Larger landowner bonus?

I had a Phillips lease in Donegal that I had a clause put in that the lease would only be extended with written permission of the landowner. Well 5 years came and went and I got a check from XTO and a note that they were extending my lease. I sent it back.

They sent a landman out and they are offering the same to me (50+ac) as to small landholders (2-3 ac), 1K and 15% that I countered on and haven't gotten any reply to.

Now, 1K and 15 is a lot better than 10 and 12.5, but after watching the price rise and fall, I am not really excited about it. IF the well goes into production, THEN I could make up the difference at 15%. I am not big on planning with "if".

With larger ac, what kind of options can I look at. Since I know that the property can take a well, can I just give Shell a call?

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0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on March 6, 2013 at 4:01am

Greg,  Whatever the royalty rate, ask for Gross Royalties since Net is assumed, which means you pay 3% of your royalties to get the product to market. Gross is payed at the well head so you get the full percentage on your lease.

20% Gross is a fair rate to some of the O&G companies. Don't sign another O&G lease, have one drawn up that protects your interests. There is a lot to know about what a good lease is, and the O&G companies don't have a good lease boilerplated for you to sign. I've only seen BAD leases from O&G companies. Look at the lease on www.alov.us  it is the best one I have seen. 

 

Since the company tried to extend your lease by sending you a check, you might want to wait for another company to lease with. They must know your area will be drilled in the next 5 years or they would have let the lease expire as companies in Southern WV did when the drillers moved into PA, OH, and Northern WV.

Be smart and know what you are signing, becuase your people wrote it.

 

Permalink Reply by Gregory J Adams on March 6, 2013 at 4:34am

Thats the thing, it is 15% net, and that doesn't give me the warm fuzzies.

The pad is well within a mile of the property, figure 3Kft. I signed a ROW for a pipeline across the rear corner, it wasnt exceptional, but it was pretty fair and I know they have to make money also so I am not out to try to hose anyone. That said, I expect to get paid as much as I can get for my gas. I expect drilling to begin in Apr. From what I am told it is going to be 1 vert and 6 horz, I figure that I am over the NE horz bore. The lease is subsurface Marcellas only, any additional wells are to be renegotiated.

I figure that I will stop at the Shell office in Butler and just ask a question or 2, but I am trying to bone up of the questions to ask in this lease climate. It was a different deal 5 years ago.

Permalink Reply by Oliver Perry on March 6, 2013 at 8:00am

How has your lease expired, it is dated 3/27/08? It is not at the 5 year limit until the 27th of this month. Anyway, if you figure you are over a proposed horizontal bore, that would seem to put you in a great position to negotiate with XTO. They would seem to be your best bet.

You could talk to Shell, but I don't know if they have done much, if any leasing in Donegal Twp. They have done some in Oakland around their proposed Galli well site in the north central part of that township. Unless they hold some leases near you, I doubt they would be interested. But it never hurts to ask them.

Permalink Reply by Gregory J Adams on March 6, 2013 at 10:02am

They are negotiating now because I sent the checks back with a note saying that I would not be giving consent, but I would be be willing to talk to a landman about a new contract. They want to date the new to the day after the old so there is no break.

Redmill and Snyder are a bit farther south and a couple guys at work are looking at 3k and 12.5, don't know if that is gross or net. That is current.

Shell is just over in Greece City at 3250 and 18 last I heard. Not the newest info but its what I have.

 

I don't have any heartache with XTO, just not feeling the love at 1K and 15% net.

 

Permalink Reply by Gregory J Adams on March 6, 2013 at 10:03am

I will get out the black highlighter.

Permalink Reply by Janice L. Hancharick on March 6, 2013 at 9:09am

You played it very smart in the first lease agreement, Greg!  It's not surprising the company thought that if they just sent a check after 5 yrs.,you'd be tricked into thinking your only option was to cash it and be somewhat satisfied. This is a common ploy that is used throughout the Marcellus/Utica shale region. Kudos to you for standing strong.

As an individual, your bargaining power with any company is small to negligible.  Even a few folks tied in with an attorney have difficulty moving forward @ times.  Surely there must be a landowners group in the Donegal area.  Check it out.  Extension Offices usually have materials pertaining to all things Marcellus.  Workers there would likely have heard of a local group.

Permalink Reply by Gregory J Adams on March 6, 2013 at 10:08am

Janice,

Old fat guy not fall off turnip truck last night. I will be copying your first 5 words in the first sentance and framing it for my wife to refer to.

Grew up in a family biz, did the landlord thing, and got wrung out on a land contract in my ute. Learned a little.

They sent checks early hoping that I would cash them. If I did then no matter what clause was in the contract, I would have accepted the terms. Thats the basis for hand money. Once money changes hands, its a contract. Worth a try on their part.

You have to know what you are signing with any contract. If I had not put the addendum in, I would have had to accept it. Its not a ploy, it is what it is.

 

Permalink Reply by Janice L. Hancharick on March 6, 2013 at 11:30am

Love your response! 

I will use your 3rd paragraph @ 4-County meetings next week, because EVERYONE needs to understand what that check means.

As to what you want to include in your next lease, there are so-o many items.  Shale development and production has changed considerably just in the past 5 yrs..  In the early years (2008-ish) the Friendsville Lease was the gold standard.  Google it.  With today's new technology I'm sure the same people would make alterations if they were to re-write it.

When 4- County began the landowners that were to be impacted early on spent numerous sessions on a monthly basis ... airing their concerns for leasing safeguards they wanted to see in place.  Naturally legal help was on hand, also experienced lease-marketers and negotiators that work for us!  How refreshing!

Materials from PSU's Marcellus Center for Outreach and Research were a big help too.  They provided the homework that was to be devoured before the next meeting.  This whole bit has been an on-going education, and I suspect that will be the case for several more decades.  I HOPE!

It's obvious that when one is leasing, it's good to have an understanding of what each side of the table wants then reach a happy medium.

I'm not worried about you and any turnip truck. Your truck seems to be filled with peaches.

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