Pooling Amendments

Hi,

I was trying to get info on pooling amendments for old leases. I hear some companies are paying signing bonuses, royalty increases for amending from 160 acres to 1280 acres. I have heard this has been done with some old Oxford leases.

Thanks for any help.

Robby 

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Permalink Reply by Appalachian on June 25, 2014 at 8:16am

Some old Oxford leases are in appellate court to determine their actual validity. Some problems with language along lines of being a perpetual lease which is illegal in Ohio.  Stay Tuned.

Permalink Reply by Robby on June 25, 2014 at 1:57pm

Thanks for the information. I am being asked to sign this amendment to an old 160 acre pooling, 12.5% lease for little money.  I feel like I should wait before I sign??

Permalink Reply by Paul Martinelli on June 26, 2014 at 1:31am

wait............you can do better

Permalink Reply by Appalachian on June 26, 2014 at 1:40am

Welcome.  Look into the perpetual lease issue and see if your lease has the same wording.  The lease my father signed back in '76 does.  I'm a little west of the activity right now, but forsee myself in the same scenario as you are in the future.  I have decided that my strategy will be based on the outcome of the court ruling.  If the lease is indeed ruled invalid I will have two avenues to pursue, the first being going to court and having the lease terminated, and the second is letting Eclipse know that I am aware I can get out of the lease and asking for appropriate positive changes in my lease in return for not going to court.  If the Oxford lease is ruled as valid, I will pursue the angle of low production.  The two wells on my land make a pittance each year and are in my opinion just holding the lease with no interest in actually making any money.

Take your time, consult an attorney (pay as you go) and read and understand all the terms in your current lease.  Mine actually has a couple shiny spots such as no pipelines other than those used to move production off the property and 40 & 180 acre pools.

Don't let them threaten you.  They will likely tell you that you will be left out of a unit if you don't agree...that's fine.   Being in a unit doesn't really guarantee any real money anyways unless you have substantial acreage *IN the actual unit.  You have something they want/need, which entitles you to compensation whether it be money or better lease terms.  Maybe ask if they are interested in a completely new lease?  That may give you a chance to separate strats, keep pads off your land, etc.

They will likely try to rush you through so you don't have a chance to "dig in"...don't let that happen.  They will tell you almost anything to get your signature.  Get it in writing and UNDERSTAND any and all changes being presented to your lease.  They may slip in terms that change more than just the unit sizing.  Stay vigilant.  Pay attention.  Realize that the land man is NOT your friend.  Consult with an experienced attorney on an hourly basis as contingency gives them motivation to seek more $$s and less land protection.  Be the Boss-You are in the driver's seat on this issue.  When you ask the bank to borrow money, do they let you set the terms of the loan?  If nothing at all comes of this, you will be no worse off than when it began.

Permalink Reply by Diane Sutherland on June 26, 2014 at 3:11am

Very interesting and many thanks! Is there a case number that I can track on internet?  I live in Michigan so can't depend on local news to reach me and am in same situation with old lease signed by grandparents with no end or renewal dates.

Permalink Reply by Appalachian on June 26, 2014 at 4:13am

http://www.vorys.com/publications-1188.html

I don't have the case #, but look at Indefinite Secondary Term and google Oxford oil lease invalid.  Should get you on the right track.

Good Luck!

Permalink Reply by Diane Sutherland on June 26, 2014 at 4:39am

Thank you!

Permalink Reply by BIG on June 26, 2014 at 8:05am

Appalachian ,

If your wells have such a low productivity, why would you wait to have them plugged?  Get it done with now so you don't have an issue in the future.  Or is it, you still like getting the royalty checks from them and when the bigger money comes THEN you will have an issue?

Also, you noted that your father signed the lease in 1976.  If that is the case, then how many thousands of other leases had that same language.  You're telling me that a judge is going to rule against this type of language and make all those leases invalid?  That would destroy the whole industry and there would be major problems with wells that were drilled and still producing today.  Just think about that for a minute.  Thousands of leases would become invalid.  It would be a complete mess.

I find it interesting that there was never any issues UNTIL the Utica was able to be drilled.  NOW, everyone has a problem with old leases.  It stinks from one standpoint that you might not get any bonus money, however you can still benefit in the royalties that come from any new wells drilled.  The money is in the royalties.  It just might take a little longer to get it. 

Why do you think there are companies that want to buy your minerals.  They pay big bonus money because they know they will get it back ten fold in the royalties.

Permalink Reply by Appalachian on June 27, 2014 at 2:29am

OK BIG, I must admit...I'm really getting rich off these wells...lets have a look at "production"

well#1 2011 - gas - 0  oil - 144

          2012 - gas - 0  oil - 72

          2013 - gas - 0  oil - 143

well#2 2011 - gas -668  oil - 73

          2012 - gas -590  oil - 154

          2013 - gas -596  oil - 79

I'll let you do the math on 12.5%.

They continue to have less and less production.  The longer I can wait to dispute the production (which according to my lease, Oxford/Lessor gets to determine if there is any and when and *if they will ever terminate the lease) the less ground the lessors have to stand on.  They are dying off....slowly.

As far as Oxford's leases....they were *never valid.  This isn't my problem, it's theirs.  They knew what they were writing in those clauses, and from initial interpretations they are illegal and invalid.  I have to abide by the law....so shall they.  I don't know about destroying the whole industry, but Eclipse stands to have a slight headache on their hands.  The companies who bought these leases had a chance to review them before buying...maybe they should have had a lawyer look at them beforehand?  They bought the bad leases and I have as much sympathy for them as they do for me.

I've been pissed at these guys for years.  Before I even knew what the Utica was I had been trying to get them to drill additional wells as these two wells are holding up 218 acres and not producing much of anything...plenty of room for more.  Those efforts failed.  "not enough production from wells in that area".  Hmmmmm...you say that the current wells aren't making enough money to warrant more wells on the property?  I take this as my wells aren't profitable.  So if my wells aren't profitable, then why bother to continue with them?  Oh, you're just holding the lease by "production".  BS!

By the way, one judge has already ruled them invalid.  He also stated that it would be a case by case basis and not precedent for all leases to become null.

Tis true that *if I'm included in a unit in the future I may see some royalties, but the current situation I'm in would have me lose $1,000,000 in signing bonus if the 5k/acre rate is what leases end up going for in my area.  In all reality, I would take quite a bit less in bonus monies if I were to be granted some concessions in the new lease.  The time to negotiate/fight will come, and I will be ready.

Permalink Reply by Dexter Green on June 27, 2014 at 2:54am

Those wells seem to meet the threshold of commercial productivity.  And when you say that the Oxford leases were never valid I'm unclear as to what you mean.  Can you give me some color on that?

Permalink Reply by Appalachian on June 27, 2014 at 6:01am

The language of the leases in question have an indefinite secondary term.  It does not specify the duration of the secondary term, instead giving the lessor absolute judgement of what "paying quantities" are.  It is in essence a "no term lease" which is illegal in Ohio.  Henceforth the lease was invalid from the time it was drafted.

Permalink Reply by J.D on June 27, 2014 at 9:06am
Appalachian,
Do you mind if I ask on what legal precedent you base your argument on? I'm not trying to be adversarial, I also have a few older leases with similar language and if there is a precedent I would be very interested in knowing. Based on review of my leases by more than one attorney, it is generally accepted that as long as there's a drip of production, the lease is enforceable.
As someone who has successfully sued a lessor over breach of lease terms, I can also state that there were at the time of the lawsuit, many "authorities" here on GMS that said I didn't have a leg to stand on either. But you must realize that it will cost ten's of thousands of dollars to get a legal ruling, one way or the other. Then, if you are successful you are looking at even more expense at the appeals court level and then the possibility of going on to the Supreme Court.
your wells production look like gushers compared to mine so if there's something you know that I don't I would be very interested in knowing.

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