Replies to This Discussion

Permalink Reply by CA770N on May 11, 2011 at 10:34am

This is good advice, however if you have less than 20 acres (maybe less than 100), the companies will not work with you & give very few concessions.  I have dealt with 3 companies over the last 3 years & none would give what most people say you should ask for.  There was a sweet spot when all the groups in Bradford signed, but I think now it is as bad as in the rush of 2008.  Three of the companies have come & gone 3 times in Southern Tioga and there is precious little unleased.  Some leases have expired, but while the money is better, they are still only willing to give so much.

Permalink Reply by Brian Day on May 11, 2011 at 1:13pm

I do understand what you are saying, Cindy.  I guess when they do start drilling the horizontals, fracking, putting in pipelines seriously.  If enough small acerages refuse to sign poor leases and the PA. government actually backs up its citizens as it was elected to do (Good luck with that) and does not let O&G companies drill right up next to property linesso that they can pull gas out from under you, then the O&G companies will probably write decenty leases for such small plots just to make the layout and developement of the units reasonable.  It would be cheaper to write a decent lease for a tweenty acre doughnut hole than half to drill two more odd horizontals just to stay 1000 feet away fronm an unleased property line.  Units become a lot more difficult to develop when a state law requires that they stay 800 or 1000 feet away from unleased land.  So, they threaten forced pooling.  Fine,  if someone is forced into a pool then the bonus money should be at least 80% of the highest bonus paid in a 10 mile radius and the royalty should be no less than 2% under the highest royalty paid in the same radius - at the well head.  thes are just number I am picking out of the air.  pick different numbers if you don't like mine. 

While i am picking numbers, I'll pick some more.  On the issue of challenging the "held under production" clause that a majority of Tioga County got trapped by due to vetical wells on 640 acre units, with no pipeline within miles;  how about landowners putting a dollar an acre every year into a fund to pay a qualified lawyer in 4 to 5 years time to challeng what the term "production" really stands for.  If you have  20 acres and you are working okay and paying your morgage all right, 20 bucks a year maybe isn't too bad.  if you are 75 years old, sitting on 300 acres and you've got more bills and expenses than you can manage now, put in 25 cents an acre if you are able.  If, 4 and a half years from now, Shell decided to drill for oil in Ohio or North Dakota or Brazil and left some pipes sticking out of the ground, and maybe they would send a few guys around with a dozer to stir the dirt a little on each pad or toss out some old rusty pipe just before each lease was about to run out again.  The land owner group might have 10 to 50 thousand dollars to pay the lawyer to challenge the definition of "production."  If Shell didn't want the trouble, they could pay better leases or give it up for another company to lease.  Gee, I'd love a chance to renegotiate , as a group, with a new player for better money.  If Shell gets pipelines done and horizonrals drilled and gas flowing in thenext two or three years, fine, we look at the list of who paid in what and send back the money.  Now, handling money of any kind cost a little money so some accounting firm or bank will have some costs to take out.

   I do not plan to build a mansion with royalty money.  I AM over 50 years old with out insurance.  If I get ill in the next few years, i wouldn't mind having some royalty money coming in to deal with it.  I would not have minded being able to have banked a decent bonus check towards more retirement.  i figure most of the executives and upper personel of East/Shell have insurance and retiremnet.  Some of you out there reading this thinking, that damn Brian, always a loudmouth hot head.  You  might figure the $60 bucks an acre or so was just fine and whenever Shell gets around to do something will be just fine too.  Six months or a year from now, if you find yourself or a loved one in a situation where you desperately needed the money that you should have got, that $60 and acre and 12.5 % might gale you just a little bit.  I hope such a situation never happens to you.  Maybe it won't happen next year.  maybe it could happen 4 years from now.  Maybe it would be nice to be part of a group trying to make a stand against being forced to practicaly give away your mineral rights every five years.

   One last thing, when Shell and the other O&G companies are done with Tioga County, it isn't going to be anything like what you have been used to and perhaps loved dearly.  It may still be a nice place compared to some other choices, but its land and its lifestyle will be vastly different.  The demand for the resource beneath the ground is so great that you cannot stop the change.  Don't you want to try for all you are worth to at least get a fair price for what the world is about to take from you?

 

 

Permalink Reply by Lynn Wigglesworth on May 11, 2011 at 1:55pm

Do you think that East/Shell would EVER agree to a vertical PUGH? I argued with them until I was blue in the face, trying to get a regular PUGH. That ended up being the end of my negotiations with East. Now it doesn't matter; East has units all around me; they literally had to take a big chunk out of one unit to go around me. Now they need me, but they would stop a horizontal well short rather than give me a decent deal. I just have to go for the best deal I can get (which I'm sure will be nowhere near market value).

Permalink Reply by Brian Day on May 11, 2011 at 2:37pm

I have had lawyers tell me that the definition of "held by production" is something that could be challenged if someone or a group of people were willing to fund the legal battle.  I think it would be worth a certain amount collectively from many people to raise that challenge.  I think if East/ Shell feels any threat from such a legal battle, they might stay in the game in Tioga County and hasten their development along.  They might not get distracted by other gas plays elsewhere in the world  and decide to put us on hold.  I think if all of those vertical wells around you with no pipe taking gas away to market  were suddenly not legally adaquate to hold those units of 640 acres, East/ Shell would be in a world of financial hurt.  I think in four years, I would like to have a lawyer with the proper preparation and funding ready to challenge the first roll-over lease founded on them coming to the pad, moving some dirt around, and dropping off a pile of rusty pipe.  The way things stand now, they probably wouldn't even have to bother with that false pretence of 'working toward production."

Permalink Reply by Brian V. on May 11, 2011 at 4:32pm

What I think you are talking about among other things is not a depth pugh clause but a lease of horizons. Horizons are geologically depths of rock in your area. I have no idea how deep they are drilling the Marcellus in this area but the Marcellus itself is a horizon.

 

As for challenging the term "held by production", where to start. Maybe you lock horns on something like that with East but now that your lease and most of Tioga oil and gas rights are owned by Shell no way. Sure any law firm would love to take your money and attempt to make a name but a company like Shell would have the gas produced in 20 years and you'd still be in court.

 

I'd prefer they shut in these well for the net 5 years anyway. By then I'm sure the market value for natural gas could be nearly double. Then again the state could pull a NY and shut it all down to do a 3-4 year study.

 

I read an article recently about an oil play in Ohio. I don't recall any mention of the Utica shale being involved. In another recent article I read that geologist believe the Utica is too deep and thus been heated too much to still hold producable gas. Or in other areas too shallow and thin to be marketable. Most likely these articles are put out by Oil and Gas companies to mislead though.

Permalink Reply by Brian Day on May 12, 2011 at 2:38am

I am reading these posts on the main page of this forum about wells that are being drilled now.  Thank you for providing the proper term lease of horizons. 

In some way I agree with you about taking on such a large company as Shell.  In truth, the battle was probably lost 3 years ago when East first offered $300 an acre to write a top lease.  Tioga County was given a blaitant wake-up call that something valuable was there.  Some people tried to get the majority to hold out for more money and a better lease.  One group under a good negotiator did get a decent top lease of $2,750 an acre and 17.5% royalty, plus many nice features to the lease.  Had that group got three times the number of landowners to take the top lease, instead of East's paultry offering, Shell might never have purchased East.  East would not have had the finances to drill of the vertical, land-holding wells you have today.  The early part of 2011 would have been the start of much better offers for new leases for anyones lease that had expired with East.  This of course did not happen.

Various reason that i heard for not going with the negotiator were that people didn't like his personality or didn't want to pay a fee for the negotiation.  In business, you often work with people that you are not that fond of.  there is always a fee of some sort charged for negotiation.  this one man got results in a time ly fashion.  I supose it is nice to have several people running a negotiating team so that a landowner can pick out a personality that he can deal with.  A commitee of negotiators is like not to react as fast as one decisive person unfortunatly.

all of this is water under the bridge.  yes, Shell is a formidible apponent.  Actually, i would rather not consider them an apponent.  i hope that they contnue to develop their investment.  The Pa. legislature's fickle , condesending nature toward the O&G companies is more of the problem.  a successful legal case is really one ofthe only way the small man can be heard.  Such a battle may indeed be lost.  judges simply make wrong decisions even if the attorney has done his job properly.  but at least it is a fightable battle.  It might even go our way.

Big companies like Shell have enough money so that if they wish to stop working on a big investment and move to Argentina and work for a while , they can do it.  If you have a legal challenge threatening the total lose oftheir investment, they may be encouraged to follow through more quickly.  I am talking about preventative measures and looking ahead four or more years.  i am talking about binding together as a groupe of commited landowners in Tioga County .  That did not happen three years ago.  i suspect Tioga County could come done as a kind of laughing stock of the areas in Marcellus that got took really big becuse too manuy individuals though tnegotiating a lease was like selling a calf at the sale or buying a car, something a clever person could do by himself.   that is not the case.  the first chance is long gone.  perhps we could do what we can to insure our right to chance at another negotiating session in four or five years.

Permalink Reply by Brian V. on May 12, 2011 at 3:45am

I don't have a copy of a Swepi/East lease but it would be interesting to read the shut in clause in those leases and determine if there actually is a violation of terms. They put these leases together specifically to be open ended in their favor. HAs it been determined that East/Shell or moving forward Swepi (that is what they are going by now) hasn't been activley drilling horizontals. I know that most companies are drilling 1 maybe 2 horizontals and producing them as pipelines are made with plans to go back and drill the other 4-6 horizontals once they have HBP the region.  It seems that Swepi would only have to prove that an effort is being made to secure pipeline ROW's to fend of any litigation.

 

I have heard that where the shale is thick enough they could drill deeper into the shale and produce additional gas. That supposedly is why leases have gone for so much more in Bradford and Susquehanna Counties.

 

There are all kinds of gas producing formations in this region. The Trenton-Black River and Oriskany to name a few have been sucessfully drilled in recent years. That is why a lease of horizons should always be considered because you know eventually they will go after those and others too. Heck they may find oil someday. That would be a kick in the face to anyone that signed their rights away for 10-100 dollars in recent years. The royalties would be great though. The landman will always tell you that they don't lease horizons but for some reason they have done it in other areas of the US. Fact is they would rather get it all in one lease than have to pay you multiple times. Overall a pugh clause will eventually be useless if Swepi developes this correctly. Most companies put their units right next to each other so as not to leave any shale untapped. I still would love to see a form of integration which would allow me to participate in a well as a mineral owner as apposed to having to sign over my rights and get back what they offer for a royalty. I know folks in NY that have made out like bandits that way with TBR wells.

Permalink Reply by Lynn Wigglesworth on May 12, 2011 at 4:52am

The copy of an East lease that I have is a couple of years old. The shut-in provision seems pretty iron-clad to me. If the well isn't producing for any reason for 12 consecutive months, they pay a 'shut in' royalty of $5/acre/year (starting when the lease expires).

"Upon payment of the shut-in royalty as provided herein, this lease will continue in force during all of the time or times while such wells are shut-in but failure to properly pay shut-in royalties shall render Lessee liable only for the amount due and shall not operate to terminate this lease"

Sign with them, and they own you forever.

Permalink Reply by Brian Day on May 12, 2011 at 5:57am

Lynn, I was typing the next long reply while you were typing this one.  The term "shut-in well" may also be a term that is challengable.  Is a shut-in well one that has been producing and generating royalties and been closed down due to a significant drop-off of gas, rendering no longer commercialy viable for the oil and gas company, or is it a well that has never been brought into production rendering royalties.  here in Wyoming, it probably is taken for the former description.  A good lawyer might push this destinction.  the Pa. legislature would rather not think about it.  It makes their buddies nervious and might cut down on the campaign contributions, among other possible benifits.

Permalink Reply by Lynn Wigglesworth on May 13, 2011 at 12:40am

I'm not sure on what legal basis anyone could challenge Swepi. The are doing exactly what their lease says, and there are no PA laws against keeping shut-in wells forever. If there is no legal definition (say for shut-in well), wouldn't the courts go with the definition in the lease?  I'm not sure how making new laws would apply to leases and practices already in existence.

Permalink Reply by Brian Day on May 13, 2011 at 1:38am

All of your questions, Lynn, are why we have lawyers and why they get the big bucks.  I like to add a little response to Anne's thought that if the issues were challengable, a lawyer would step up and do it for free.  My wife is a lawyer (she does not deal with this type of stuff at all) and I have grudgingly been given a little window into the world of lawyers.  99% of the time, they do not work on anything for free.  That only happens in Hollywood.

Anyway, I've raised an issue to the general public that should be considered in a timely fashion - or not, if you decided to just roll over to everything in the future.  Hpoefully, Shell will move right along with their plans in Tioga County.  hopefully, in four years, I won't be reading peoples' whining about issues they should have started preparing for now.  Id rather here them whine about banking and investment issues for all of their royalty money.  With all due sincerity,, Good Luck everyone.

Permalink Reply by Ann Ticopa on May 13, 2011 at 4:50am

NO, I didn't write that lawyers would do it "for free".  Contingency case lawyers don't stay in business long if they aren't good at evaluating which cases will/won't cover their costs + a handsome profit.   Nor do I necessarily think that contingency would be the better choice for Lessors; it requires ceding most of the control to the lawyer(s). 

 

Incidentally,  I think your claim that only 1% of legal work is done pro bono (to the client) is low. 

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