CINDY RINAUDO

EXCO wants our acreage for a well pad

EXCO wants to lease 6 acres of our family property on Bradshaw road in Desoto Parish. We already have leased 40 acres of this land for mineral rights but NO surface rights. Exco wants to put a pad on the 6 acres to drill 2 wells, one well for our property and one well to extract from the neighboring property. We would receive no royalties from the neighboring property. This 6 acres is  prime road frontage property. We have not decided if we want to lease our surface right. There are some trees on the 6 acres and a small storage building that would have to go. How much should we ask Exco to pay us for the 6 acres if we lease the surface rights??? Does anyone have any idea what we should negotiate for.

Tags: exco

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Permalink Reply by Joe Aldridge on November 5, 2013 at 21:47

Skip,

I know of one landowner in the HA that was offered an ORRI for a well site that would not be in the production unit. I was told that they were very happy with the offer. I think it was between 1 and 2 1/2 percent. So I agree with Gordon.

Permalink Reply by Skip Peel - Mineral Consultant on November 6, 2013 at 2:15

I suspect that is a rare case, Joe.  Sub-surface easements were more common in the HS..  As in any negotiation the landowner can ask for anything they wish.  My point is that in the vast majority of cases the operator will not agree to an ORRI in this instance.  The alternative is to negotiate an easement.  It's also a question of cost to the operator.  If there is an alternate acceptable surface location the operator would be likely to use it instead of agreeing to an ORRI for this one. 

Permalink Reply by Joe Aldridge on November 6, 2013 at 5:45

Skip, 

Its my understanding that the company approached the land owner with the ORRI deal. That was my understanding. I guess they wanted the surface badly.

Permalink Reply by Skip Peel - Mineral Consultant on November 6, 2013 at 6:15

My apology if I misunderstood that detail.  The discussion introduction didn't indicate that the ORRI deal came from the operator.  In my Haynesville dealings I have never heard of an ORRI for a sub-surface servitude.   One of the few drawbacks to GHS is the propensity of members to ask questions without giving all the pertinent details. Often they are unaware of those details and how they could be very important to getting good, accurate responses. That's why I often suggest the services of a professional when dealing with such matters.  My concern, once again, is for those who are following the thread to get an accurate understanding of the relevant issues and some understanding of how an energy company does business.  IMO operating companies would look for alternate surface locations before they would agree to an ORRI.  Cindy may have the preferred location for minimal cost but if the added expense of an ORRI makes an alternative location a better choice there are often other tracts that can be used.  If a landowner understands and accepts that the company may choose an alternate means to conduct surface operations, that's fine.  If on the other hand the landowner wanted to make some money from granting surface use and then lost that opportunity because they demanded more than an operator was willing to grant, I expect they would be disappointed. 

Permalink Reply by Joe Aldridge on November 6, 2013 at 9:18

Skip,

I did not know how out of the ordinary that offer was. The company must have wanted the site badly and did not want to haggle. Just goes to show if they want it bad enough they'll offer a lot more than is usual.

Permalink Reply by Skip Peel - Mineral Consultant on November 6, 2013 at 9:42

There are a few situations where for all practical purposes there is no alternative site.  This can occur in bottoms that flood, where a road and extended infrastructure is cost prohibitive for an alternate surface location or where a unit is bisected by a fault with sufficient throw which a lateral can not penetrate and maintain orientation within the target zone of the formation.  Yes, it is rare in the Haynesville Shale Basin.. 

Permalink Reply by Thomas C. McKowen, IV on November 6, 2013 at 10:13

I believe I know the situation Joe is referring to.  The tract was in the City of Shreveport, near the airport.  A 1% override if the tract were to be used as the drillsite was included in the lease.  In fact, no well was ever drilled.  The lease has expired and the tract is presently unleased.

Permalink Reply by Skip Peel - Mineral Consultant on November 6, 2013 at 10:17

Thomas, that would make sense as qualifying drill sites can be few in urban areas.

Permalink Reply by Skip Peel - Mineral Consultant on November 8, 2013 at 16:06

It's doubtful that EXCO wants to drill the section next door but not yours.  Chances are they want to drill both.  The best way to do that is to drill each section from a surface location in the adjoining section.  It makes it easier to turn from vertical to horizontal.  Not as tight a radius to build the curve.  I often suggest a No Surface Use clause and have landowners tell the landman that they are willing to consider use of a portion of their surface but wish to have a say in the location and wish to receive additional compensation for the loss of use of that acreage.  It is a good idea to seek professional assistance when negotiations get complicated beyond basic lease terms.

Permalink Reply by Henry on November 11, 2013 at 1:10

Skip is right on including a "No Surface Use" clause.  In my case, the company would not accept a blanket "No Surface Use" clause, but they would accept a modified one in which the lease said that I would not "unreasonably" withhold the use of my surface.  In other words, I could not say "hell no, no way you will ever get on my land."  Rather, if the driller wanted the use of my surface, I had to be reasonable, and negotiate reasonable compensation for the use of my land.  Of course, "reasonable" can always be interpreted differently by the two parties, but at least this gives me a guarantee of compensation if the operator ever did want to use my land.

1kw6x71km1v37Permalink Reply by 1kw6x71km1v37 on November 11, 2013 at 6:50

Yes, but it does not specify any amount of compensation or tereminology. What you describe is more in the nature of a letter agreement than a contract of lease. I think the gist of it here is the operator knows the courts ultimately will force the operator's terms on you if you don't voluntarily sign up, on the basis the operator has negotiated in a reasonable way and you, the landowner, have not in refusing to accept the any terms and are thereby unreasonable, which you previously indicated by contract you would not be.

Permalink Reply by P.G. on November 11, 2013 at 8:29

Perhaps some type of lease terms and rates would be appropriate..
Why should a well site be worth anything less than the going commercial lease rate any commercial business would be expected to pay?

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