To Lease or not to lease, Chesapeake Energy/Natural Gas

Discussion in 'Homesteading Questions' started by NChemungGuy, May 24, 2006.

  1. NChemungGuy

    NChemungGuy Well-Known Member

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    Hey folks, I am looking for some input here. I live in the Southern Tier of NY and right now natural gas is the hot ticket. Wells are being drilled everywhere, and my area is the new area they are looking to. Well, my best childhood friend now works for Mason Dixon, the company that secures leases for Chesapeake Energy. He is really hot to get me to sign up for a lease, or as he puts it, "free money" ( red flag ! red flag! ) What they will pay is 150 dollars an acre for a 5 year lease on my property. Now, I have a parcel of 25 acres seperate from my house. To me, $3750 for a five year lease doesn't sound like a whole heck of a lot, especially when I know how much the company is making. I am holding out for more like 10 - 12 grand for a 5 year lease, money I can actually put to some GOOD. What are your thoughts, and does anyone on here have any experience with this company, good or bad ? Right now I am not inclined to sign on, seems to me they can make me a better offer than that for Gods sake. Let me know what you think. He thinks I'm being foolish to pass it up. I'm beginning to wonder.


    Chris
     
  2. NChemungGuy

    NChemungGuy Well-Known Member

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    Oh, and the president of the Farm Bureau who is my neighbor said they should be offering at least 300 an acre. They don't like him very much LOL
     

  3. End of the Road

    End of the Road Well-Known Member

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    I would be more concerned with how much damage could be done to the property and how long that damage could last and who would be responsible for clean-up costs.
     
  4. NChemungGuy

    NChemungGuy Well-Known Member

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    Oh, believe me, thats a concern too.
     
  5. fordy

    fordy Well-Known Member

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  6. NChemungGuy

    NChemungGuy Well-Known Member

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    From what I have been told, they pay a lease agreement bonus up front. At this time, he told me its 150 and acre. Once drilling is done and a well is producing, the royalty to the landowner is 1/8. It is my understanding that this is 1/8 of the profit, and there was something about being paid after the well produces so much. This is why I havent gotten on board. In NY, if they drill and produce within a certain area of you, they have to pay you a royalty anyway. I figure screw it, wait and see what happens if they drill a neighbors land. But here is my buddy, saying, why don't I sign on and get the bonus as well. He thinks I am being foolish not to sign on and get the money. I say, you want me to sign on, you need to offer me more up front. And dont give me the risk of not hitting gas. They have much better technology than they used to, and he admitted they have a 93% success rate. I am honestly getting to the point where I am going to say no, and if he pushes, i'll have to re-evaluate what kind of friend he is.
     
  7. fordy

    fordy Well-Known Member

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    .................One last thought , DON'T sign any lease longer than ...3...years . By doing this they have to either drill or at the end of the 3 years they have to come back.....and pay you Lease Bonus , again , for another 3 year period . Also , there are lease brokers who maybe working for themselves or representating a big operator who will come iN and on pure Speculation lease up in contiguous tracts of leases and then resell the leases to a company who may want to actually drill the wells . And , you won't beable to tell the difference . The oil business can be the Most Cut throat type of situation you've ever seen and IF they detect you don't know what is the "going Rate" in the area they will smile while you sign a lease that is much TOO their advantage . Good luck , fordy... :Bawling:
     
  8. LagoVistaFarm

    LagoVistaFarm Well-Known Member

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    I just don't believe a 93% success rate. Drilling is high risk, 55% makes tons of money. Exploration companies can move funds around like movie companies. If you don't have any power they won't show a profit. As my accountant says when I ask him about profit, How much profit do you want? Its an old line, but true.

    If you want to take a deal, take a fixed amount. You'll never see the pot at the end of the rainbow.
     
  9. Michael W. Smith

    Michael W. Smith Well-Known Member

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    I'm not familiar with that company but have had gas wells drilled on our property. $150.00 / acre for 5 years? That is alot better than what I was going to get. I think our's was for $5.00 / acre and I would get paid at the end of lease if they hadn't drilled a well. I believe with your $150.00 / acre, you are getting paid up front and then if they drill a well, they keep what they paid you from the royalties.

    You have to watch who you lease to though. A guy had come around and wanted us to lease. He promised us the world, so we signed up. It ended up that he was just signing up before the big company came around and then sold them HIS lease. Luckily the company didn't drill - bad company, had problems paying people. I was approached by another company drilling in the area, and they needed our property to put a line across. This worked in my favor, as I could demand some things.

    You might want to rethink signing up though. What is it going to hurt to sign up? You get money up front, and if they don't drill, that is your money to keep for doing nothing. If they do drill, you are going to get 1/8 of the profit. The company isn't going to do any better on signing up or the 1/8. But was free gas brought up? The "standard" lease is for 100,000 or 125,000 cubic feet of gas / year. Usually the company will then say, "we can do better for you and will give you 200,000 cubic feet / year". 200,000 cubic feet / year will heat the majority of homes for the entire year, but if you go over, you pay the well head price not retail.

    The way I see it, is if you don't sign up, they can very well sign everybody up around you and then can drill near your property line - sucking YOUR gas out that your neighbor will be paid for.

    While a 5 year lease is a bit much, I'd do a 3 year lease. What will you be out? If they don't drill, that's free money, and if they do drill you will get royalties every month plus free gas for your house. You can expect a well to last for years, so think of the all that free heat you will receive if they do drill. Drilling does mess up the land for a while. Top soil is removed and piled, a pit to catch water is dug, and then the drilling. The access road to the well is also made. However, drilling usually only takes about a week, and then once the well is fracked, and everything is working, the gas line is laid and the land put back and reseeded. The gas company is responsible for EVERYTHING! They put THEIR money up for well, they take care of it, and once the well "dies" they HAVE to pay to have it plugged. You simply supply the land and the mineral rights and could end up with monthly royalties and free gas for your house.

    Yeah, drilling can be messy, especially if it's wet weather, and it does take up some of your land. But the gas lines are buried and the small area the well takes up compared to what you can receive in royalties and free gas is worth it!
     
  10. Mike in Ohio

    Mike in Ohio Well-Known Member

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    Michael W Smith is giving some good advice. In our immediate area the "free gas" is more along the lines of 200,00-300,000 feet. Upfront payments are about where Michael indicated.

    A few things to pay attention to:

    1) You definately want a clause requiring them to fix anything they damage. Don't be shy and don't be vague. North Coast Energy put in a collection line through our property. I walked the property with the surveyor and they made some adjustments so that they followed existing paths (I wouldn't call them roads <G>). After the pipe was layed in they came back and finish graded and reseeded. They also had to repair a fence that was damaged.

    2) Understand that properly closing down a non-producing well (it can run to 6 figures) can be very expensive. Make sure you are protected on this.

    Overall, I would recommend leasing to a company that actually drills, not a broker or speculator.

    As usual, just my 2 cents.

    Mike
     
  11. Irish Pixie

    Irish Pixie Well-Known Member

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    I live in Broome County and went through the same problem two years ago. We were offered $100 an acre (they are just starting to explore this area) as a bonus for signing (we have 113 acres) and decided not to sign the lease. If gas is found in our area the chances of it being under our land, or close, is very high and we figured we'd have more say in where the drilling occurs, etc.. if we didn't sign the lease. The lease was for 5 or 6 years too- to long in our opinion.

    Stacy
     
  12. Michael W. Smith

    Michael W. Smith Well-Known Member

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    But if they do drill, the upfront costs don't really mean anything. The upfront costs are only if they DON'T drill and your lease runs out. Depending on how your property is, all the neighbors could sign up and the gas company could drill gas wells on their property just off of your property line. The neighbors would get all the 1/8 royalties even though part of the gas being sucked out is from under your property line (natural gas doesn't stop at property boundaries - if a well is drilled and the cracks in the earth come from half way across your property to the drill site, gas will be sucked from you and you will NOT be compensated for it.

    I suppose alot of companies can be sloppy and tear up things and not do what you want, but as long as everything is in writing they must abide by the lease. (If the guy that wants you to lease says "Yeah, we can do that" - MAKE SURE IT IS WRITTEN INTO THE LEASE!

    As I said before, the drilling company wanted to lease with us to put in a pipeline. In fact, they wanted it so bad, they signed a 6 month lease with us - if no gas wells were drilled before six months, the lease was up. We ended up with 2 drilled wells in 6 months, another 2 wells a year later, and another well a year later. 5 wells on 132 acres.

    In addition to the royalties, we were also given 300,000 cubic feet of gas from the first well along with 200,000 with each additional well. That's right, we can use over 1 million cubic feet per year. There is a stipulation though, that this gas is for the house and NOT for a business. (The guy they signed slightly before me had got 300,000 cubic feet of gas / well. He ended up putting up a greenhouse. So they learned not to do that again without stipulations!) But as I said, they really wanted the use of our property, so everyone isn't going to get a deal like that!

    I have no complaints with the company. We get our monthly royalty checks and our free gas. About the only thing I could say I'm not happy with, is the access roads to the wells can get rutted, and once drilling is done and everything is leveled off, the road is rocked. But once the rock settles and the well tender comes once a week, and the brine truck comes once a month to suck off brine water, the road can get rutted, and they don't do anything about that.

    NChemungGuy, I would go ahead and get signed up. Just make sure your concerns and deals are written into the lease. Do you really think your "best childhood friend" is trying to screw you?

    Let us know what you decide!
     
  13. nodak3

    nodak3 Well-Known Member Supporter

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    Ask for an overriding royalty--that way your pay comes off the top, not off of profits. Makes a huge difference in the long run.