Oil and Gas Lease Questions

Texican
I'm not for sure how all the spacings figure out. I know with the new technology they have, they are very precise as far as what they lease. They may come in and lease one or two sections and nothing else.

Anybody have any quotes on water price for drilling. Have been offered 100.00 a day to use a water well.

Michael,
Most knowledgeable mineral owners nowadays insist on a Vertical Pugh Clause. Basically if you have a vertical pugh, if the gas company drills a well, say down to a formation in the marcellus shale, after the primary term of the lease is over (usually 3 years), everything below 100' below that depth, reverts back to the landowner and is subject to leasing again.

I'm currently working for a large family group... only 3 out of 14 insisted on vertical pughs three years ago... the others 'didn't care'... the three are now getting to lease their properties again, two are getting an 'extra' 900K and the other is getting 700K (just on two tracts of land/minerals). Just because of a single sentence added at the end of the lease.

Last summer, I looked into some water issues for a client. A company was wanting to buy water. The drilling of a shale well takes a lot of water, but the 'fracking' takes even more. Average down here is ~5 million gallons. I'd not want to draw down my personal aquifer, for 100$/day. I can't remember how much they were paying per barrel, but I do remember doing the 'brainwork' and realizing if I sold water out of my lake, I'd lower the elevation about 4" and pocket around 8K. If they drilled a deep well, my concerns would be lessened. If it were out of a personal water well, I'd doubt whether it could produce that much water. Money's great, but if you lose your water source....ouch! Without water, life is difficult.

I've got free gas rights... unlimited. Few years back a truck crushed my line (gas company fault)... 700MCF went pooof up into the air. The gas company tried to get angry with me... when I politely reminded them I'd told em they needed to repair their road, they thought Hmmm... Anyway, nothing they could do... my lease is from 1952, and is golden. I 'used' 700,000 cubic feet in just a few days... (they never tried to get contact me and tell me gas was blowing out like a geyser....)... I had enough gas coming through the line still, to keep my house ginning along.

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Luck is what happens when preparation meets opportunity. Seneca
Learning is not compulsory... neither is survival. W. Edwards Deming

yep, a year or year n a half ago our next door neighbor signed a standard boilerplate lease for 100 an acre... 20 acres for $2000 at 12%... we got 110,000 for our 20 acres @ 20% plus we have a 3 yr option at same rate,,, he has options too and at 100 an acre! people are hiring lawyers tryn to get out of the leases but so far as far as anyone has heard.. no one can get out.

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The Journey -IS- the Destination

Life is not about waiting for the storm to pass, Its about learning to dance in the rain....

We were down at our farm yesterday and I took some time to go visit with neighbors and ask if they have been contacted about O&G leases. It appears that many have and signed as well.

I wasn't aware that there was seismic thumping (testing) in our area last year (disadvantage of not being there all the time) and from what one person has said (he provides services to the O&G industry) there is a promising formation/pool under us.

One neighbor said the well is going to be located on his property (he cut a separate agreement for use of 3 acres of his pasture for the pad and ancillery needs).


Upfront payments that people mentioned ranged from $75 to $125 per acre. All royalties mentioned were at 12.5%

It looks like I am the only owner with any significant acreage that has not signed and I appear to smack dab in the middle of the formation area.

I had one neighbor say the following when I mentioned my concerns and that I might not sign an agreement. "So you are going to screw all the rest of us".

What is it about people. He made a deal (He got $25/acre...) for his rights. If I don't like what is offered for mine, it is my perogative to say no. I'm not particularly looking to get more money, I want to make sure our farm and land isn't wrecked.

Looking at Ohio law I don't believe I can be forced pooled but it appears that I can be forced into a unit with a non-operating interest. There are a few smaller landowners that I could maybe voluntary pool with. Need to consult an attorney. I'm figuring that attorney fees are likely to chew through the upfront money even if I do sign..

I have a feeling that I'm not likely to be locked out (totally) because of them needing to run the horizontals through our place unless they can put the well in on another property. That would still leave a fair amount of land stranded on the other side of us. What's that old saying about location, location, location?

The funny thing about all this is that the neighbors who have dollar signs dancing in front of their eyes don't seem to understand how royalties work. I don't think they will get a fraction of what they are anticipating, even if the well is put in. My best guess is that the royalty pool is likely to be 300-500 acres or so. That means that my share would be 55.5/300 (for example) of 1/8th of the revenue overall. But there are literally folks who are looking this to save their farm. I fear they will be disappointed. But even a thousand or two dollars of upfront money seems to represent a fortune to some of the folks.

For anyone in Ohio that is interested in the O&G rules, here they are - http://www.dnr.state.oh.us/Portals/1...nd%20rules.pdf

A few other interesting reads are:

This is an interesting checklist from the Texas Land and Mineral
Owners Association:.
http://www.tlma.org/oilgasleasechecklist.pdf

Here is a sample lease agreement from a group in PA:
http://www.homelandenergyventures.co...itruslease.pdf

If you poke around on this site you should find some interesting reading.
http://www.gomarcellusshale.com/

Another useful site:
http://www.pagaslease.com/index.php

This is a good read from the State of Indiana farm extension:
http://www.ces.purdue.edu/extmedia/EC/EC-564.pdf

Time to go out and work the garden beds.

Mike

I don't care where anyone lives, if they sign for 12.5, they got screwed.

I feel sorry for your neighbors, Mike...

If I only had a little more evil blood in me, I'd have to pack up and move to Ohio and buy up a couple units. The landman that leased at 12.5 is going to make as much as the Royalty owner (the difference between the rate he leased for and the rate he'll assign the leases for, will be 12.5%!!!). He'll make a fortune, without ever having to deal with any of the consequences of the drilling.

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Luck is what happens when preparation meets opportunity. Seneca
Learning is not compulsory... neither is survival. W. Edwards Deming

I feel sorry for my neighbors as well Texican and it's not about the money. As far as I can tell not one of them consulted an attorney (particularly an O&G attorney) or try to do a little research and it's clear that they don't really understand all of the terms they agreed to.

I'm the first to admit that I don't know squat in the O&G lease space but if all the documents I read (specifically from government) say to landowners not to have certain things in a lease or to consider doing things a certain way then I figure that is a baseline.

As far as I can tell the landsmen are ultimately working for Anshultz. The first well (vertical) in the general area has already been drilled but no horizontals and not fracked yet. http://www.freepressstandard.com/News/01020410.htm

Someone I know said that the pressure came in lower than expected on the well (1,000 PSI). I don't know enough to understand the ramifications.

This article is in our local paper today because they are trying to come to our area .
http://thedailystar.com/localnews/x4...r-areas-future

www.pagaslease.com is a great site. We have been following this since we were first approached for TBR drilling in 2005. We are one of the very few in SE Tioga PA that are not signed. Being absentee owners, we missed the first rush in 2008. The economy crashed before we ever got a serious lease. Recently we were working with a gas company, but just like in the beginning, too many people are signing terrible terms, because they are scared. We asked for and got $4000/20% in a lease, but they had told us it was a Non surface lease & it was only a "no drill" lease when it arrived. We asked for just a few protections, as we realized with only 11 acres we could not have it all, however at this point the gas cos. want to give you nothing. Haven't heard from the landman for 2 weeks. 12.5% is the minimum royalty in PA. Most people are being offered 15%, but many have gotten 18 or 20%. As long as people are still signing boilerplate leases, the companies will not budge. Landowner groups are all well and good, however many of us did not have that choice. Tioga County was leased up early & the unleased are few and far between. My neighbors leases will mostly expire in 2011 & 2012, if not held by production. That is what they are doing now, declaring 640 acre units that actually hold 1000 or more acres, because of no pugh clause. We want to lease, but will not sign our land away with no protections. Our legislators have done nothing to protect us. We have no structure on the land, so we have no built in protections. We know that we may lose out, but we are not being unreasonable, there was much more that people have gotten and should be standard in a lease. Just ask for what you want & go from there. You might be surprised at what they will give you. If it's just starting in Ohio, there is no rush, no matter what the landman says. Do your research & find a good oil & gas lawyer before you sign. Good luck.

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Cindy in PA

Cindy,

A lot of folks have already signed leases in Carroll County. The two big players appear to be Anshutz and Mason-Dixon. I don't mind if I hang back for a bit. One nice thing about Marcellus is the horizontal drilling. If you are in the right spot they have to come through you. We have enough acreage that we can't be force pooled. As I said earlier we can be forced unitized.

Texican, I'm familiar (I'm a quick read) with Pugh clauses. I'm not going to sign a lease without one. The seismic has been done in the area by Mason Dixon so they should have a fair idea of what they are looking at/for. I'm also looking to exclude the first thousand feet as well to prevent the coal company from getting rights to the methane gas in the region of the #6 seam of coal that they own the rights to.

Mike

The real elephant in the room is the price of gas... with a unit of gas going at $4, there's little incentive to buy up huge acreage, knowing they can't even drill out the acreage they do have, and will have to lease it again in a few years. Chesapeake, Devon, Forest, and a few others have hundreds of thousands of acres, with thousands of potential drill sites... but with a well costing ~5Million each, they're only going after the golden wells, that'll pay off in six months or less. The vast majority of acreage won't 'do' this much. The other potential units, in normal times, would be great, are dogs now.

I'm all for energy independence, but it's mainly a myth (as far as crude oil is concerned). The myth has foisted the idea that all drilling is good... It IS good, up to a point. Drilling for gas on public lands has depressed the prices. Great for consumers, bad for producers (and royalty owners). Just like federal timber sales depressed the prices of private timber, federal gas is killing private gas.

If gas back went to 7$, drillers would drill more. Right now, they're high grading their leases, only going after the best.

__________________
Luck is what happens when preparation meets opportunity. Seneca
Learning is not compulsory... neither is survival. W. Edwards Deming

Texican,

The other issue in this general area is infrastructure to handle the gas. Lot's of pipeline being laid.

Mike

I am in PA and things are really crazy here. We signed a lease about 2 1/2 years ago and they sent letters saying they could only pay about 1/2 of what they offered, they did up the royalty % to 16 for taking less money. The way the rep explained it to us, we would be given a fee for gas usage not the actual gas. I can't remember how much it was. I was happy with the money they gave us, thought of it as a 'gift'. We used it to install solar panels and took advantage of the rebate the state was offering.

They're building a monster pipeline out of Carthage, headed across Louisiana, and up towards the NE... called the Tiger. Last year they had it costing half a billion. Most of the pipelines out in the outback are old, small, and can't handle all the new volume that's planned.

Want to make a fortune?

Rent or buy a backhoe, a trackhoe, a ditchdigging machine, and a dozer. Build a few pipelines and pay off your equipment in a year, then it's profit taking time. Have a neighbor with a pipeline business... they can't keep up. Several upstarts, including a cousin, are making it big... and this is while gas is low... if it ever picks up again, they'll be able to retire early.

__________________
Luck is what happens when preparation meets opportunity. Seneca
Learning is not compulsory... neither is survival. W. Edwards Deming

FWIW, my uncle had a gas line that crossed a small corner of the property he owns.

He's a very good horse trader from way back, possibly the best I've ever met. He played the "interested/not interested" game with them for several years, until it got crucial for the pipe line company.

He got a fortune for playing the game and holding out. About 3 times what others were paid for much larger easements.

Sorry for the thread drift!