Texican and anyone else who knows: oil/gas lease question

[ErinP]

Took the kids to a horse show today and ran into a couple different neighbors. Both said an energy company rep had been trying to find us. (We only have cell phones, so no published phone numbers).
They're starting to expand exploration in our area for oil/gas. The thumper trucks are all over the place...

One of the gals I talked to said they had just signed a lease (I assume an exploration-only lease?) for $25 an acre.

I need some experienced guidance!
Here's where we're at:

--Our place is a grand total of 40 acres. House, shop, corrals etc. comprise about 3-4 acres. We're in a drought and don't have nearly enough grass to pasture for our horses so are really hesitant to lose any grass.
The dozen sections that surround us belong to only three different families.

--We don't have a water well yet, but when we get one, it probably won't be deeper than 80 feet.

--We currently have 50% mineral rights on our place. The previous owner has the other half for 10 more years.

What should we expect? Where might they go with this? Is this one of those things that they can lease all of the neighbors and then drill under us with or without our agreement?

[anniew]

Find out what they are offering. Then take it to a lawyer who specializes in those types of leases. I waited about two years until everyone around me had signed, but got the top money (over $5000 per acre) anyway. It is a non-surface lease. They can go under, but not ON my property. I am now in a pool for a well that isn't finished being drilled yet so it will be a while to get royalties, if they decide to go through with it.
Probably different states have different rules, but here one farm didn't sign and he is not in the pool, so won't get any money if the well is successful and royalties are forthcoming. How is he going to know if they go under him??? I don't think metal detectors will detect something a mile down.
Gas leases are very complicated. Don't think you can research it and get all the details yourself. And, don't sign for a measley $25.

[ErinP]

Yeah, when my neighbor said $25, I said "you mean $2500??"
She said no, $25.

Oh...

[oneokie]

Get a copy of the lease they are offering and take it to an attorney for him to review.

[mare]

Originally Posted by anniew

Find out what they are offering. Then take it to a lawyer who specializes in those types of leases. I waited about two years until everyone around me had signed, but got the top money (over $5000 per acre) anyway. It is a non-surface lease. They can go under, but not ON my property. I am now in a pool for a well that isn't finished being drilled yet so it will be a while to get royalties, if they decide to go through with it.
Probably different states have different rules, but here one farm didn't sign and he is not in the pool, so won't get any money if the well is successful and royalties are forthcoming. How is he going to know if they go under him??? I don't think metal detectors will detect something a mile down.
Gas leases are very complicated. Don't think you can research it and get all the details yourself. And, don't sign for a measley $25.

i have a natural gas line going thru my place--its only 3 feet down or less. they were going to come thru with another line that was only going to be 2 feet under

[Pugnacious]

The $25 is just to have the right to drill. IF they ever did drill there would be royalties and payment for the loss of surface area. A lot of wells are farmed and grazed really right up to the well head once the drilling and completion work is done. Some aren't. $25 still seems a little low but you could probably check county records to find out for sure what they are going for or hire an attorney. For reference, my grandparents got around 3500 for 50 acres in an area with literally zero wells for hundreds of miles. The companies just go around and buy up the rights and may not/ probably won't, depending on where you live, ever drill. There are also other things to consider, when my grandparents granted an easement to a logging company to put a temporary road through their property, they got the logging company to maintain the road in including a tall bridge indefinitely. It paid off about 5 years later when it washed out. It would have cost them 10's of thousands of dollars to fix and the logging company had it fixed in a couple days. It's not all bad and if your neighbors are doing it there is NOTHING stopping them from drilling under your land, for free.

[kasilofhome]

PM tex. I am sitting on every bit of advise he gave me. He prepped me be to sound logical on a topic I had no clue and lead me to where and what to do andwhat to say at the next stage (should it happen) --I got a no fly over my place where my home and critters are--agreement in writting which was important to me as they fly so low it would scare the animals. There was another co. that had flown low and caused injury to some animals. The company has been straight up. I would not have known what I could ask for if it was not for TEX.

First they provided the standard form to sign with NO demands from the prop owners. I created my own --due to Tex's info and I feel very comfortable. Yes, it is a wait and see and yes I own NO min rights but I still have rights on my land. Thanks Tex. for Prepping me.

[ErinP]

He found us. The land man (boy) showed up at my door this morning.
He represents JFred Hambright out of Wichita, KS.
A write-up in Wichita Business from last year: http://www.bizjournals.com/wichita/p....html?page=all


He'd like to have a sit-down with us and wondered when my husband would be around. "Well, ironically, my husband is working in ND, in the Bakken." He'll be home again in a couple of weeks, and better than that, my folks will be visiting at the same time.
Dad's not an attorney who specializes in gas/oil, but an attorney nonetheless...

So, I have a couple of weeks to do some research before he presents any specifics.
He said he sure would hate for us to miss out on this opportunity.
Yeah. Because they might quit developing the shale play in our area any minute now...


ETA: Just reviewed our land purchase contract. The seller retained only 25% and it's specifically for production royalties. Exploration, land leases, etc. are excluded.

[ErinP]

He called DH this afternoon. $15 an acre for 3yrs or 25 for 5.
DH asked a buddy of his with Weatherford if that was decent and he said that was pocket change. Literally.
Apparently he just signed a lease in NW OK for his 5 acres for 1500 an acre. Another buddy who owns ground south of Bismarck, ND said he just got 1200...

Interestingly, he doesn't want to have a sit-down when DH gets home anymore. He was pushing to do everything by mail. Quickly.

[pheasantplucker]

I leased my mineral rights for $5900/acre. A friend/neighbor was approached a while back (three years prior to the boom) and leased his for $40/acre. He's sick about it, but there's nothing he can do. The folks he leased to got to flip and they're the ones who will be making hand over fist while he gets next to nothing. Don't be too quick to sign. They generally need to have a minimum of 640 acres (contiguous) in order to drill. Find out how much your neighbors are getting? Your voice will be more effective if you're all in agreement. Good luck.

[pheasantplucker]

btw...more important than the signing bonus (price per acre) is the % of royalties you would get. This amount will quickly surpass any signing bonus. We are getting 21% (as a group or pool). That's huge, and the largest amount in the area. Course I know Ohio is different than the prairie states. Here's a scenario...Say our group 's well produces 2000 BOE per day. Say the price is $100/BOE. That's $200000 dollars per day of production. Our group gets 21% royalties. That's $42000. We have 716 acres in our pool so if you divide the 42k by 716...it means every acre in the pool is yielding $58.66. Multiply that times 30 to see how much that one acre is producing each month. Multiply that times the number of acres you have, and you start to see how this money adds up.

[Laura Zone 10]

We own 1/20 of 5 acres in PA.
I see a check (royalties) for about 40.00 each month.
Dec 2012, I received a check for 3000.00 for the 2 year lease.

Your numbers sound, low.

We had to go through an attorney, because it's property that 20 of my spouses family members own. It was a mess.

[ErinP]

Thanks you guys! I really appreciate the real numbers.
plucker, the math made my head reel. That is an incredible amount of money!
Another neighbor I talked to last night said 6-10% is typical...

question: What if all the neighbors sign now and we're just the hold-outs?
What happens then? Do we risk shooting ourselves in the foot? Or will they keep coming back?
(There has been NO exploration in our corner of Kansas that I've seen, though they're definitely in the area. I've seen thumper trucks across the line in Nebraska, as well as Colorado, but not a single one in our part of Kansas. Yet)

[pheasantplucker]

Hold outs are left outs...at least as far as fracking is concerned...My wife and I, and one neighbor to our south with 38 acres, were originally the only hold outs. We realized, that the company would get the energy beneath us whether we participated or not. Our involvement or non involvement wasn't going to prevent an accident, etc. After it all boiled down, it was going to happen with us or without, so why not participate and make money?

[ErinP]

So we're screwed no matter what.
If everyone else signs for a low-ball offer, we have to do the same or get nothing.

[bowdonkey]

Originally Posted by ErinP

So we're screwed no matter what.
If everyone else signs for a low-ball offer, we have to do the same or get nothing.

Erin, if the $$ aren't enough to really change your life then maybe be that holdout.

[Pugnacious]

Pretty much. Like you said, no drilling in your area. It may just be free money.

Sent from my SCH-I535 using Tapatalk 2

[Michael W. Smith]

I will tell you when you meet with the guy, he will give you a lease and say "This is the standard lease EVERY oil/gas company is using."

And he is right, it IS the lease everybody hands out and wants you to believe "This is it, sign it or leave it."

What they don't want you to know is that you can negoatiate for the best deal. Don't listen to him telling you that everybody else has signed up already, don't listen to him that everyone else signed up for X amount of $ per acre and royalties.

Get the lease, tell him that you need to think about it, and get it to an oil/gas specialist lawyer for review. NEVER, EVER sign the lease at the first meeting, because otherwise you are getting screwed.

The oil/gas specialist can understand your needs and let you know what kind of demands / benefits YOU can get.

As for what the company will pay - pretty much depends on how badly they need your property to complete their large area.

And always put a time limit on the lease that if no drilling has begun by 3, 4, or 5 years, the lease ends. As has been said, some people have signed a lease and if there isn't a time limit, the lease continues on forever - with the people getting nothing more than the sign on bonus.

[Allen W]

Originally Posted by ErinP

Thanks you guys! I really appreciate the real numbers.
plucker, the math made my head reel. That is an incredible amount of money!
Another neighbor I talked to last night said 6-10% is typical...

question: What if all the neighbors sign now and we're just the hold-outs?
What happens then? Do we risk shooting ourselves in the foot? Or will they keep coming back?
(There has been NO exploration in our corner of Kansas that I've seen, though they're definitely in the area. I've seen thumper trucks across the line in Nebraska, as well as Colorado, but not a single one in our part of Kansas. Yet)

It depends on your laws. Oklahoma spacing is based on sections and you could be "force pooled" if you don't sign a lease, you would be responsible for your share of expenses as well as proceeds if any. This rarely happens unless you choose to let it happen, you would be offered a lease for close to top dollar of the other leases in the area. I don't have a clue how Kansas handles things. You need to find that out.

In my opinion your dealing with a speculator who will resale the leases to some one else for a profit or percentage. For $25 an acre I would tell him to pound sand, $15 an acre he better be offering that through the truck window as he drives by. Lease value is dependent on demand and potential production on the ground. It has went from a $100 to $500 plus in the immediate area with a few producing wells drilled.

[Riverdale]

Originally Posted by ErinP

So we're screwed no matter what.
If everyone else signs for a low-ball offer, we have to do the same or get nothing.

We got an offer($50 for 3 years on our 3 acres ). The only thing that could happen on our property (too small to drill on) is an access road on our property. NO WAY!