Replies to This Discussion

Permalink Reply by porkchop on May 2, 2012 at 9:54am

Where is your land located?

Permalink Reply by JR on May 2, 2012 at 10:03am

We will be in your boat someday. Our atty tells us to request: better royalties, hold harmless agreements, ensure they return our land to it's original condition, timber $, and other more landowner friendly terms. I'm told our drilling company (not CHK) has come up to 17.5% for neighbors, and they represented themselves. I've seen elsewhere on here that CHK plays a little more hardball, so maybe you should prioritize and be prepared to pick your battles.

Permalink Reply by Swift on May 2, 2012 at 10:05am

What is the current unit size limitation in your existing lease? 160 acres?

Permalink Reply by Kathleen on May 2, 2012 at 11:08am

They asked me also a few weeks ago and I asked for more royalty at first but I'm at 20 gross so I didn't expect much. It was a clear NO. I said this will reopen my lease and the DPS Penn guy said "no it's not reopening your lease we just need to reword one sentence". It is reopening the lease.
He just about begged me to allow him to come to the house to show me how this would benefit us and I told him I would look into a day and get back to him. He called back only once to say I never called him back about a time. I did expect him to call again or just come out but he has not. I know I'm in a unit so if he does come back we will consider the bigger unit if they allow us to change the depth language so we reserve the layers above the queenstone. This would force a new lease if they ever wanted to go after anything above that which includes the Marcellus.
Take a good look at lease since this may be the only chance you get at change something you don't like. Their costs drop and their profits raise with the bigger unit. Just play around with the royalty calculator on this site to see how much more they get out of a larger unit.

Permalink Reply by 0i7okn54zwbdo on May 2, 2012 at 4:00pm

"I said this will reopen my lease and the DPS Penn guy said "no it's not reopening your lease we just need to reword one sentence". It is reopening the lease."

That depends on what the sentence is.  If it substantially changes the terms then yes, that's reopening the lease.  If it's simply a curative issue then it's not.  What did he so badly want to change?

Permalink Reply by Billy Bob Meeker on May 2, 2012 at 12:13pm

This is a good question!!  I've heard others say they have also been approached to increase the allowable unit size.  I don't know the pros and cons, BUT ... bear in mind that if they increase the unit size they can drill fewer wells, roll more property into a unit and thus claim your land is in production and there will be no additional 5 year bonus renewal for you.

Example ... let's say you agree to increase your unit size from 640ac to 2560ac.  Since gas prices are low, the drillers are not really interested in drilling any more wells than necessary.  They want to hold out for higher gas prices.  So to minimize their drilling, and still hold your land in production so they don't have to pay you another bonus in 5 years, they want to increase the unit size ... at 2560ac they need to drill only one well instead of four.  You will, at least in the near future, also get a much smaller royalty check since your share will be a much smaller percent of 2560 than it was at 640.  Maybe sometime in the future they will drill additional wells in the 2560ac unit and you will eventually get the same overall total royalty dollars, but in the short term they get to hold your land without any further bonus renewals.  Unless you want to renegotiate your lease for some reason, I don't see any advantage to a landower to agree to a larger unit size.

Permalink Reply by SAH on May 2, 2012 at 2:33pm

Thanks all.  Land in Carroll Co, current lease 240 ac unit size.  12.5 royalty.  It is a lousy lease, and I am  awaiting the end date.  Many of the landowners in this area signed early w/ Patriot for a whopping $50/ac. and minimal protections.   

Permalink Reply by JR on May 2, 2012 at 2:55pm

Man, what a bummer.  When is your end date?  Good news is, your unit size is still under 640.  And, even if you get put in a unit at those terms, it's more $ than you had.  Hang in there!  There's no denying what's under our land. It's a matter of time...

Permalink Reply by JR on May 2, 2012 at 2:58pm

PS, I'd lawyer up.  Not in a hardball fashion, but for guidance and fair negotiations.  All these technicalities are way beyond what we (landowners) should try to navigate ourselves.

Permalink Reply by Fred Nietz on May 7, 2012 at 3:12pm

Billy Bob is right. My theory is that Chesapeake, a known flipper of leases, is going around composing these pristine drilling units in order to sell them at a premium to third-parties.

SAH, in my experience, Chesapeake is completely unwilling to offer anything for amending the lease, other than empty promises of royalty riches. But, it never hurts to try.

My primary concern with amendments is the "ratification" language at the end of the amendment. If you have an older lease, please make sure that it hasn't expired, and Chesapeake isn't using a ruse to get you to revive a potentially expired lease.

Permalink Reply by Kathleen on May 8, 2012 at 6:14am

Could the landowner at a later time consider that deception since the oil co. would most likely be saying we just need to reword the unit size language to get you in a unit, when in fact that's almost the same as starting a new lease?
That one is a head scratcher and I'm very glad you posted about it since I bet that's happening to someone somewhere right now.

Permalink Reply by Billy Bob Meeker on May 9, 2012 at 3:01am

Remember that these oil & gas companies have been dealing with landowners in TX and OK for decades and I believe that they have perfected deception as an art form!  I wouldn't trust any of these company representatives as far as I could throw him.

We all know that the royalty is the key big dollar item in a lease.  All the other terms and conditions are ancillary to the royalty.  And since the royalty to be received by a landowner is based on unit size, in my opinion, a redefinition of the unit size is a major change to the contract ... and, hence, directly impacts the royalty .... it should be considered a "reopening" of the lease agreement.