Whitacre Well New lease Questions????

Hi all, I have been reading a ton of information on here and I am a little overwhelmed.  So, maybe somebody can help.

I own a little piece of property in Monroe County near Greysville.  It is a hunting camp that we use for the season.  Its around 10 acres.  I recently received a offer for mineral rights.  I believe from what I have read, the property is in conjunction with the Whitacre well (well's).  The company on the letter is HG Energy.

I believe my offer is extremely low and would like to know what you all think.  I do have some questions.

1.  Why would they want my property only being 10 acres?

2.  When I sent them a counter offer, they acted like they were doing me a favor and including me in the leases with others....???

3.  Being such a small portion of property, would it be wise to contact a attorney?  Which they being such "honest" people provided me with a number to one.

4.Why did I receive the letter so late compared to the rest of the landowners?

5.  Why do I need to do all of this??

         1.       We would need you to create an LLC and execute an Oil and Gas Lease with                       the company you created.
          2.       You would need to sign an Affidavit of Non-Production and have it filed of    record.  The reason for this is there is an old Oil and Gas Lease (Vol. 055, Pg. 555) thought to cover your property which was previously held by two wells the F. Bauer #1 and F. Bauer #2. We need verification you are not receiving royalty, shut-in payment, or free gas from this lease and these wells are no longer producing.
         3.       You would then need to execute a Sublease assigning all production rights to HG Energy (covering only those depths below the top of the Clinton formation).  
The offer is this:
1) receive $1,000.00/acre for the sublease
2) receive a 1/8th royalty on any production your property is involved with (701 North Unit)
3) receive a proportionately reduced 1/32 overriding royalty interest in the gross revenue received from any well drilled on the groups 30,000 acres. 

Sounds like a rip off to me. I am definitely not in a rush to sign anything, so let me know what you all think.

Thanks,
Dave
 

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Replies to This Discussion

Permalink Reply by Sam Moore on January 23, 2012 at 5:07am

Hello Dave

It sounds like you a have a property in the middle of one of their proposed units.  If this is the case you may want to rethink the not getting into a rush.  signing with someone even if its not HG will take the mandatory pooling off the table and give you some room to negotiate your lease.  Now for the pluses and minuses of the HG lease.

On the negative side.

$1000  others are $3000 to $5000 per acre.

Total royalty of 15.6 % others 18 to 20%

On the positive

HG will pay you quickly

You will still have your mineral rights from the marcellus up to release.

HG is the only one drilling Monroe Co.

The 1/32 will pay you a little on every well they drill.

You should talk with an Oil and gas attorney.  I am sure I know the attorney they gave you and he is a good guy but he will have HG interest at heart not yours.

You may even want to take a page out of their play book and set up the LLC and lease your property to the LLC but under better terms than the ones they are looking for.  Make the Landowner royalty 15 or 16% instead of 12.5, make it a 20 page lease with all the good terms you can find instead of the 1 and 2 page leases that they are going after that have no landowner protections.

One last point to ponder.  If they have most of the land leases around your property they may decide to just drill around you.  If they do this no one else will lease your land as they will not be able to use it.  In this case you could lose a few hundred thousand dollars in royalties trying to get a few extra tens of thousands up front.

Good luck.

Permalink Reply by Angela Smith on January 23, 2012 at 7:22am

Sam,

We have approx. 40 acres leased within the 30,000 unit.  The royalty amount is the standard 12.5%.  How are royalties going to be divided?  I don't understand the 1/32 reference above. 

Permalink Reply by David T. on January 23, 2012 at 8:07am
How much in royalties is possible on 10 acres? Not sure I understand the few hundred thousand dollar comment. I also am on the same boat as Angela, whats the 1/32%? I didnt realize the complication involved. All i wanted was a simple hunting camp!!! Lol.
Permalink Reply by Sam Moore on January 23, 2012 at 10:44am

If your property is drilled under you would receive the 12.5% for the acreage you have in the unit.  Lets say the well holds 107 acres and you have 10 of those acres and the well produces 10,000,000 the first year.  So 10,000,000 X .125= 1,250,000 / 107 = 11,682 X 10 (your acres) = $116,820 (your cut) if it does double that double your cut if it does half that cut it in half.  The numbers I've seen is if they don't do $8,000,000 first year they are not worth the companies time,

Now for the 1/32nd. using the same numbers above.  This is paid to you even if they don't drill under your property and is paid to you on every well in the 30,000 acres.

$10,000,000 X .03125 = 312,500 / 30,000= $10.42 per acre per well per year.  I know this does not sound like much but they could put as many as 280 wells on 30,000 acres. So 1 well not on your property $104.20 a year.  Their lease requires them to drill 10 wells this year so it would go up to $1042.00 , when they get to 100 wells $10,420.  Production will decrease after each year the well is in production but they will also be adding new wells each year and these numbers are based on $10,000,000 in production and some of the wells into the utica are doing $40,000,000 a year in just oil.

Then again they may drill a few dry holes and pull out and we are back where we started.  I hope this helps.  Angela to see your numbers just multiply by 4.

Permalink Reply by Angela Smith on January 23, 2012 at 12:33pm

Sam, Thanks for answering my question and making it all so clear.

Permalink Reply by David T. on February 8, 2012 at 6:44am

Whats going on down there.  I hear they just finished a well and may be a real good indication of whats to come.  Any info ????

Permalink Reply by Billy Park Whyde on February 8, 2012 at 7:27am

 This is a first that I have seen a 30,000 unit. Normally what we see in here is a 640 unit. In a 640 acre unit all the landowners in that unit get a percentage of the total production of the well biased upon % their acres are in that unit,  then that % is the amount they would get based upon their lease royalty % be it the old 12.5 or the newer up to 20% not all land owners may have the same royalty % in their leases. The override of 1/32  is something that I can not fathom as a override is based upon the total produced meaning if only 32 people received a 1/32 override there would be nothing left for the oil company or the landowners Hmm SOMETHING IS FISHY.

Permalink Reply by Sam Moore on February 8, 2012 at 9:38am

Each lease holder does not get a 1/32  they get a share of the 1/32 so the big boy with 10000 acres would get 1/3 of the 1/32 and the guy with 300 acres would get 1/100th of the 1/32.

09bp5t05myjl3Permalink Reply by 09bp5t05myjl3 on February 8, 2012 at 1:22pm

Sam is the well up & running/producing yet?

Permalink Reply by Sam Moore on February 10, 2012 at 4:16am

Hello Tom

I don't know.  The well has been fracked.  I don't know what all needs to be don after that to start producing.  They had already run the gas line to a transmission line so I would think if it is not producing it should be soon.

Permalink Reply by SA Frank on February 8, 2012 at 1:08pm

Angela - If you were part of the original acreage that is held by production and you signed a unitization agreement, i do not believe you will receive any of the 1/32.  That will be collected by the operator that leased to HG as an override.  The 1/32, if I understand correctly, was offered to unleased property owners in lands close to the original properties.

 

someone let me know if I am wrong on that interpretation.

09bp5t05myjl3Permalink Reply by 09bp5t05myjl3 on January 23, 2012 at 11:18am

Sam you state that to get out of forced Pooling and just so we are all on the same page not likely, 1st off forced pooling has only been used once in ohio drilling history per dnr & they also state that they don't believe it is applicable on horizontals, also if they force pool you you get an ownership share in the well, oil co. not likely to do unless extreeme circumstance.

 

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