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Permalink Reply by Joseph-Ohio on December 20, 2013 at 5:21am

These thoughts / concepts of yours all seem very logical to me.
Being able to sell your production vs. having it choked off or shut-in would be a definite consideration.
Don't know their shut-in terms however. If their pockets are deep enough though and their shut-in clause is adequate the $ per unit of production will only rise over time (my prediction) - so being shut-in and waiting to sell production at some time in the future may not be all that bad of a deal. It all depends on the variables involved.
Good thoughts / concepts however in my opinion.

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Permalink Reply by Kyle Nuttall on December 20, 2013 at 11:23am

I'm not going to speculate as to why that Market Enhancement clause was used.  I'll say that I've been able to get the language that comes after the "however" removed from most of the leases I've negotiated for my clients.  I've even gotten it removed from a Modification.  When I've done it, it hasn't really been hard.  Sometimes it's important to the project manager you're negotiating with, sometimes it isn't.  When it's important, it's harder to convince them to change the language.

The best thing I've found for getting what you want is taking the company's time.  When they get to where they're needing to make a decision as to whether they're going to move a rig, or whether they're going to start permitting, they'll be a little more flexible.  You have to be able to gauge the company's anxiety level, and make sure you don't push them too far, but it's the best tool you have in your belt.  

Keep in mind that you're not negotiating with Antero, you're negotiating with a project manager.  Each project has it's own budget and other constraints and considerations.  You have to ask questions to figure out what is important on that project.  Take time.  Talk to them.  Get to know them.  Don't just slide marked-up documents and new language across the table to a smiling face until you're deep into the negotiations.  You'll get a lot farther and figure out what you can get or not get by spending time with the landman and anybody else you can talk to.

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Permalink Reply by Joseph-Ohio on December 22, 2013 at 11:11am

Seems to me the following would be fair :

1) If the E & P finds a market and also finds it advantageous for both the E & P and the Landowner / Lessor and elects no 'Market Enhancement' options the royalty paid to the Landowner / Lessor would be paid based on the 'Henry Hub' prices - without deduction and as pro-rated on the basis of the Landowner / Lessor acreage percentage of the 'drilling / production unit' and of course the agreed to royalty percentage.

2) If the E & P finds a market and also finds it will prove to be advantageous to both the E & P and the Landowner / Lessor to elect 'Market Enhancement' options the royalty paid to the Landowner / Lessor would be paid on the basis of the E & P Company's 'Net Profit' whether doing business with an 'Enhancement Associate Entity' of some sort or an 'Arms Length Enhancement Entity'.  Deductions from the Landowner / Lessor royalty payment would be on the pro-rata basis of both the Landowner's / Lessor's acreage percentage of the 'drilling / production unit' and on the basis of the Landowner's / Lessor's agreed to royalty percentage.  Also there would have to be a 'Net Profit' greater than if sold to any other market  or 'shut-in' and 'delay rental' stipulations would be initiated.

This may sound like shutting the barn door after all the livestock has left to some but being un-leased  landowners / prospective lessors it's pertinent to us and others like us.

What do you folks think ? ?

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