Oil and Gas Drilling

Discussion in 'Homesteading Questions' started by topside1, Jul 26, 2006.

  1. topside1

    topside1 Retired Coastie Supporter

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    Has anyone had any experience with gas/oil exploration and eventual pumping on their property? Was it a good or bad experience and what would you do differently if given a second chance? Keep in mind if I lease some land it would be wooded property not pastureland and not within sight of my home. How many times did they drill? This is a tough question I guess, but were the royalties paid out worth it?? I'm holding a lease contract drafted by the oil company and it states that the landowner would receive 12.5% royalty depending on the gallons pumped is that fair and typical??? Thanks in advance, Tennessee John
     
  2. Michael W. Smith

    Michael W. Smith Well-Known Member

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    I have a total of 5 natural gas wells on my property. Yes, it is worth it - just the free gas is worth it but the royalties add a nice touch too!!!!!!! ;)

    It is worth it to sign up, but shouldn't sign up for more than a 1 year lease.

    Whatever extra deals you make with the person signing you up, make sure it is written in the lease! Verbal agreements will quickly be "forgotten" or "I never agreed to do that."

    1/8 royalty is the standard and as far as I have heard the ONLY amount ever given. They will tell you 100,000.00 or 150,000.00 cubic feet of free gas / year is the "standard" rate. Don't believe it!!!!! Alot of wells make that much in ONE DAY!!!!! I would ask for at least 300,000.00 cubic feet a year, however the deal I got (because they wanted my property so bad) was 300,000.00 cubic feet / year from the first well, and 200,000.00 cubic feet / well on additional wells. (I did have to agree that I could not build a business and use that much!)

    The company that drilled was very reasonable and worked with me to put the wells in places I agreed to.

    As for drilling, once the site was prepared, a total of 3 days would have a gas well drilled. Be forewarned though, they do bulldoze out quite the area for the site. And if it is rainy, it can get very muddy and yucky real quick. But once everything is done and the land reseeded, you only have a little bit of land that is "out of use".

    The company has a well tender come around at least once a week.

    The only thing I could complain about it that the road to the well, once they are done, if there isn't alot of rock put down, will end up with big ruts in it with the well tender and the water tanker truck that takes the well brine away from time to time - as they run back and forth over it in wet conditions.

    I'm only familiar with gas wells, so if oil is the thing in your area, some of my advice may not apply.

    If you have any other questions, post here or PM me.
     

  3. fordy

    fordy Well-Known Member

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    ....................The question here is .......12.5% of WHAT number ????? Normally , as Michael already pointed out , Minerals are divided up where 1\8 is allocated too the owner of the minerals and 7\8 is allocated to the Working Interest which is supplying all the money to drill the well . You need to have the lease broker EXPLAIN TO YOU the Fractional Math involved to arrive at your "12.5%" . In other words the 1\8 Non working portion of the minerals maybe divided up into a thousand pieces and when this happens you get fractionalized numbers like .00000526 . 12.5% sounds like a significant number but You should really play 20 questions with the leasing agent and MAKE THEM show you on paper what\how much money you will be receiving for a well that produces around your general area .
    .....................Also , PUT a Clause in the lease agreement that says that IF , they don't drill a PRoducing well within 3 years that You will be released from the lease agreement . Don't SIGN a lease agreement that has NO termination date . If , they drill a successful gas\oil well the lease will remain in effect as long as the well is producing .....or as they say....."held by production" . Personally , I think you should consult with an attorney who specializes oil and gas leases so that you will fully understand all the Ramifications of the lease agreement .....BEFORE....you sign . fordy... :)
     
  4. nodak3

    nodak3 Well-Known Member Supporter

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    You need to make sure your royalty is OVERRIDING, meaning before expenses. Also negotiate surface damage fees and restoration up front. Get a "closed end" lease, meaning for a certain number of years. And enjoy the income!
     
  5. topside1

    topside1 Retired Coastie Supporter

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    Fordy, great info and advice, I have been taking notes thanks to you and Mike....It does clearly state in the lease agreement that the lessor is entitled to 1/8th (12.5%) of the metered gas amount. Fordy thanks for some of the industry lingo and I will surely have the lease reviewed by my attorney before signing...Tennessee John
     
  6. fordy

    fordy Well-Known Member

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    .................One last point......concerning an ORR , as referenced above by Nodak3 , An ORR(over riding royalty) interest only LASTS , as long as the Well produces , so when the well is plugged your Income stream will STOP , and your ownership will DIE !!! If , you own a Royalty interest(non working) your ownership continues ON into Perpatuity .....forever . Mineral ownership transfers to your heirs just like other tangible assets such as land . fordy... :)
     
  7. fordy

    fordy Well-Known Member

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    ....................This sounds to me like they will allow you to use a specified amount of gas for your personal use , so IF you don't use any gas , WILL they PAY you for the UNused Portion ??? I'd findout , were it me . fordy... :)
     
  8. topside1

    topside1 Retired Coastie Supporter

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    Way ahead of ya Fordy I have made a note of that, I don't actually live on this property so the lease should be adjusted accordingly. Just got off the phone with the owners of the pipeline (Texas Corporation) and they can't wait till I find a potential drilling outfit willing to make a site visit. The pipeline company made it clear that they are willing to assist with advice and negotiations....GO FIGURE $$$
     
  9. shadowwalker

    shadowwalker Well-Known Member

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    I will only add to the others. Get everything in writeing and in the succesive pages in origional contract. Also get time limits on everything you can. Things such as restoring to origional condition can mean where your forest was, is johnson grass with a couple of cottonwood sprouts. Say three years after your well is plugged. What is the road made of? Will it be considerded a health hazard later on. Some well roads that had the pond crude up in Wyoming put on them ( to keep dust down) are now techinically hazardous, but no one knows who pays for the cleanup. Yet. And it is still leaking out into the sagebrush and killing it and offending the wildlife in general. Or so the Sierra Club and others say speaking for the wildlife.
     
  10. Windy in Kansas

    Windy in Kansas In Remembrance

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    Perhaps I'm misunderstanding fordy so feel free to correct me---

    A person LEASES their royalty interests to an oil and gas company and does not transfer ownership to them. In a few instances mineral interests are sold rather than leased, but that wouldn't be the case here since leasing was spoken of.

    If production comes about the lease continues as long as there is production, but expires when a well is abandoned, i.e. plugged and the land restored to original condition (ha) as per how the lease states such. What constitutes abandonment of a lease varies per state I believe.

    At any rate with the cessation of production (as per the lease) the full royalty interests would revert back to the owner.

    Having said all of that--sometimes mineral interests are retained by the seller of land or sold off seperately. Sometimes they are held for a certain time period and then revert back to the current land owner unless there is production. As an example at one time I purchased 1/3 of an estate meaning I received 1/3 of the 1/8 royalty interest which is 1/24th. After divorce my interest became 1/48th. At that time I transferred my percentage to my daughter and encouraged my ex to do the same. Nope, she wouldn't do that so now my daughter and my ex each get a tiny check several times each year.

    Seven oil well attempts were drilled on land my parents owned. Only one ever produced any oil, and then only for 21 days. The well should never have been developed into production, but that is hindsite for the oil company.

    Most of the drill sites were in pasture and left the land far from pre-drilling condition, even with complaints and extra attention to restoring the land to original condition.

    A standard oil and gas lease for Kansas grants well head gas rights to a land owner to heat with. I have always changed leases so that gas lighting is also included. I've never been refused with the change request, but then again there is little well head gas pressure in the area I came from.

    Best wishes.
     
  11. fordy

    fordy Well-Known Member

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    .............WIK , The Royalty Interest or , Typically the 1\8 part of the 8\8th's just leases or signs a legal and binding contract to allow the Working interest owners to drill a well and Extract those hydrocarbons from the subsurface formations from where they are discovered . It does not involve any transfer of ownership of the minerals , at all . This subject can become very complex very quick if you start evaluating all the variations that have been negotiated over the years . I'm no expert but father and brother have been in and out of the oil business for a long time . Boom and Bust cycles are the Hallmark of this industry as right now they are enjoying very high profit ratio's but what goes UP must eventually come down . As you well know there are MANY UNforseen circumstances and outcomes that fulfill the "Law of UNINtended Consequences" that even the most learned men of our time cannot predict all the possible outcomes of decisions made when world leaders initiate wars in other countries like Iraq and the fighting in Lebanon . The price of oil can go down alot quicker than it has gone up and I'm optimistic that we will eventually have some drops in fuel cost . fordy... :)
     
  12. poppy

    poppy Guest

    Good advice on here. As someone mentioned, make sure they are responsible for maintaining the road to the wells. We live back an oil lease road that we own. Marathon oil used to pump the wells and they did a great job maintaining the road. Graded it when needed and added white chat regularly. They sold out to another company and they let the road go to pot. It got almost impassable. I talked to them and they kept putting me off until I finally told them to fix it or I was going to put locked gates up to keep them from their wells. We don't own the mineral rights, but we do own the surface rights.
     
  13. texican

    texican Well-Known Member

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    Last year I leased some totally valueless o/g minerals (three dry holes within a hundred yards of where they wanted to drill... including a dry hole six months previous) for 200$/acre. If they don't drill within 3 years, the minerals revert back to me, and they would have to lease them again, if they wanted to keep the lease. The mineral rights never change hands... they are leased... and if they strike oil or gas, they pay for whatever they produce.

    Hereabouts, it's common to get 3/16 royalty. Like someone else already mentioned, you'd only get a fractional amount of this, unless you owned the entire lease...which is unlikely, unless you own thousands of acres...

    imho...good luck on anyone giving you gas rights of any kind... If you own the entire lease, maybe, possibly...but still very doubtful... I'm thinking snowballs chance. And then it'd only be for personal use. NO ONE's going to give you hundreds of thousands of units of gas... your talking millions of dollars... maybe enough to heat and cool your house... Oil/Gas companies like to make money, and they frown on losing it... If you can get gas rights, go for it, otherwise don't be surprised when they laugh at you...

    And you can probably forget about any kind of ORRI, override royalty interest, unless you either own the entire lease, or you're fronting ~50K or more...

    I own royalty under my land, and royalty elsewhere, on land that my relatives sold off ages ago... They mineral royalties are worth 10x what the land's worth... Only silly people sell minerals... If you want to sell, I'll buy! :p
     
  14. nodak3

    nodak3 Well-Known Member Supporter

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    Poppy--I'm sure you know that legally, surface ownership with split estate does not mean you can keep the company from their wells. They will have legal right to reasonable access. You can lock gates, but generally must give them a key. Glad the bluff worked for you--I've know cases where the law went in and tore down the fences as well as the gates.
     
  15. wr

    wr Moderator Staff Member Supporter

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    I would suggest that you make sure, in writing that you're livestock will be protected (via closed gates and such), reclamation is an important factor. You want to make sure that when they do finish up that your land is left as it was before they came. Find out for sure what they will be exploring for, oil is much different than gas in the way of drilling time and potential issues on the site. You must also understand that if they do find petroleum, you are not done with this whole thing, you could be looking at a pipeline across your land so when you consider where the well will be situated, also consider where they may have to lay pipe or will they have to install a facility (booster/compressor, riser or such) on your land and will you be compensated for that independently from the wellsite. Test your water if the well is near your residence for potablitlity and flow rate and test again after drilling and it's wise to ask the company to do the same. In the case of a gas play, you'd likely only have a small stem and fenced area you would have to work around and you'd likely see a representative check the site guages daily or at least a couple times a week, oil could bring in very heavy traffic. Stipulate how they can access your land and find out if you'll be getting a low profile access road or a high grade gravel road onto your land. Make sure when they prep the site, if they're stripping soil, you want it stripped in layers so your top soil isn't mixed with subsoils.
     
  16. nodak3

    nodak3 Well-Known Member Supporter

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    Ah yes, compressors. Noisy boogers. Lot's of land owners in NM were happy to get lease money, happy to get new roads and free gas, but very UNhappy with compressor noise.
     
  17. wr

    wr Moderator Staff Member Supporter

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    To a certain degree compressor noise can be dealt with by requesting a berm be built to block/deaden the noise but it must be made at the time the lease is signed.
     
  18. Michael W. Smith

    Michael W. Smith Well-Known Member

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    Around our area, about the only thing being drilled is gas wells. And anytime a company is drilling on your land or a neighbors land, they send you a registered letter that someone will be around to test your water. Because in the rare chance the drilling ruins your water, the company MUST fix it. (Again, at least here in PA.)

    texican, I have all the free gas I will ever need! Around here in PA, anybody who owns the gas rights and has a well drilled on there property gets at least 150,000 cubic feet of free gas/ year. With me (and the company wanting my property so bad), the lease states I get 300,000 cubic feet of free gas/year on the first well and 200,000 cubic feet of free gas/year with each additional well. Within 6 months, the company drilled 2 wells which gave me 500,000 cubic feet/year. 2 years later they drilled 2 more wells bringing my total to 900,000 cubic feet/year. 2 years later they drilled the last well giving me a total of 1,100,000 cubic feet of free gas/year. I'll never use that much!!!! However, in the lease it states this is for personal use, NOT for a business. So if I ever started a business on my property, the case would have to be purchased, but it would be at the well head price (wholesale).

    But, within the last year, I haven't even used any of it. You see, in the early 1900's a gas well was drilled on our property. When the well got "sucked' down that it wasn't producing enough for the company, the company "sold" it back to my wife's relatives who lived on the property for $1.00. A good deal to all, as that well is still producing enough gas to heat our house and whatever else we may add. A good deal for the company, as they didn't have to spend the money to plug it. I'm not sure when the company sold it back, but am assuming it was in the 1960's.

    So we already had free gas to begin with from a well we own. The added "backup" gas (in case anything happens to the old well is peace of mind). But the monthly royalty checks are NICE!!!!! :D

    As for the question about how much gas we get paid for - we get 1/8 of what the company sells. If I would use gas from the new wells, chances are it wouldn't even affect the royalty check as they aren't sucking as much as they can from the wells. If it was a low producing well though, and you used gas from it, you would get 1/8 of what the company sold.

    And in case you are wondering, I was told the "typical" house uses less than 200,000 cubic feet of gas/year. When the typical well produces that much gas in a couple of days, giving a person 200,000 cubic feet / year is NOTHING to them.
     
  19. GANGGREEN

    GANGGREEN Active Member

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    I have a question for anyone who can answer. I've entered a lease contract with a company here in PA. Like Michael, my property already has a gaswell on it, which I own and nobody else is tapped into. If they do end up drilling wells on my property, I'm curious if it makes more sense to remain on my well at no cost to me or whether I should pay to tap into one of the new wells and use the 200,000 cubic feet/yr that the lease allows. Then when/if the company wells run dry and are capped, I'd still be able to go back to my pre-existing well to insure that I'll have free natural gas for life. Any opinions?
     
  20. turtlehead

    turtlehead Well-Known Member

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    All the wells on your property are very likely going into the same underground reservoir. So when the company wells run dry, your pre-existing well will likely be dry also.