Historic Failure – The only attorney led landowner group that signed Utica leases and NONE of the leases were paid

This is a cautionary story for all landowners considering joining a landowner group – Buyer beware. Just because the landowner group is attorney led does not guarantee that the landowners will be well represented.

Southern Ohio Energy Consultants (SOEC) led by Attorney John Wells, along with three other partners of SOEC, pushed landowners in Washington County, Ohio to sign leases with DUX Petroleum LLC in mid February, 2013. DUX did not pay any of the leases.

Before the leases were signed members of gomarcellusshale.com (GMS) worked together to research DUX and discovered that DUX was a paper company with no assets, and was run by a 30 year old part time real estate agent with no apparent oil and gas experience out of a modest $95,000 single family house in a residential neighborhood in Lubbock, Texas. This (and more) publicly available information was available to anyone who did their due diligence and researched DUX. John Well’s partner, Tim Neal (posting on GMS as drillBABY) defended the DUX deal – making it impossible for SOEC to claim that they were unaware of the problems with DUX prior to the signing of the DUX leases.

For more background on the DUX deal read the other posts on the topic

http://gomarcellusshale.com/forum/topics/help-research-dux-petroleu...

http://gomarcellusshale.com/forum/topics/washington-county-oh-dux-p...

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Permalink Reply by Tony Yurina on July 17, 2013 at 9:35am

Let me say first, I don't have a dog in this fight.

If the real estate wanna be oil man could have pulled this deal off and flipped the leases, he would have been just another wealthy Texas Oil tycoon.  And there would have been a lot of well healed landowners in SE Ohio also. This time it didn't work out.

Usually the big business money at the top makes the financial decisions, then from that point all the lower dominoes either fall or prosper.

The way I see this, the SE Ohio Landowners group members and the representatives above them, DUX Popejoy included were dominoes that fell as a result of the big money decision...... this may change after PDC drills a couple good wells.   Business could get better fast, you will all then be found in an advanced position to market your leased acreage.

Permalink Reply by Tony Yurina on July 18, 2013 at 4:56am

Samuel, Where is the long line of investors waiting to pay you for your acreage?  

Are you a landowner that signed with SEOL group?  Or a bench warmer? 

Money talks and drives the decisions right down the line from the top. 

I've have had my share of fun with Shell up here in a county North of you... so I know how you folks may feel.   

Money drives all the business decisions in oil & gas... No one will pay $4,000 or more for lease acreage in large blocks without some assurance of profit. That is the way it works.  With less than stellar news from Anadarko wells North of your position, yes, I would be stupid to pay that kind of money for acreage at this point. There is a lot riding on the PDC exploration, those that are patient may see a fast windfall from another source.  

Did you ever wonder why the big money source didn't make themselves known to you and used a middle man, DUX ?   Big money doesn't like to look bad in the eyes of the investors and royalty owners... never know, if things work out, the same money could flow under a different name in the future..

I do wish you good luck with your business dealings.

Permalink Reply by Samuel J. Orr on July 18, 2013 at 4:25pm

Thanks for your good  wishes! But why would you or any person of sound mind sign a lease in favor of DUX or any other  shell company with no apparent assets.....a company that has a website, states it is a leader in the industry, has done business in twenty states...and has no phone number!!!??? Is it possible that the plan was for John Wells to flip the leases for $5000? In this case the landowners would have gotten $4000 and John and his cronies would split with DUX the sum of $1000/acre times whatever number of acres SEOC could sign up. Why would any landowner want to tie up his property for 6 months with DUX or any other company with no assets. How can anyone in his right mind sign a lease with a company formed in 2012 that has no phone number??? How can any attorney allow a client to sign a lease with such a company, let alone advise them to do so??

Permalink Reply by Samuel J. Orr on July 17, 2013 at 2:38pm

Landowner1: You have done a great service trying to prevent land owners from falling for this DUX scam.

Permalink Reply by searcherone on July 17, 2013 at 4:12pm

Samuel,

The group you are referring to is SOEC nor SEOLA.    SEOLA, founded by Jennifer Garrison, has a good track record in southeastern Ohio and has completed successful leasing deals with Eclipse, Antero and others.

Permalink Reply by Samuel J. Orr on July 18, 2013 at 2:10am

Apologies to SEOLA!  It was an unintentional error. I have no criticism at all of SEOLA!

Permalink Reply by searcherone on July 18, 2013 at 2:57am

Samuel, I was certain it was unintentional, but just wanted to keep the discussion accurate for those who may not know the difference as  both groups are in southeast Ohio and lead by attorneys.   But, WOW, what different outcomes.

Permalink Reply by Seeker on July 19, 2013 at 7:30am

In an earlier post (now deleted) Bob made a very good point – when the landowners are in control of the negotiators the results end up much better for the landowners.

Within days of each other The Northwest Monroe Landowners Group (NMLG) signed leases for $5,900 / acre and 21% for Noble, Belmont and Monroe Counties with Antero while Southeastern Ohio Landowners Association (SEOLA) signed leases for $4,000 / acre and 19% (if Eclipse does not drill in 3 years the can extend the primary term for 2 years for $750) for Noble County.

NMLG wrote their own lease and if anyone gets a chance, read it. The lease is one of the best written, most landowner protective leases around. The landowners hired a negotiating team (including an attorney) to negotiate with the companies. The negotiating team came back and said there is no way the companies will agree to the lease or to the terms the landowners wanted. It took the threat by the landowners to pull the group apart to get the negotiating team to negotiate hard for the landowners. Guess what – the company agreed to almost everything the landowners wanted.

The lesson is that the landowners must insist on retaining control of the negotiating team. The team works for the landowners, not the other way around. Landowners must have the courage to stick together and refuse to accept a bad deal. Landowners need to insist that the company be thoroughly researched, the funding guaranteed and the lease be written to adequately protect the landowners. Don’t let your friends and neighbors agree to a DUX deal!

Note: both NMLG and SEOLA did a far better job than Southern Ohio Energy Consultants (SOEC).

Permalink Reply by Seeker on July 19, 2013 at 11:56am

Bob: I believe that the attached slide from the January 2013 Eclipse presentation may help answer some of your questions.

Apparently, ALL of the acreage Eclipse acquired from SEOLA in Noble County was included in the Eclipse / Antero JV and yes, the acreage in the SEOLA and NMLG deals overlapped in Noble County.

The NMLG landowners got a 47.5% higher bonus ($1900 / $4000) and a 10.5% higher royalty (2% / 19%) than the SEOLA landowners. That suggests that the SEOLA negotiators were out negotiated and left a considerable amount of the landowners money on the table. When landowners control the negotiators the landowners win.

Based on the 70 / 30 JV structure both Eclipse and Antero would both put acreage into the JV and nearby acreage is likely to be valued the same per acre in the JV. Antero just paid more for their acreage. Assuming that both companies pay for the drilling costs on the same 70 / 30 basis Eclipse would end up earning a much higher ROI.

My understanding is the same, SEOLA had a commitment period and NMLG did not. The SEOLA landowner agreements I have seen were for 12 months from the date of the signing of the agreement.

Attachments:
Permalink Reply by searcherone on July 19, 2013 at 2:55pm

Bob,

I have one of the 4250 leases out of the Riverfront area and I am satisfied with it. I continue to learn from that 24 page lease that has lots of landowner protections, and refer to it many times after reading discussions here on GMS.  Also another poster here on GMS who has one of the 5900 leases and I have made some comparisons.   I continue to be satisfied and have not heard complaints from neighbors or friends who signed with the Riverfront group.  In fact in very individual ways many of the lease holders have improved their lives, myself included.  LOL we all have new conversations with each other about the wells that are already being drilled in Lee Township.

The Northwest Monroe group was blessed to have landowners willing to work for their area.  The Riverfront group had a couple of promoters, but no one stepped forward to lead as landowners, perhaps another opportunity will unfold and  that will occur.  

Yes, I had some qualms about signing with Eclipse, as they had only formed a few months prior and had also "proved up their prior operation of REX Energy and sold it, but that's what the mid-level E&P's do--prove it up and dream of selling to the big players and that is also what Encap their financial backer wants them to do.  In the riverfront area Protégé has already sold to Statoil   XTO/Exxon would love to be here today if they weren't involved with Beck Energy, but if and when the publicity with that swings in their favor XTO will return.

Respectfully, Searcherone 

Permalink Reply by searcherone on July 20, 2013 at 3:06am

Tom, as you have probably read I have one of those Riverfront leases  and I am satisfied.  I, too, agree it would be best not to enrich promoters pockets, but that wasn't the way it worked out for some of us. And I am certainly curious about the "even better" lease of John Lusk's group and in your opinion what made it so much better. The only way to truly know or see which lease is better or better on which points is to take the leases point by point compare them and draw the conclusions--it cannot be done on money and % alone.  So who is willing to participate in that little experiment? I'm betting that Bob and several others could point up the strengths and weaknesses quickly.  You know the bonus money and % issues have already flowed over the dam, but believe me the interpretation of the terms has yet to be tested in real time and it all won't work like it looks on paper.  I am truly serious about comparing and contrasting each of these leases in detail.  It would be a great endeavor of cooperation of Monroe county citizens and that is the type of thing that keeps promoters and lawyers from enriching themselves from our backs.

lol I am looking forward to Monroe County Leases 101 taught by Bob, with guess speakers from each of these various leases.

Cyper space cannot do this interesting topic justice. When and where is the meeting of the first class?

 

Permalink Reply by Seeker on July 20, 2013 at 4:51am

Tom, there is another example of the attorney led negotiators not negotiating well when the landowners were not in control of the negotiators. The pattern in the Utica has been that in a given territory, the second group improves on the lease bonus, royalties and terms obtained by the first group. That has happened in virtually every case except the deals negotiated by John Wells and SOEC.

In mid 2012 a group of landowners in Washington County negotiated a deal with PDC for a then record of $3,000 / acre and 18% with a drilling commitment obligating PDC to drill a well within one year on the 3,000 acres in the group. PDC just drilled the Neil well on that acreage.

John Wells and SOEC on their website tout their record of signing two deals with PDC in Washington County in June and July of 2012. Contrary to the track record of all of the other deals negotiated in the Utica, Wells and SOEC not only did not improve on the deal that the landowners had previously negotiated with PDC they negotiated a worse deal. The bonus and the royalties did not improve and there was no drilling commitment.

What does that say about the abilities of the negotiators? Why would they agree to a worse deal?

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