Gulfport's "Dear John" Letter to Royalty Owners

Recently Gulfport send a letter to lease holders that they have been going over the leases after 5 years, and found that they need to take out for of royalty payments a production fee.

It seems pretty strange that it took them 5 years to finally read the leases. They said according to the land portion you have in the well deductions would be adjusted.

So I called and they said no royalty check probably for two months or more to they adjust or recap fees. Anyone else received this letter. Has Gulfport just started in business or are they just as puzzled as we are about oil and gas?

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Permalink Reply by Paul Butler on December 11, 2015 at 2:27am

It takes time for all the ne'er do well/no account relatives and stripper girlfriends of the Principals to learn how to do their jobs in a fashion where it is not obvious the work is wrong.

They will probably get it down to the point where only industry people will know how completely incompetent the employees are, but that's going to take some time.

Mike MurphyPermalink Reply by Mike Murphy on December 11, 2015 at 2:41am

They must have seen how CHK is screwing landowners so now their going to try it........they change the way they do business and if you don't like it sue them and their team of lawyers will eat you alive............that is how CHK looks at it

Permalink Reply by G.H. on December 11, 2015 at 5:23am

"It takes time for all the ne'er do well/no account relatives and stripper girlfriends of the Principals to learn how to do their jobs in a fashion where it is not obvious the work is wrong."

lol nailed it

Permalink Reply by Roger Perdactor on December 11, 2015 at 5:14am
I have gone through 10s of thousands of oil and gas leases in Appalachia. And quite frankly, as competent as Appalachia land owners love to pretend to be, nothing is further from the truth. The landowner situation up there is embarrassing and a travesty. Business should be much easier up there and it is frustratingly hard because of this. Only the landowner groups, the ones that knew they were incompetent and turned to attorneys (in some cases another mess up on their part as the attorneys up there at just as embarrassing), got a somewhat decent lease. Gulfport as well as most other operators that took ASSIs, most leases weren't the same. So sometimes in a land grab some of the fine print gets overlooked by the operator as well. Especially when multiple ASSI occur before reaching the end user. It can shake out for either the landowner or the operator. This is just one particular issue that they have noticed and are addressing I'm sure. As much as you people love to bitch and moan about EVERYTHING, Gulfport is probably the most honest operator in the Utica to date. I have working interest in many wells all over the country and stuff like this happens all the time.
0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on December 11, 2015 at 6:22am

Roger,

    The problem with people living in the Eastern US is that they accept a man's word at face value and are just now being exposed to the Wild Western US where anything goes and a man's word must be backed up by a contract, and then follow up with lawyers.

Keeping quiet when being stolen from may make you appear to be a "Man" or "Woman". Speaking out when robbed notifies others in a similar situation that someone is conducting Fraud so you have to ask questions and be careful not to deal with a Crook.

Permalink Reply by Jim Litwinowicz on December 12, 2015 at 5:05pm

The 'landowner situation' is that the oil and gas cos took advantage of people.  This area was a major producer many decades ago when all wells were straight vertical wells. Wells produced very little and the leases were very simple instruments. No one here knew about new technologies and how it changed the industry or how it required leases that were much more complicated and detailed. 

Certainly, landowners should have done their due diligence.  Some just didn't want to pay an attorney as they were living on tight budgets. Many others were just too trusting of slick-talking strangers. But that doesn't excuse writing misleading terms into a lease or not honoring what was written in.

I talked to several local attorneys, including ones that said '"we've been doing gas leases for decades" that didn't have a clue about the new methods and requisite leases. I attended group meetings by attorneys that knew next to nothing but smelled money, including a couple that used to post here. Many of these attorneys did great harm to their clients by not knowing what was happening and giving terrible advice.

As an example of the duplicity of the O & G industry, I was in central Pa in 2011 and met a landman working for a CHK contracted land company.  He said he was working in Columbiana Co., Oh, signing gas leases for $100/acre.  I asked him why there when there was no Marcellus shale in that area. He said there was another one called the Utica that was going to be huge and CHK wanted to sign as much acreage as possible before the public knew about it.  RR did the same after their first horizontal well in the Marcellus 2005.

If business is hard here much of that lies at the feet of the O & G biz that wrote the rules of the game.

Permalink Reply by Robert J. Smith on December 20, 2015 at 6:23am

I am in Jefferson County Ohio and have a lease with Chesapeake negotiated by landowners group ALOV.  Chesapeake and the other oil and gas companies played and plays on what we call the American self dependency and grit to succeed.  We still think that we are on wagons going West and can do our own thing to succeed when we know nothing about the oil and gas industry and how they rip off people.  First example is the landsman (CROOK)  who hit the area and got cheap leases, and I mean cheap at $15 or $20 an acre with 12% royalty, and pledged the landowner to secrecy.  Even my own relatives would not  tell me what kind of deal they made. I had previously leased to Belden and Blake out of Canton, Ohio for $12 an acre in 1992 but after a year they cancelled the lease.  In 2010 I received a call from a Landsman who wanted a lease.  I told him to forget it because I was not going to fiddle with their $10 or $12 an acre lease.  Lo an behold he told me he was offering $300.00 an acre.  That floored me and the bells went off.  I knew something was happening and saved myself from the crooks.  That didn't stop the crooks though.  They keep coming back wanting me to agree to increasing my drilling unit from 640 acres to 1280 acres.  Good move on their part.  They tie up 1280 acres with one well, they can then drill at their leisure depending on market price, and I get screwed by receiving royalties from one well with no more lease money coming in, EVER.  Anybody is crazy to agree to a larger drilling unit without substantial compensation for doing so.  I firmly believe the the big battle is coming.  Landowners need to band together and audit gas and oil company production and royalty payments on a continuing basis.  As ta group the cost is not that great and the benefit may be substantial.  This group should be set up with all the participants in the drilling unit as soon as the drilling unit is established.  I do not know what your contract says but mine says I can audit their books and they have to give me the names of everybody in my drilling unit with acreage as soon as the drilling unit is established.  Anybody who trusts a gas and oil company will probably buy the Brooklyn Bridge.  When a gas and oil company's ask for something put your hand out and tell them what you want; nothing is free. 

Permalink Reply by Bill Bergseid on December 22, 2015 at 6:22am

Many of you are so paranoid,  We own minerals in a number of states and have leases with many companies, including CHK and Gulfport.  When an oil company has a geologic idea they lease up land in the area.  If there hasn't been much activity in the area, leases can be purchased cheaply at first.  No one holds a gun to the mineral owner's head.  They make an offer and the mineral owner can accept it or do like Robert Smith and reject it. If the play works, the owner like Mr. Smith may get a better chance. The oil company may lease hundreds of thousands of acres on the geologic idea.  Sometimes the idea works and sometimes it doesn't.  Or maybe the idea would have worked at higher prices but doesn't when the price of oil drops.  Hundreds of thousands of acres were leased in the Mississippian play in N. Oklahoma and S. Kansas and many of those leases were not drilled on before the prices dropped.  Those who leased can enjoy the bonus they received and know that some years down the road they may get a chance to lease again.

Just like any transaction, each party tries to make the best deal.  And each party is free to walk away if they don't like the deal.  Now the oil companies are in the business of leasing so they know more about lease terms, etc. than the mineral owner, who may be a farmer.  The mineral owner may know nothing about oil and gas leases, so he can try and educate himself or hire the expertise.  Just like changing the transmission on your vehicle, you can save money and do it yourself, learn a lot in the process, and probably do a better job the next time, and the next time, and the next time.  By hiring the expertise, you may avoid some mistakes.  My impression is it has been hard to find in Ohio the kind of expertise needed to negotiate oil and gas leases.  Part of this is because the wells historically have not been big producers so there was never enough money in the proposition to make hiring an expert worth doing.  When I needed a question answered about an Ohio oil and gas lease, I found an oil and gas attorney in Columbus (only does oil and gas work) with several decades of experience.  You aren't going to find that in most local areas.  But to complain that the oil company is unscrupulous because it knows more than the mineral owner is just whining and sour grapes. 

If you had an old rusting car sitting in your farm yard and someone came by to offer you $500 you might jump at the offer.   After all, it just sat there for decades rusting, housing mice and growing weeds.  If it turns out that the buyer was an expert in antique car restoration and there were only 5 of those cars in existence, would you call him a "crook"?  He made you an offer that you thought fair at the time and you were glad to accept.  The fact that he made $100,000 on the car, should make no difference.  You could have fixed the car up and sold it.  Similarly, you can choose not to lease your minerals to the "crook" and instead pay your share to drill the $8 million well.  If you are like me, I am glad there are companies with the expertise and $8 million dollars willing to spend it drilling a well on my minerals.  I get a bonus payment, a royalty and I try to protect myself (sometimes hiring an expert) through lease terms that are acceptable to me and to the oil company.  Sometimes I don't get all the terms as I want them.  So I have to make a decision just like Robert Smith did and take what I can get or walk away from the deal.  The great thing with market transactions is that the deal only gets done if each party believes it will improve his condition.

As for holding 1280 acres with a well, I as a mineral owner love it.  Even though the well isn't exactly under my minerals, I get to share in the production from that well.  With a 1280 acre unit, the company can drill longer laterals, recovering more hydrocarbons making extraction more profitable, and my royalty checks larger. 

Robert, your idea is interesting about contacting the owners in the unit and sharing the cost of an audit.  The names are available through the ODNR website.  You could write them all and see if they are willing to share in the cost of an audit.  Having shared in audit costs before, I can say that in most instances I would not want to participate in the audit.  While the audits generally turn up some improper deductions, the usually aren't significant enough to cover the cost of the audit.

Permalink Reply by KAS on December 22, 2015 at 7:21am

Well stated. 

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on December 11, 2015 at 6:16am

Go to your Attorney Generals website and file a complaint electronically using the form they provide. If you are in PA call the number that was on the post by Jackie Root.

In Ohio we need a lot of AG complaints so MD will know to stop counting his Chesapeake Bucks and get back to work protecting Ohio Citizens even if they are only Landowners.

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on December 11, 2015 at 6:30am

I heard about the landowner in Jefferson County that filed a complaint with a lawyer (I doubt the complaint made it to court) and ended up being threatened with a $1,000,000 suit that would take his farm. I hear he signed that he wouldn't file another complaint.

I doubt the document he signed will prevent him from filing Criminal Charges since this type of theft followed by threatening the victim is covered by the Ohio RICO law.

Enough said for now.

Permalink Reply by Robert J. Smith on December 21, 2015 at 4:19am

The basic rule is that you sign nothing other than the original lease.  If your attorney wants you to sign something have him/her put in writing the reasons that he/she is advising you to sign so that you will have a record of the advice and why the advice was given.  DO NOT SIGN ANYTHING UNDER THREAT. OIL AND GAS COMPANIES AND ATTORNEY'S WILL THREATEN  ESPECIALLY WHEN THERE ARE NO WITNESSES.  The other ploy is that you receive a letter that matter of factly states....." here is $10.00.  You need to take the enclosed document to a notary and have it notarized when you sign.  Return the notarized document to us......). In addition the letter states how this will benefit you.  It does not indicate how it benefits the oil and gas company.  Do not GIVE anything to the oil and gas company's without compensation.  If they want something, it is worth something more than the $10 they send with the letter.  Best bet, find an attorney who you trust and then don't fully trust her/him. 

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