Replies to This Discussion

Permalink Reply by Rockyford on May 9, 2009 at 12:00

Sincere Thanks for the information. Looks like it's time to find an Attorney to read the lease for us. Does anyone know of a reliable and honest Attorney or Landman that would read our lease contract for us. We would have to retain their services via phone etc.

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Permalink Reply by Akuda Matada on May 11, 2009 at 9:59

I would be glad to point you in the right direction. Write me back so that we may get in touch.

Thank you,

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Permalink Reply by msfva on May 8, 2009 at 0:48

KB -- A question. If someone goes unleased, and the company that drills the well is hedged for a price that is better than the current going rate, does the unleased person get the hedged price, or the going rate? Likewise, if the person leases, and the o/g company is hedged, will the royalty be based on the hedged price or the going rate?

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Permalink Reply by w.r. frank on May 8, 2009 at 2:50

I wouldn't want the landowner's side of that argument. PLUS, it can work both ways economically. What if E&P hedged in 2008 at $7 and wellhead price goes to $12. L/O will be ticked to receive $7 conservative hedge price vs. $12 wellhead price.

I bet the answer will ultimately be that L/O has interest in NG flowing and gets wllhead price. L/O can hedge his/her anticipated royalty successfully or not.

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Permalink Reply by SharonB T18N R15W S8 on May 8, 2009 at 4:25

I truly don't understand what hedging means. Does anyone have a layman's explanation?

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Permalink Reply by Randy on May 8, 2009 at 4:32

In short (and someone correct me if I'm off), an operator (like Chesapeake, for instance) can make a contract with a company to sell them a certain amount natural gas for a set rate, for a set time. Let's say a year ago when natural gas was $10, many companies "hedged" and made contracts for $7. That means they would be paid $7 no matter what the going rate was.

Go here for a more drawn out explanation:
http://en.wikipedia.org/wiki/Hedge_(finance)

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Permalink Reply by Todd M. Baker on May 8, 2009 at 4:35

Sharon:

Hedging is the selling of future gas to be produced at a price agreed upon today. It is a type of gamble that both parties agree to. Most of the time, one party is happy and the other party is sad but it guarantees either an agreed upon price for the seller of the gas and an agreed upon volume of gas for the company buying the gas.

Hedges can work to the detriment of the company selling the gas if the prices shoot up to a level that is actually greater than the price at which the buyer takes the gas. In short, I lose if I sell gas at a price today, that is less than the price tomorrow when the gas is actually taken.

You might ask, why would a company on either end of this deal do the same. They do it because the seller (producer) gets a guaranteed price for their product and the buyer (pipeline or end user) gets a guaranteed product at a specific price.

Hope that helps.

Todd M. Baker

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Permalink Reply by Pierce Nunley on May 8, 2009 at 8:43

I've already researched this extensively. The Hedge is a separate transaction. It also 'costs' money to place. It is a gamble as stated elsewhere. It is simply a mechanism to decrease risk and volatility. It is contract between a specific entity or individuals and the broker. As an unleased land owner, you will not be party to that agreement. You won't benefit if prices are lower than the hedge and you won't be held to the hedge price if prices are higher. You will simply be credited your portion of production based on the wellhead price. The operator can't, however, expense the cost of hedge against your well expenses.

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Permalink Reply by Randy on May 8, 2009 at 9:34

In my understanding a take or pay contract states that even if I don't buy said gas from you for $x, I'll compensate you instead by paying you 10% of that number (or whatever figure you agree on).

I suppose a take-or-pay could be included in a hedging agreement. i.e. I agree to buy x volume at y price for 1 year. If I don't buy at least x volume, then I will compensate you an additional fee.

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Permalink Reply by The_Baron on May 21, 2009 at 5:31

Horizontal wells qualify for a two year exemption from the date of first production or until payout of qualified costs, whichever comes first.

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Permalink Reply by Rockyford on May 20, 2009 at 11:09

Just got off the phone with a landman from chesapeak. He sent my wife a standard lease and kept calling and calling to see if she signed it. I joined this website a few weeks back and got a load of questions answered. So my wife wanted me to talk to him. He was all gung ho about signing that lease until I started talking about UMI, 100% royalties, O & G lawyers etc. He said he didn't know if he would spend a lot of money to a high dollar lawyer to read the lease for only 4 acres. I had to laugh out loud.

It's funny though he thought he was talking to someone from California that was uninformed. Thanks to this website we are informed, as well as we can be given the fact we aren't back there with hands on knowledge. We decided not to lease and take our chances.

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Permalink Reply by Rockyford on May 20, 2009 at 16:04

The bonus offer was $1250.00 per acre and he did not offer to pay for lawyer fees to read the lease.

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