonus payment and not on when they are going to drill and start producing.  Yeppers...I am more willing to take a lot less up front but at the back end I will get there sooner then if I had held out.  But I had to learn first...and I am not saying landgroups are not advantageous...like I said for some they are.  However, there is something to be said about patience...someone on this site said that several weeks ago.  How true that is and I wish everyone on here the same outcome as mine.  I work for a large, super large big powerful industry...and my industry probably has one of the largest lobbiest in the country...and I see it everyday...you "ain't" going to get over on them.  They have the money and power to be 10 steps ahead of you, always...so be smart, listen and learn...and do what is best for you...I did...and I am reaping my reward now...not 20 years down the road when I'm too old to enjoy...

Wish you the best Jim...and much success to your group...this is just my story.  And I enjoy reading your posts...you are part of my learning experience!

 

Permalink Reply by George Brown on November 11, 2011 at 3:37pm

Excellent! To each his own. Thanks for sharing your story and congratulations on your royalty checks!

Permalink Reply by Jim Litwinowicz on November 15, 2011 at 5:26am

My royalties will be 17% no deductions. And my lease is very strong, even a depth severance clause. And the bonus was DOUBLE what the best offer was just two months prior.  Don't tell me groups don't work.

Oh, and I took 3 1/2 years from when the first landman appeared to learn the ins and outs before I signed. Hows that for patience? And the final bonus offer was 8.6 times the original offer ($350/acre) made in 2008 with a 17% royalty instead of the original 12.5%.

Everyone has to decide what is best for them.  If you are in a very hot area with high offers, than going alone with a good attorney may be best. But for most people, they are better off working together. Thats why there are unions, trade associations, professional organizations, and yes, landowner groups.

Permalink Reply by Schnoozie on November 15, 2011 at 5:38am

What was the depth severance clause? Did everyone get the same clause in theor lease?

Also, did you say before that Co-Exprice will provide some type of Audit service of the production? I thought you said that before? I was looking for it in my Mt. Jackson wave 2 lease and I did not see that part.

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