Eastern Ohio - Oil & Gas Leasing

Mike in Ohio · #1 05/20/11, 04:44 PM

Our farm is in Carroll County and I just want to remind anyone in the area that owns their Oil & Gas rights to be careful when leasing. Be careful about the money terms and careful about the terms and conditions.

There are more than a few experts saying that the Utica shale may be an even bigger play than the Marcellus. Marcellus is not that thick in Ohio but Utica is something like 200-300 feet thick in my area.

There was a meeting at the high school yesterday evening and I signed with the SURE landowners group which organized it. I know that the base upfront bonus money on a 5 year lease will be at least $3,500 per acre and the minimum royalty will be at least 20% gross. There are 5 companies that are bidding for the 10,000 acres in the first group. Voting on which of the top bids to accept is supposed to be in June with lease signings planned for July. They are talking about a second SURE group possibly being formed at a later point.

The reason for the cap on participating acres was to enable some of the mid-size companies to compete and to increase the number of potential bidders. The lease is pretty good from a landowners perspective and is based on the ALOV group lease that involved 70,000 acres and went $2,250 per acre and 17% royalty. You can find the ALOV lease at www.alov.us as a reference.

There are a lot of folks out there trying to get leases from landowners and more than a few of them are scum who will lie, cheat and steal.

Just to put it in perspective, a year and a half ago Chesapeake (through Kenyon) offered me $75 an acre and 12.5% net royalty (with them getting to decide the expenses to deduct).

A lot of folks from Columbiana county were at the meeting but are not able to participate in this group. Wishing them luck and maybe they should form their own group. This all heated up in Columbiana first but now Carroll county seems to be driving things.

The other thing to watch out for are the folks trying to get easements for pipelines. Landsmen from Dominion and Appalachian Midstream (belongs to Chesapeake) are trying to get people to sign and from what I hear the terms aren't very good. There may be a landowners pipeline group forming soon as well.

So, take a deep breath and don't let anyone rush you into anything. I know other folks may get more money than I will down the road but getting a lease that protects my land and interests was just as important as the $$.

The other thing that might be of interest is that if you have an old Range lease on your property that is coming up to expiration, Range has partnered with Enervest which is partnering with Chesapeake for going after the deep Utica/Point Pleasant shales. What was said at the meeting is that they are moving to drill single wells with large units to hold property through production.

This is a shame for the landowners who signed leases at $10-$25 an acre or thereabouts and won't have a chance to re-lease their acreage at current prices.

I was also told by someone I trust (works for a company that supports the wellsites) that the Chesapeake well on route 9 by Augusta is producing 100 barrels a day of gas liquids in addition to the gas production. That is mighty interesting as my understanding is that they have only done a vertical and no horizontal/fracking yet.

Best of luck to anyone that is in this wild and wooly situation.

Mike

anniew · #2 05/21/11, 10:52 AM

Mike, I'd say that you could get even more per acre if your information about the Utica shale is correct. A year ago I know there were people here in northeast PA who got $5750 an acre with 21 percent royalty based on the Marcellus shale. They have since learned about the Utica layer below Marcellus.

Mike in Ohio · #3 05/21/11, 12:30 PM

anniew,

If money were the only issue I'd agree with you. The ALOV and SURE leases have a number of clauses to protect the land/landowner that many other leases don't. Everything above the Utica is reserved to the landowner and there is a vertical Pugh clause for below where they drill. There is also a surface Pugh clause. These are a few examples of why getting a bit less money but a better lease makes sense to me.

From my perspective, getting more money but risking the value of your farm (what's a farm worth if the water is screwed up?) is a poor trade.

At the moment we don't know what the ultimate money will be. The $3,500/20 royalty is the base/minimum amount going in. The negotiating team/board of directors are not disclosing who they offers are until are negotiating with and what the we vote next month. I will say that at the meeting Thursday evening they were smiling every time the money issue came up and saying that $3,500 was the minimum they had told the potential bidders would be acceptable. There are 5 companies in the running so I expect it will be a fair bit higher.

Mike

texican · #4 05/21/11, 12:52 PM

Landowner groups (trying not to be rude) are worthless, unless they have a oil and gas lawyer working for them.

I could give you enough addendums to add to a lease to protect every conceivable right you have (time tested and written by 'swuft' lawyers).

I'd personally not sign for any less than 25% royalty... the per acre price can fluctuate greatly, depending upon the area, and how much it produces. I know a lot of people have made fortunes, leasing from folks that were traditionally 'trained' to accept the 'standard' 1/8th lease (12.5%). They'll lease for 16, 18, or 20, then package the leases, and sell to an actual drilling operator, and reserve the difference.

If I had a couple hundred thousand in extra cash, wishfully a million or so, I'd buy any and all the leases for 4k/acre, at 20%. Sell it to a drilling op, for 5k, and pocket the 5% difference.

If you have only an acre or two, get the best deal you can, and demand a no surface occupancy clause... if you have "more" acreage, you'll make a lot more money hiring an o&g lawyer. I know some locals that paid a lawyer 300/acre... their neighbors didn't, and got 5k/acre, and poo poohed those with the lawyer.... till the lawyered folks got 16k/acre for the adjoining minerals.

Mike in Ohio · #5 05/21/11, 02:37 PM

Texican,

You can look at the ALOV lease at the link I gave. There was an experienced O&G lawyer for that group and the SURE group has some improvements in the lease.

I'm not look to get every last cent on the bonus money. If I had my druthers I'd get the bonus money and then the bonus money on the renewal (3 year term so that's a 40% increase) and then have it lapse. If they drill I prefer that they drill on someone elses property and take a pass on the pad/bore money.

If someone else gets more money than I do or someone resells the lease at a profit I say more power to them. DW and I will do well regardless and we can get on with our lives. The money can be used for fencing and other improvements that we have been hesitant to make because of the cost.

The person who is buying with the intent of reselling is taking a risk that I don't care to. With what happened in NY state with the moratorium, the person who bought at 4k/20% speculating might end up getting screwed (might not). It's not my business and I'm not intersted in getting into that game.

As far as landowner groups being worthless, putting together the 10k acre block brought 5 companies to the table whereas Chesapeake has been the only game going in the area up to this point.

All I'm trying to do is inform people from the board in the Ohio area about what is going on. Each person will make their own choices and do what they think is best for them.

Mike

fishhead · #6 05/21/11, 07:45 PM

Is this happening in mostly the forested hill country on the eastern side of OH?

Is it driving up land prices yet?

Mike in Ohio · #7 05/21/11, 08:02 PM

I know it's happening in Carroll, Jefferson, Harrison, Columbiana, Coshocton and other counties in the area. I don't know about other areas.

It's hard for me to tell about the impact on land prices generally but I would assume that people are aware of the value of the leases. I have a feeling that we will start seeing more land in the area sold with the oil and gas rights retained by the seller's (I keep track of what's going on close to my farm but no so much further away) or sold off seperately.

This is really going to change things in the area. A lot more wealth for some and likely more difficulty buying land for others. I expect some of those who come into wealth will go through it fairly quickly and others will save and invest their windfall.

Mike

Raven12 · #8 05/21/11, 08:05 PM

Quote:

Originally Posted by fishhead

Is this happening in mostly the forested hill country on the eastern side of OH?

Is it driving up land prices yet?

I would suggest you research the damage that fracking has done in PA before buying any land. This is a huge issue in the state and the reason why NY placed a moratorium on drilling.

stanb999 · #9 05/21/11, 08:44 PM

Quote:

Originally Posted by Mike in Ohio

Texican,

You can look at the ALOV lease at the link I gave. There was an experienced O&G lawyer for that group and the SURE group has some improvements in the lease.

I'm not look to get every last cent on the bonus money. If I had my druthers I'd get the bonus money and then the bonus money on the renewal (3 year term so that's a 40% increase) and then have it lapse. If they drill I prefer that they drill on someone elses property and take a pass on the pad/bore money.

If someone else gets more money than I do or someone resells the lease at a profit I say more power to them. DW and I will do well regardless and we can get on with our lives. The money can be used for fencing and other improvements that we have been hesitant to make because of the cost.

The person who is buying with the intent of reselling is taking a risk that I don't care to. With what happened in NY state with the moratorium, the person who bought at 4k/20% speculating might end up getting screwed (might not). It's not my business and I'm not intersted in getting into that game.

As far as landowner groups being worthless, putting together the 10k acre block brought 5 companies to the table whereas Chesapeake has been the only game going in the area up to this point.

All I'm trying to do is inform people from the board in the Ohio area about what is going on. Each person will make their own choices and do what they think is best for them.

Mike

I'll tell you what I don't like about the lease.

First you don't have a provision to get paid for all that comes out of the ground.... Gas production produces sulphur.... What are you going to do with yours? It's reserved along with any radio active materials. What are you going to do with those if they come out?
The lease should have them responsible for all that comes out and you paid for all that comes out of the well bore.

Two, no hunting time or other such drilling time limitations. Sounds nice to be agreeable. But losing the two or three weeks during hunting season doesn't mean much to them if planned for.... But it could mean business to you do you lease for hunting. Or like here we have a lot of summer camps. They can choose to not be drilled during summer for instance.

Not complete water testing. Don't you want it tested before? What about ponds or springs? What about your neighbours that don't lease. Are they to be tested as well? Will the company pay for it if they agree to the testing?

What about them just using your land for pipelines. It says they can.

Do they have to tell you they hit the next Eldorado gold mine under your land. What about other minerals found when drilling. What about water sources.

The lease isn't exactly clear on how the price of the gas is figured. So your gas company could "sell" it at a loss to it's subsidiary and you would have to accept the lower price. It should be based off of the pipeline price in your area not the "well head" price or If they get a higher price due to their experience in the market it's that. How much is gas worth right next to a bunch of gas wells? Not much.

That's a few points I saw.

stanb999 · #10 05/21/11, 08:49 PM

Quote:

Originally Posted by Mike in Ohio

The person who is buying with the intent of reselling is taking a risk that I don't care to. With what happened in NY state with the moratorium, the person who bought at 4k/20% speculating might end up getting screwed (might not). It's not my business and I'm not intersted in getting into that game.

Mike

Most all of them got Force Major letters. So the lease is effectively frozen till the state decides to lift the moratorium.

You should also have Force Major outlined in your lease as well. What it is and isn't. For instance can they claim Force Major if pipe triples in price? Or they can't get a drill rig for a reasonable price? It needs to be clear.

Mike in Ohio · #11 05/21/11, 09:08 PM

I understand force majeur. My point is that someone speculating on the chance of reselling risks getting squeezed in a situation like that.

Mike

stanb999 · #12 05/21/11, 09:17 PM

Quote:

Originally Posted by Mike in Ohio

I understand force majeur. My point is that someone speculating on the chance of reselling risks getting squeezed in a situation like that.

Mike

They don't call it a gas "play" for nothing.

P.S. did you visit http://www.pagaslease.com/natural_gas_forum/index.php ?

It was started by a man in my town. The demand has been such that there are forums for a bunch of states and Ohio is well represented.
Any question you could have has been answered many times over.

p.s. We got 3K, 20%, 6 years.

Mike in Ohio · #13 05/21/11, 10:42 PM

I'm familiar with pagaslease.com as well as gomarcellusshale.com

I'm not overly concerned about hunting season... that's just me.

We are doing water testing anyways plus Rosbud mining had to pay for testing for the permit they were going to file (but have delayed filing now). If "they" are putting in a well they have to test water sources within 1,000 feet before and after.

Under the SURE lease they can put in collection lines from the well in the unit but transportation lines have to be negotiated seperately. I'm going to check on wellhead vs pipeline price.

Mike

anniew · #14 05/22/11, 03:58 PM

I know two locals that got what I quoted earlier, $5750, 21%, 5 years, and NO Surface disturbance.

Cindy in PA · #15 05/22/11, 03:59 PM

Mike, good luck! I sure hope Ohio has more landowner protections than PA. In the almost 6 years since we were first approached for the Trenton Black River, the bonuses have gone higher, but only a select few have gotten really good leases. Tioga County was leased up in the big frenzy of 2008. Then there was the sweet spot in Bradford & other counties where they got $5750 & a good lease. Now some people Have expiring leases, but the money is still $4000/18% for a 5 plus 5 lease. It is down mainly to Chesapeake in our area, after East did the major first leasing. We finally caved 2 weeks ago, as the neighbors are out for themselves & we were 1 of only 3 small lots on the road & further that were never leased. We lost 2% in royalty over what we were offered last year, but the lease is better. Not the lease everyone preaches or what we wanted, but we had to make a decision & this works for us. We have less than 20 acres, so we struck the best deal we could. It's disappointing that after 6 years the laws & protections have still not caught up. Good luck!

Mike in Ohio · #16 05/23/11, 10:50 AM

Cindy,

What you are talking about is why I started this thread in the first place. A lot of folks only look at the money and some don't even read the lease.

I think your comment " Not the lease everyone preaches or what we wanted, but we had to make a decision & this works for us." is one of the best I've seen on this thread. Reality. I've heard lots of folks that don't have skin in the game say you should do this or that but at the end of the day you make the best deal you can and get on with the rest of your life.

Mike

stanb999 · #17 05/23/11, 11:32 AM

Quote:

Originally Posted by Mike in Ohio

Reality. I've heard lots of folks that don't have skin in the game say you should do this or that but at the end of the day you make the best deal you can and get on with the rest of your life.

Mike

That's why we joined a land owner group. It took more than two years to get a lease signed. But we as a group did well I think. The lease isn't perfect as far as cash is concerned. But the environmental protections are top notch. Which was the most important point for our group and it was outlined that way at the beginning. Their are two big points as well.

No surface work if the acrage is less than 10 acres. No surface work closer than 500 ft from a dwelling... not even roads.

AnEarthMonkey · #18 05/23/11, 11:51 AM

we are in the sweet spot in Bradford County Pa and have a good lease but even with that the roads get destroyed, tri axles run sun up to sun down from area quarries to the pads, semi water tankers run 24-7 and the both of them destroyed seemingly all local roads over the winter.. oh and look out for them coming over the hill or around the blind corner partly in your lane!

most potholes get a crappy patch and its called fixed. also the DEP does not have anywhere close to the needed instectors

texican · #19 05/23/11, 12:23 PM

I don't know as the state (any state) should be in the business of 'protecting' landowners. When the state 'does' get involved, (at least here in TX), the involvement helps the big boys and not the little guys. Money talks... let others protect you, and you need to ask oneself, are they getting paid by you only, or are they on retainer? A lot of locals 'soured' on a prominent lawyer, as he was always willing to help folks out with their o&g issues... till it was found out he was on retainer with the companies he was supposed to be fighting...

A properly worded lease will cover every concern a person could have. It's a legal document... folks signing legal documents written by someone else's lawyer, without having their own lawyer go over it with a fine toothed comb, tend to end up with leases favoring the driller...

If an area has a hot prospect, or already has some monster wells, the landmen (indies and company men) will show up in droves. Fortunes are made. Most landmen 'know' whether there's going to be a drilling program in the area...

Corollary to above... if there's a hotter spot somewhere else, the rigs might not show up for years. The Eagle Ford shale in S Texas has hit oil... some wells are bringing 2K/barrels a day, which works out to ~6M a month... why drill for gas that'll take years to pay off, when you can pay off an oil well (where the real money is) in a month, maybe two...

Ohio dreamer · #20 05/23/11, 02:26 PM

Our community has already looked into fracking and the city and township councils have unanimously said NO (wonder what went through the "gas guys" mind, if he was there, when that voe was done. I wouldn't allow it on any land I had control of.