Replies to This Discussion

Permalink Reply by Susan R. Dunn on March 10, 2011 at 11:21

I live in PA and recently received a lease offer for 40 ac. in Union Parish for $100 bonus signing and 3/16 royalty for 3 years. The deadline to sign was today. They plan to drill a shallow wildcat well. We have not signed because we have no idea whether this is a good deal. Since it is only 40 ac., we realize that maybe that is all one would get. Any comments?

Susan R. Dunn

Permalink Reply by John Brewster on March 10, 2011 at 11:43

Susan - Where are your minerals located (what county, near what city)?  Who is the leasing company?  What did they tell you about the client (the company who they are leasing for) and its plans (when will they drill this shallow well - what is the depth and objective)?  Call whomever contacted you and ask these questions.  If they tell you drilling will begin soon, ask if the location has been permitted.  Ask how many acres they have leased around your 40 acres.  Ask if $100 and 3/16ths is the highest they have paid.  This doesn't sound like Pinebelt's big leasing program.  I appears to be the tactic of an operator who is leasing for a one well test.  Often, they will send out letters or otherwise make contact to solicit a lease on modest lease terms.  They give folks deadlines because anyone they can't lease on the first pass, they "integrate" at the Commission.  That is a process whereby the oil company goes to the Arkansas Oil & Gas Commission with a list of everyone who was invited to lease but either didn't respond or declined.  The Commission will integrate those mineral owners.  That means you will receive a lettef stating that you have 2-3 options.  One will be to participate your proportionate share of the costs of drilling the well (as a working interest owner with liability).  Another will be to lease - probably for the same terms you mention.  They are supposed to integrate based upon the highest terms offered in your area.  That is why most companies who plan to integrate don't negotiate better terms - they push for quick answers and figure to integrate.  A third option in most states, I can't remember Arkansas (Skip Peel can tell you), may be not to lease and then earn your revenue interest in a successful well after the company has recovered its costs plus some multiple (maybe 300% or 3X their investment).  In this case, if my guess is correct and integration is their strategy, you will have another chance to lease for at least $100 and 3/16ths.

If it is Pinebelt, please let me know as my advice will be different.

John Brewster

jebtexas@comcast.net

Permalink Reply by Susan R. Dunn on March 10, 2011 at 13:37

Deare John:

Thanks for your prompt reply. This land was inherited by my mom and we did not know we still had the mineral rights. There are other relatives involved so our share is even smaller than the 40 acres. My husband is an attorney and did not want me to sign saying we had clear title when there were other people involved.

 

The lease was called a paid up oil and gas lease. The company is Louisiana Exploration and Production Company, Inc.  The land is in the Southeast Quarter of the Northeast Quarter of Section 33, Township 18 South, Range 15 West, Union County, AR. My dad leased this to Murphy Oil in 1984 and it hasn't been leased since. I think the land is around Junction City, AR where my relatives lived. I will call tomorrow and ask the other questions. In LA (where I grew up and mom lives), the lease terms for this area have been $300 per acre and 1/5 royalty so our LA attorney advised finding out the going rates in AR. The complicating issues are that mom inherited this after marriage and dad died last year so I may need to probate the property.

 

We also have similar interests in Cass County, TX and I don't know whether any leasing is going on there.

 

I truly appreciate any advice as I am executor of Dad's estate and have POA for mom so these decisions are in my hands and I have very little experience with this.

 

Thanks, 

Susan

Permalink Reply by John Brewster on March 10, 2011 at 18:40

I know that Pinebelt has been leasing in that area of Union County. They are paying $250 and 1/5 royalty, or thereabouts.  As my prior note suggested, this group may be planning a small play with one or a very few wells.  Another possibility is that they are trying to lease people cheap, then flip the leases to Pinebelt.  Go ahead and call them tomorrow with the questions I recommended.  Don't be offended if they don't want to answer or tell you they are not authorized to give you that info.  I would suggest that you might want to see if Pinebelt would be interested in a lease.  Email my friend, Leanne Dyess at leannedyess@hotmail.com.  She will find out if you are in their target area.

I am also an attorney.  Your husband need not be concerned about signing something that is incorrect.  Reputable landmen run title at the courthouse before submitting a lease.  It will reflect what percentage of the minerals you own.

John

Permalink Reply by Larry on March 11, 2011 at 2:15

I have property in north union parish  and on 3/8/11 I was offered 300 acrea bonous 20% royalty 4 year lease and 4 year option to renew.  This offer was by PINEBELT.  I was told that this is the best offer as of now.  I also was told that the largest land owmer PLUM CREEK accepted this offer.  Hope this information may help.  Suggest you read groups in union parish and claiborne parish this may help.  I am just a land owner looking for advice also.  LARRY

Permalink Reply by John Brewster on March 11, 2011 at 3:26

Sorry, Larry is correct - your minerals are in Union Parish, LA, not in Union County, AR.  My terms were for Arkansas which is not as desirable to Pinebelt as Louisiana.  I have heard that you can get $300 bonus in LA, perhaps more.  In fact, Susan, if you read back through this thread there have been various folks who share what they got in Union Parish.  Although some are months ago, that should be indicative of what you can expect.  Larry, be cautious.  Landmen like to say things like, "this the highest price I know of" or such.  There may be better, but they will claim they didn't know about it.  When they resort to such promotion, I always ask for a "favored nation's provision."  They usually decline and back off their statement.  That provision essentially states that the terms of this lease are the highest given in a certain area and that if any leases are subsequently purchased on better terms, you will be given those.  One other question for Larry and Susan - what lease form are you being asked to sign?  Some land companies are using a 8-10 page lease that I find to be unacceptable.  You can ask for a traditional Producer's 88 lease which is a better starting point.  If your property is large and/or valuable, it is always money well spent to consult a knowledgable attorney - not just a good lawyer, but someone who understands the oil and gas business.  Usually the land companies are generous in accepting language changes to their documents.  The easiest way to do that is to attach Special Provision that supercede the printed terms of the lease.  Lastly, are either of you being asked for an option?  Some people are being leased for 4 or 5 years with a 4 or 5 year renewal option.  Make sure you understand that.

Permalink Reply by Susan R. Dunn on March 11, 2011 at 3:53

Dear John:

Our land is in Union County, AR, not Union Parish. However, we also have mineral rights in Claiborne Parish, LA although much of it is now under Lake Claiborne on the north side of the lake. We have not been approached about the LA land, only the AR. I did email Leanne; thanks for the tip and also for all of your advice.

This lease was 3 pages and was for a primary term of 3 years and "as long thereafter as oil or gas, or either of them, is produced from said land by the Lessee, and as long thereafter as operations, as hereinafter defined, are conducted  upon said land with no cessation for more than ninety (90) consecutive days." There is more language about what defines operations and seems to encompass almost any work, whether or not in paying quantities. Then there is language "If while this lease is in force, at, or after the expiration of the primary term hereof, it is not being continued in force by reason of the shut-in well provisions hereinafter stated, and Lessee is not conducting operations on said land by reason of (1) any law, order, rule, or regulation (whether or not subsequently determined to be invalid), or (2) any other cause, whether similar or dissimilar, (except financial) beyond the reasonable control of Lessee, the primary term hereof shall be extended until the first anniversary date hereof occurring ninety (90) or more days following the removal of such delaying cause, and this lease may be extended thereafter by operations as if such delay had not occurred."

 

I decided not to sign this because there were too many unknowns. 

 

John, where do you practice? I am a CPA and my husband is an attorney/CPA and we practice in Erie, PA. We both specialize in estate and trusts, not oil and gas so your advice has been highly appreciated by us!

Thanks,

Susan

Permalink Reply by John Brewster on March 11, 2011 at 4:15

I am in Houston, TX.  I've been in the oil and gas business for over 30 years.  I own minerals in TX, OK, and AR.  The 3 page lease sounds acceptable, and the language you were kind to reference is standard.  Lessee gets 3 years and the end of the primary term continues if they are conducting operations at the end.  The fact that the lease can lapse after the primary term if they cease operations for 90 days or more would not apply if their lapse was due to government regulation or other events out of their control.  Those concepts are in most all contemporary leases.

Permalink Reply by Susan R. Dunn on March 11, 2011 at 6:06

Thank you again for your help!

Susan R. Dunn

Permalink Reply by North LA on March 11, 2011 at 3:53

Larry,

 

Would you mind sharing where your land is and how many acres you have? I have a small pasture close to Lillie and the most recent offer you received is the best that I've had also.  We've been offered by Pinebelt, Empressa, and Schoeffler.  I really want 25% so I'm going to wait as missing out on $300/acre isn't that big of deal since I don't have much land.

Permalink Reply by Larry on March 11, 2011 at 14:46

I have land in 2 different locations that pinebelt  has contacted me about. First location is near MT Patrich church. Here is the description se1/4 of se1/4 of section 3 township 21 north,Range 2 west union parish containing 40 acres.  The 2 location is north 23.2 acres of nw 1/4 of se 1/4 section 36 township 23 north Range 2 west union parish.  I also am holding out for 25%.  At this time it doesn"t look like they will give it up.    LARRY

Permalink Reply by North LA on March 11, 2011 at 16:25

Thanks Larry.

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