Beware of all the gas companies!

I signed two lease's back in 2011 with Gulfport Energy on 80 acres that I own in Belmont County, Ohio. Let me start by saying don't believe anything that any of the land men tell you, the are working for the gas companies and their own benefit not yours period. While I was negotiating my lease with several companies at the time in 2011. I clearly explained to them that any lease I would sign would require a Pugh clause, and that I would not except any lease that required me to pay any of the cost associated with the production or marketing of the finished product from any wells drilled onto my property. I ultimately ended up signing with Gulfport Energy because of the higher bonus payment and higher royalty percent, and the land man assured me the Pugh clause and the deduction clause weren't a problem, that a lot of people were requesting it. Well the land man was lying through his teeth after receiving my first royalty check and statement there were $14,574.11 in total deductions. Beware of any lease that includes the language below.

 

"All oil, gas or other proceeds accruing to Lessor under this lease or by state law shall be without monetary deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other proceeds produced hereunder to transform the product into marketable form; however, any such cost which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as they are based on Lessee’s actual cost of such enhancements.  However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee."

 

It was explained to me that this was exactly what I wanted and that the second part of this clause only meant if they did any advertising to enhance the selling price of the finished product I would have some associated cost from that. Well I have since found out that this is the language that the big oil companies have adopted to lead land owners to believe that they are getting a no expense deducted clause in their lease. If you find this language in your current lease be assured be ready to pay every single cost that is associated with bringing the product to market. Don't sign it! Ask clearly for a no production cost clause and have it reviewed by a gas royalty attorney.

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Permalink Reply by Joseph-Ohio on November 3, 2013 at 3:04pm
Great point / inquiry.

I'm thinking the landmen see it as covered under their Gas & Oil Company's jurisdiction.

However, are they not currently discussing State Certification for landmmen in Ohio ?
Permalink Reply by Dakota Rush on November 3, 2013 at 4:17pm

I am not at all confused about the difference between licensure and certification.  I have worked in multiple states and the best assurances that I have for knowledge is to adhere to the guidelines and course studies as set forth by the organizations that I mentioned earlier.  I would also point out that each state is different and has their own varied set of statutes for minerals and real estate.  Most of us research and learn those statutes in the states we work.  My point is that we are not all a bunch unwashed heathens come to steal your livelihood.  I have NEVER known of a landman that works on commission and I doubt that will ever happen.  We get paid to do a job.  And I believe that for the most part, certainly not 100%, but the majority of us are ethical and honest.  To make mention that people should "never trust a  landman" is the same as saying you should never trust someone from Ohio if you are from Pennsylvania or West Virginia and vice versa.  Our jobs are to NEGOTIATE a deal that is acceptable to both parties at the time.  Contrary to what some here think, it is absolutely possible for each side to come out a winner.   I do not believe I have ever "got-over" a landowner and do not intend to start now.  Just as anyone should be proud of their profession, I am proud of mine.  I believe everyone is entitled to their opinion.  And it is human nature to base our opinions on experience.  So it is tough to overcome the bias of a few who have that bad experience. But we work at it every day.  And we will again tomorrow. 

Permalink Reply by MJ on November 3, 2013 at 5:26pm

Cheers back to the apparenty "British" among us.  Chip Decker and Craig Stull.  Any others?  Cheers my cheery chaps! Coincindence?  Good info fellows and it is appreciated to be sure.  Thanks to all that share what they know or think they know about the exploration of the Utica.

Cheers!

Permalink Reply by Joseph-Ohio on November 3, 2013 at 11:30pm
Likewise, polite acknowledgments to Chip & Craig and also to you MJ ('Brits' or other) for what we consider very worthwhile commentary.
Permalink Reply by Joseph-Ohio on November 4, 2013 at 12:12am
BTW although part 'Brit' I'm sure that any full 'Brit' would agree that I'm all 'Yankee' ( or 'Yank' ) !
Permalink Reply by Joseph-Ohio on November 4, 2013 at 12:57am
Non-pejoratively of course !
Permalink Reply by Kevin in Belmont County on November 3, 2013 at 11:27pm

Thanks Dakota,

Let me respond to a couple of your misguided points. There is a huge deference between certification and licensing. I can pull out my drawer full of certifications from the insurance business from all of the years and display them but they don't ad up to a hill of beans. Then I can pull out the three insurance license's that I have had issued by the Insurance commissions of Ohio, West Virginia and Pennsylvania. These licensed aren't given they are earned, as a regional manager and hiring people for the agents position for many of years I have sent many people to school and through the certification process some pass and some don't ever obtain their license, not certificate. Most people don't realize that the insurance industry in their states are one of the most heavily regulated industry's in their states, Why? Because what an insurance agent does effects how people live their lives. They interact with the public through the course of their careers without anyone standing there looking over their shoulders making sure they do the right thing. They help people make informed decisions about their futures in a legal, ethical and humane way. Are there bad agents in the business yes, just like there are in most professions. If an insurance agent lies to or twist or defrauds someone he gets taken in front of the insurance commission of his state and if there are merits to the charges his license is suspended or he/she can be permanently have their licensed taken and actually be brought upon criminal charges. If an O&G company land man does the same thing, who does he or she answer to, what state governing agency? The answer is none! At least not in Ohio, Pennsylvania or West Virginia. And if the industry doesn't have these kinds of things happening everyday they should not have a problem being licensed and observed throughout their day to day business, and held accountable.

As far as the cost and risk associated with drilling a well first and foremost they contacted me like they do many of other landowners. And like many landowners I agreed to give them 80% of all of the income that they make off of the minerals coming from beneath my property. The O&G company knew what they were getting into when the proposed these wells with the landowners. It isn't about wanting to control a well. I don't want to be part of the decision making process that it takes to bring a well to market, I am not in that business. And as far as the responsibility of the well if they want to give me 50% of the revenue from the well I will gladly share in the responsibility of the well. The point you miss is. This isn't about running a well this is about signing a contract when the terms have been misrepresented to you through a slick talking land man. And just for your knowledge you don't have to be forced to sign a contract to be defrauded you can also be lied to which ads up to fraud, and makes the lease or contract you sign voidable.

Permalink Reply by Joseph-Ohio on November 3, 2013 at 2:49pm
Seems to us the best a landowner can do is negotiate a lease that maximizes the signing bonus and royalty percentage while not being charged / paying for any sort of market enhancement costs.

The question becomes what the signing bonus and royalty percentage amount to.

Landowners also have to be aware that the landmen work for the Gas & Oil interests - not the landowner.

All (as always) only IMHO.
Permalink Reply by Joseph-Ohio on November 3, 2013 at 11:52pm
To be most clear we should also add that from our landowner perspective we have no interest in being burdened with the developmental / construction / production marketing costs associated with any well our lands would be involved with.

Can't afford it and we believe the work involved needs to be left to the experts.
Permalink Reply by rmc on November 4, 2013 at 2:09am

Hello all I have found it is very simple here in south western PA It's really simple acutally just assume all the landmen will lie to you or if you like to put nicley not tell you all the facts.

One more thing I have said over and over if you dont understand something in the agreement dont sign it also If a Rep of a company says a paragraph or sentence doesn't mean what you think it means then it shouldn't be a big deal to change it to make it clearly state there intentions!!!!!!

I

Permalink Reply by Matt on November 5, 2013 at 10:51am

The unfortunate reality is that you are not alone in your complaint. In my experiences, clients that have had attorneys negotiate lease terms on their behalf have been much happier with the results than those who negotiated on their own. That being said, everyone should keep in mind that having an attorney with no experience in oil & gas law review your lease draft does not guarantee that the result will be any different. We advise that our clients work with both an accountant and an attorney that have extensive backgrounds in this area. In many cases the fee charged by the attorney is far less than the cost of an oversight later. I am happy to provide a list of vetted attorneys to anyone who would like one.

Permalink Reply by Richard Droske on November 5, 2013 at 3:32pm

Yes exactly. All I see here is "the land man told me". No mention of a lawyer being involved. Sign a lease without a lawyer at your own risk.

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