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 george m. on November 5, 2013 at 7:11pm

Kevin,

Thanks for the post. You are absolutely correct about the industry and landmen.

My lease was breached by the O&G co that did not live up to the Production Unit clause in the contract.  So like you, I have a contract that is voidable.  Big deal.  I must still sue the O&G co for breach.  Great attorney-prepared lease but legal expenses will still be huge to enforce the provisions in the great lease.   By the way, the co. filed for bankruptcy.

It's a nasty industry that we're dealing with.  Regulation to protect the landowners and keep us out of court is desperately needed; but won't happen because our legislators have no interest in landowner protection.  The companies are very well protected even when they violate the contracts that they sign...Co's are protected with the "corporate veil (limited liability)", and in my case, bankruptcy, and of course, their "deep pockets".   Let's level the playing field.  Write your congressman.

A good lawyer-prepared lease means nothing  if the co. won't live up to its terms!

Permalink Reply by Kevin in Belmont County on November 5, 2013 at 10:47pm

George,

I am sorry to here of yet another casualty of the gas and oil so called boom. It kind of reminds me of the coal boom of the 1960's and 1970's here in south eastern Ohio. The coal companies came in and paid the farmers pennies on the dollar for their farms and the companies got richer and richer. And as a matter of fact some of these same coal companies are still getting richer by now selling the same mineral right on property's that they paid next to nothing for back in the 60's and 70's. I love listening to some of the land men on here try to justify the things that they have done to get lease's signed by unsuspecting landowners. I have a sneaking suspicion that when a lot of the royalties start getting paid out here in Ohio there is going to be quite the uproar. I am quite versed on legal contracts and they got one over on me for now. I have spoken with a lot of lessors since starting this conversation and from what I am hearing a lot of lessors have the same market enhancement clause in their leases with the O&G companies. My legal problems with my lease will be dealt with accordingly I am still in the document gathering phase which appears to be stalled for now because the O&G company doesn't want to give me a detailed account statement of what the deductions on my royalty payment are for. The only thing I have received from them is just a general overview of what deductions are being taken from land owners in my area, and to be perfectly frank most of the things on the list are things that were supposed to be exempted with the "Market Enhancement Clause", which brings me back to the root of this discussion and why I started it. What ever you do, if you have not signed your lease yet and in contains a "Market Enhancement Clause" DO NOT SIGN IT UNDER ANY CONDITIONS IT IS NOT THERE FOR YOUR BENEFIT PERIOD! The company will claim that the gas is unmarketable at the well and claim that it needs to be enhanced to be sold, and they will deduct every deduction that they can take from your royalty to pay their cost. How do I know that, it is happening to me right now. The land men on here can talk on here all they want about well cost, fracking cost, transportation cost, insurance cost what ever cost they want. But they just need to remember it all starts with the gas and oil that we as landowners own on our properties. Without us they don't have jobs and the oil and gas companies wont have to worry about cost because they will be out of business without us. And please for all you professional land men that are out there, this article isn't for you. It is for the parasites that are out there taking advantage of landowners by lying through their teeth to get what they need!

Permalink Reply by Joseph-Ohio on November 6, 2013 at 12:02am

Kevin,

Difficult (horrible and sickening) to read but, exactly what our intuition has been screaming at us from the very beginning.

Substantiated by what you (and others) have written, it seems to us that many O & G Lease Agreements have degenerated into more litigious fodder than Business Agreement / Contract.

Disgusting to read about, but, thank you for your very informative report and opinions.

Permalink Reply by Joseph-Ohio on November 6, 2013 at 3:51am
Kevin,

To be fair I find earlier discussions (on this thread) between TG7891, Karla and Philip Brutz that speak to certain Cabot leases that sound like they are serving the landowner's interests better (in that there is no post production costs to be paid by the landowner mentioned in the lease and none are being charged).

Wondering if that will end up in litigation later and change ?
Permalink Reply by Joseph-Ohio on November 6, 2013 at 12:01am

george m.,

Difficult (horrible and sickening) to read but, exactly what our intuition has been screaming at us from the very beginning.

Substantiated by what you (and others) have written, it seems to us that many O & G Lease Agreements have degenerated into more litigious fodder than Business Agreement / Contract.

Disgusting to read about, but, thank you for your very informative report and opinions.

Permalink Reply by Joseph-Ohio on November 6, 2013 at 3:30am
To be fair - earlier in this thread TG7891 discusses certain Cabot leases with Philip Brutz & Karla that are written excluding post production costs being paid by the landowner and follow thru with it (none charged).
Permalink Reply by Al Cramblett on November 6, 2013 at 3:55am

I seldom venture from my home on GMS which is the Harrison County, Ohio webpage. I also have not posted for several weeks as I have been spending significant time taking of business. That means ensuring that the title to my property is held in the correct entity with a proper situs; estate and tax planning and preparation of a Dynasty trust are currently in process.

To criticize an entire industry or a specific vocation is blatantly unfair which is what the title to this thread did. I am not posting to criticize rather to try and orient one's thinking in the proper direction. Anymore who is involved in a business venture should put the agreement in writing. What anyone has said matters not – it's the contract language that prevails unless one wants to go to court and try to prove that the contract was misrepresented. Good luck with that! Of course, with any contract involving complicated issues, professional counsel should be sought even if it's having this done as the last step in a self-negotiated contract.

Regarding the comment that gas companies can not be trusted, this is decidedly contrary to my experience in one of two situations.. I am a member of a drilling unit that has producing oil and gas wells. My oil and gas company has been sharing information from the very beginning despite the fact that I have yet to receive a royalty check. My company has agreed to send me an advance payment so that I can make an investment this year. My lease contract does not require them to make a payment until after the first of the year. I could mention other situations where my relationship is literally win-win. I have every expectation that I shall remain happy when I received my first check. Also, I would suggest the readers of this thread visit the Harrison County, Ohio webpage in a couple of months as I shall be posting actual production numbers and royalty payments received. Few are doing this which is very unfortunate. With the proper planning, education, and due diligence, landowners in eastern Ohio shall prosper!

Permalink Reply by Joseph-Ohio on November 6, 2013 at 3:59am
Encouraging to read Al.

Thank you for your reply.
Permalink Reply by Kevin in Belmont County on November 6, 2013 at 4:35am

Good luck to you Al. I hope you have the same opion when your royalties starting coming in. I will be looking forward to reading those numbers.

Permalink Reply by Al Cramblett on November 6, 2013 at 5:55am

Kevin, so do I! My experience with the 2d oil & gas company was negative but not as bad as the situation with you.  Good luck and I pray you prevail.

Permalink Reply by george m. on November 6, 2013 at 8:22am

Please folks, just because you get a check from the O&G co, don't assume it conforms to your lease.  Your remittance statement should be audited to verify that your payment is not reduced through a variety of manipulations.  Who could properly do this verification?  I propose that the State appoint a Landowner Ombudsman similar to Finra  in the securities industry.  I'm sure the industry would demand a representative in the OL office.  That's ok as long as the industry funds the office.  This office would insure that the landowners are being paid correctly without the need for expensive litigation. 

Permalink Reply by Nancy LeNau on November 6, 2013 at 2:54pm

Great Advice !   Thank you, Farmhouse !

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