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Permalink Reply by james on September 9, 2014 at 2:52pm

Don't feel bad, we are surrounded by A and B companies which have multiple wells drilled and everything leased to our property with 2 more proposed wells and we don't even have a lease, over 1000 continuos acres we own in the block.

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Permalink Reply by jeff on September 9, 2014 at 3:22pm

James,

Not feeling bad, just want an objective, informed opinion if Co. A's argument is viable.

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Permalink Reply by Jack Straw on September 9, 2014 at 4:31pm

We could likely offer a better response were I to know how many acres your property comprises.

And, we do not know what State you are located in.

And, we do not know if you are wet or the dry Marcellus or the wet or the dry Utica; as current primary target.

 

My guess is that Company ‘A’ needs you as much (OR MORE) that you need them.

 

Why would Company ‘B’ want your property, whilst surrounded by Company ‘A’?

Possible answer … so that they could swap it for one of Company ‘A’s leases that Company ‘B’ needs.

Possible answer … so that they can obtain an equity (working) interest in any potential unit; competitors cooperate, when it is to their mutual advantage.

 

If your property is the ‘donut hole’ that is preventing company ‘A’ from putting together a viable drilling unit; you should be in the ‘cat-bird’ seat.

 

If Company ‘A’ did not feel that they needed your property to develop the surrounding acreage, they would not be pressuring you; they simply want to get any and all leases as cheaply as possible. They do not want to set a precedent by giving you more than the absolute minimum.

 

If you do not lease to Company ‘A’ they may have to physically avoid your property; negatively affecting their economics.

 

If you do not like the manner or the attitude of the Landman that you have been dealing with, tell the company to send someone out (preferably the Landman’s boss) that you CAN deal with.

 

It is YOUR land and you are the steward of that land; they came to you (not the other way around). You deserve THEIR respect, nothing less.

 

My suggestion is that (if you have not already done so) you come to an opinion as to what you believe to be a reasonable and generous amount (bonus and royalties) that you feel fair and are prepared to accept … AND HOLD OUT FOR THAT.

 

If your final agreement does not have a ‘confidentiality clause; you likely settled for too little.

 

Also, do not agree to anything …. and do not sign anything until you fully understand every word …. And YOU HAVE HAD IT REVIEWED BY AN ATTORNEY WITH VALID O&G EXPERIENCE.

 

In the meantime, do not be shy about asking questions on this board.

 

Good luck to you.

 

It would be appreciated if you could (in general terms) let us know how things turn out for you …. We are all here to learn.

 

All IMHO,

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Permalink Reply by jeff on September 10, 2014 at 1:12am

Thanks, Jack, for your intelligent answer. I didn't think acreage or location mattered in this scenario, but FYI we are in Allegheny county, Pa., ~ 200 ac. involved, dry gas. Yes, we are the donut hole and have an attorney involved. Current offer is 5k & 18% - not bad I think. Stumbling blocks revolve around addendums, particularly how "Gross proceeds" are calculated. It is my belief there will be some sort of swap. Interestingly, Co. A's offer was low ball until Co. B came into play. Also for consideration is the fact that while Co. A claims they will drill, the fact is they actually have had larger Co. C do their drilling. What does that tell us. As far as Co. A's landman, he is the senior landman for the co.. I personally don't care for his approach, but then I'm just a little cog in this whole thing - several other people are involved. Thanks again, Jack, for your input.

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Permalink Reply by Jack Straw on September 10, 2014 at 4:24am

Hi Jeff,

            You appear to be doing all the right things.

The bonus is important; but once spent, it is the royalties that ultimately matter.

You are right in focusing on the royalties being Gross (and not subject to the types of manipulation that have been occurring); protection seems dependent upon iron-clad wording.

RE: "I'm just a little cog in this whole thing"

At ~ 200 acres you are an important cog; one critically necessary for the operation.

As far as addendums .... there are many that can be thought of.

I kind of like the idea of a good indemnification clause .... you do not wish to be embroiled in a lawsuit related to the operators error or negligence.

Also, if possible/plausible a clause that stipulates no surface disturbance, without separate negotiated agreement.

Any ROW/Easement should be for explicitly described purposes .... and only for the life of production. I do not believe that easements should be forever; I believe that they should be terminated when no longer serving their original purpose.

All IMHO,

                 JS  

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Permalink Reply by Nancy LeNau on September 10, 2014 at 3:17pm

Great Information, Jack Straw !  You help so Many.  

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