Replies to This Discussion

Permalink Reply by E. Progar on February 2, 2011 at 5:02pm

Thanks for the information on the meeting. I live in Michigan and can't attend the meeting. My Brother who lives on the property will attend. I would appreciate any information you could share from the meeting.

Permalink Reply by Craig Morris on February 3, 2011 at 8:29am

Looking for some input on a lease we were offered for 2.5 acres in Venetia.  We met with the landman and the deal is $3100 per acre and 12.5% royalty.  I inquired about the 12.5% and thought it was too low based on what I have read here.  He said he could go to 18% but the bonus payment would drop to $2000 per acre.  It was also stated quite clearly that this was not so much a negotiation as an offer and that this was it.  Apparently, you only need 60% of the land owners in a parcel to be leased before drilling can begin and they have that in this Venetia parcel.  So my question is, is this true?  Is the offer final and reasonable or should I negotiate the higher bonus and royalty?  Apparently I have limited negotiation power given that I only have 2.5 acres. 

 

Any thoughts or information would be welcome.

Permalink Reply by E. Progar on February 3, 2011 at 11:59am

Graig, I don't think anyone can tell you what to do but I do know that CHK is the worse to deal with.  They started in the $400 at 12.5% about a year ago.  I did hear that one of the large blocks of land haven't signed and this is holding up offers at this time.  Maybe you can get some answers at the Trax meeting on Sunday. Everyone says to go for the higher royalty over the lease bonus. I would really question that they would want only 60% leased before drilling.

What was the name of the landman you talked to?

Permalink Reply by Craig on February 24, 2011 at 6:06am

In other states it has been tested in courts to drill under a property thata is not leased.  if a company is willing to take the chance, they can drill the well, produce the gas and pay the royalties to all the other landowners.  If, however, you own a porton fo the OGM's in the drilling unit, and are not properly Leased, and they drill the well, then you are entitled to partial ownership of the well.  Not jus a Royalty.  However, in many states the company that drilled the well is not liable to pay you until they have recuped the cost of the well, and then they will pay you based on a working interest, not a royalty interest, proportionate to the amount of ownership you have in the lands in the Drilling Unit.

 

And, you will share in all costs going forward pertaining to the transport or delivery of gas and monitoring of the well.  This can be good and bad.  For, now, you are considered a working interest partner and they can withold any or all of the WI monies until your portion of the estimated liability of plugging or reclamation is covered, effectively locking you out of any monies forthcoming from the well untill such estimated liabilities are covered for your portion.  It also leaves your liability open for your poertion of ownership of such well if something detrimental happens, even though you were not involved in drilling or other operations, you are an OWNER, not just a Lessor.  Lessors have very little liability and owners have very much liability. 

 

Not many companies work this way, but in light of some of the crazy demands being made in Leases today, some companies may determine that the risk/benefit analysis says go ahead and drill the  whole well and give you the portion that runs under your property as a percentage of the whole.  I have seen it in several other states, but not PA as of yet.  I suspect it is coming though.

You are not, however, liable for any monies if the well comes up as a dry hole, or collapses before completion.  You only get ownership if it is a successful well and is producing.

Permalink Reply by FXEF on February 3, 2011 at 4:21pm

Craig,

Don't discount your negotiation power because of your small acreage tract. If it is in the middle of what they plan for a unit, you could have some leverage. I don't know what they are paying for bonus in your area, but $3100/acre is not bad. I would try to hold him to the $3100/acre bonus and ask for 20% royalty, with a "No cost royalty clause."  

Permalink Reply by Suzy on February 9, 2012 at 3:09am

Hi... What is a "no cost royalty clause?"

Permalink Reply by FXEF on February 9, 2012 at 5:56am

Suzy,

With a "no cost royalty" the operator can not deduct for dehydration, gathering, or treating, etc.

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