Caught on tape: Secretly recorded mineral lease negotiations

Posted: Oct 23, 2008 05:32 PM CDT

Updated: Oct 23, 2008 06:37 PM CDT

Caught on tape: Secretly recorded mineral lease negotiations










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Haynesville Shale: A week of the good, the bad and the ugly

by Jeff Ferrell

SHREVEPORT, LA (KSLA) - Caught on tape: What some call the 'darker side' of the Haynesville Shale. Secretly recorded negotiations for mineral rights show the tactics some landmen use to get someone to sign on the dotted line.

There's a battle of wills taking place right now in parts of the Ark-La-Tex. It pits property owners who want the most money for their mineral rights versus leasing agencies and their landmen trying to make a buck. And as we discovered, it's not always pretty, as the following transcript of a recording shows:

LANDOWNER: "Why are ya'll tryin' to pressure everybody to sign today when they, you Know, on a legal document you can take it to your lawyer and have 'em look at it?"
LANDMAN 1: "We're not pressuring anybody to sign today."

Eric Clarke played portions of a recently recorded conversation between some Haughton residents and leasing agents with Baton Rouge-based agency Mark A. O'Neil, which represents Chesapeake Energy in negotiations for natural gas trapped two miles underground and locked inside rock known as shale. The landmen first delivered some bad news to the hastily called group of property owners:

LANDMAN 1: "Chesapeake has dropped the offer from 15-thousand an acre to 5 thousand."
LANDOWNER: "Wow. I don't see how that's legal."

Clarke is president and coordinator of the East 80 Oil and Gas Coalition, which represents 17-hundred people who own more than 69-hundred acres in and around the Haughton area of Bossier Parish. Clarke then played a portion of the recording where the landmen gave property owners a ray of hope:

LANDMAN: "Our boss said, in this neighborhood..."
LANDOWNER: "Right..."
LANDMAN: "Fifteen can stand 'til Friday afternoon."

Clarke said their wording may sound pleasant, but in his opinion their point is clear: "Sign now or we're pulling out! Who's pulling out? Is it the gas company or is it the leasing agents."

Clarke explained that his group made the secret audio recording to document what is sees as very hard sales pitches and played another quote:

LANDMAN: "It's just like our boss told us the other day, 'pigs get fat, hogs get slaughtered.' And sure enough, that's, you know, they've proven their point."

Clarke said he and his group hope that the recording sends a strong message to landmen and their companies. "We do not mind ya'll coming out here and making offers, that's what ya'll are out here for. But, these kind of tactics and putting people under this kind of pressure has got to stop."

Clarke added that he does remind coalition members they're free to sign a mineral lease agreement if they want. Members do sign a letter of intent so that Clarke and the group can negotiate on their behalf. "We just want to make sure that the people are protected, the water's protected," concluded Clarke.

KSLA News 12 has contacted "Mark A. O'Neil and Associates" out of Baton Rouge for their comment about the actions of their leasing agents in our report. We're still waiting for a response.

Chesapeake, for it's part, released a statement saying the company does not condone high-pressure tactics, saying,"we believe very strongly in educating landowners and giving them plenty of time to make decisions."

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Orphaned wells have been a huge problem in many producing states. Many of these were drilled before any regualtion was even contemplated. LA and TX have both been working to solve the problem, but lack of funds has been a problem. Also, standards have changed over the years. There are wells in and around caddo lake that are consiered P&A that were pluged with a pine tree!
Clarke said their wording may sound pleasant, but in his opinion their point is clear: "Sign now or we're pulling out! Who's pulling out? Is it the gas company or is it the leasing agents."

That a landowner would secretly record negotiations and the strongest instance shown is the above is ridiculous. Greed occurs on bothe sides of the table - always has. From the little shown of the recording I can relate to this instance.

The point the landman for Mark O'Neil was making was that the company was getting ready to drop it's price, due to the economic crisis in this instance. The landman stated the price was good until Friday. One may call that undue pressure, but being a landman for over 20 years that is not pressure that is the way it's always been. The offer made was kept open for the landowners to decide what they wanted to do. It has nothing to do with the landman or the broker he works for.

You leave money on the table, that's the landowners or whomever is negotiating's fault. If someone told me 15k by friday or 5k on saturday I would say where do I sign. You leave the money on the table don't whine and don't blame the broker because of your greed.

If you secretly record lies or unethical practices then I applaud you, but what is shown - shows neither. All this recording shows; from what was presented here, is the landowner impugning Mark O'Neil and Associates reputation. I find that offensive.
This is the age of technological enlightenment, formerly dubbed Big Brother. We've installed video cameras in police cars, at stop lights, in our stores, on our houses, on school buses ... we have video postings from cell phones ... recording a meeting fits right in with it all. I've personally used audio recordings for board meetings to ensure accuracy of my transcript as secretary. In those instances, however, it wasn't secretly taped, all involved were aware it was sitting right there on the table & running. There are also legislative proceedings that are aired, and court proceedings (remember what's his name, the football star?). This is the age we live in, whether openly or secretly recorded, be aware it could be you at any time.
Here's the stretch ... a person is recording and makes one comment in the conversation, that might fall under the one party consent condition. I noticed we're (LA) not included in the list of states requiring two-party (all involved) consent. Personally, I agree with you, it's better to let all involved know there is taping going on.

Anyway, wasn't the guy that recorded this audio also a participant in the conversation.

It just occured to me, if this was an organized group meeting, and the group has an elected board with an official secretary, is it possible their secretary taped to transcribe the minutes of the meeting?
the deal was they were offering this deal at 5:00pm and wanted it signed by 7:00pm on a friday afternoon now you tell me would you sign that deal knowing it would affect you for years? also knowing there was no way you could have a lawyer look at it in that time frame to make sure you wernt signing away your mierals? first red flag : sign now or lose out. i dont know what part of the tape was played by news 12 but i heard alot of it and it was an unprofessional way to do buss. signing a oil and gas lease is a big deal and shouldnt be taking lightly and for sure not somthing you want to sign with out having it looked at by a legal professional. im glad it was recorded and the people should know what there dealing with. its ashame that people are being done like that and i hope it will stop. if my land is worth $15,000.00 an acre from 5 -7 on fri how does lose $10,000.00 by the next day? just plain b.s.
It wasn't Friday to Saturday kind of option. The offer was only good until for 2 hours from when it was made.: 5pm on a Friday afternoon. That's what a lot of people don't seem to be getting. From my understanding, it's not that it would drop, per se - although in this case it was apparently used as an incentive. It's that it was framed by the landmen as some kind of favor they were doing for these landowners, in a way that was intended to appeal to the landowners' greed (ironic, don't you think?), giving them only a couple of hours on a Friday evening. Does your attorney take calls at 5pm on a Friday and review legal documents for you in that short a time-span? If so, I'd love a referral.
For what it's worth, Chesapeake put out the word on the leasing freeze on October 1st. This particular recording was made Oct. 3.
They were also going around telling people the leader of the East 80 Oil & Gas Coalition is a lawyer just trying to make money off of them by flipping the lease himself! Couldn't be further from the truth. Clarke is a firefighter and EMT. These particular individuals were talking out their behinds. They even used the classic, 'pigs get fat, hogs get slaughtered' line. Again, I don't think it's so much about the money in a case like this as it is time to have a legal document reviewed that could affect you and your family for years without someone breathing down your neck. Do that to me and not only can you keep your money, I have a suggestion as to where you can shove it.
Cillian:

Are you meaning to tell me that the company made an offer that was good for only two hours? That the negotiations for this hadn't been going on for days, weeks, months? Somehow I don't think that was the case, either.

Reading the story, I didn't see anything too objectionable in the negotiation until the landman drops the "pigs get fat, hogs get slaughtered" bomb. But, what do I know; I'm just a landman.

In all seriousness, the bonus consideration for a lease is determined entirely by what someone will pay for those rights, and what the mineral owner will accept. Pure and simple. Company X (or Landman Y, acting on its behalf) makes an offer. The offer is good as long as it lasts, or until it is withdrawn. The owner can choose to accept the offer, reject the offer, make a counteroffer (which counts as rejecting the offer), or do nothing. Any one of the first three actions by the owner effectively ends the offer period. If the company imposes a time limit on its offer, or makes a new offer on the same rights, the current offer period expires at the time specified or at such time as the new offer is made. Your lease rights can be worth anything from $1 per acre to a $100,000 per acre, or more or less, based upon what lessor and lessee agree.

The persistence of belief in the idea that lease rights are going to be (or have to be) worth so many thousands of dollars per acre (or else) is mind-boggling to me, personally. Lease bonuses are what the market will bear, and always will be. The revenue to be generated will always be in the royalties paid on minerals sold. It is the only tangible that will unite both lessor and lessee (since it is the only revenue in which both the lessor and lessee benefit). Sometimes, competition will force the bonus and/or rental offers to increase, and on rare occasions will force the market higher than what is ordinary or sustainable on a long-term basis.

Those who ride this bubble and capitalize before the bubble bursts can and will do well. After the bubble bursts, and the market implodes upon itself, there will always be those left in the vacuum, scratching their heads, wondering what happened. There will be those who are angry, particularly those who felt entitled to ever-increasing offers, and feel cheated now that those offers have been withdrawn. Look to the recent happenings with the stock market and the housing market, and the numbers of people that subscribed (erroneously) to the belief that house prices should also appreciate, and that good companies (or big companies) will always make profits and always pay good dividends. From personal and familial experience, I can assure you that the oil and gas business is more "boom and bust" than even these markets; anyone on this forum probably well knows that the price of a barrel of oil over the last ten years has been worth $10, has been worth nearly $150, and has been worth anywhere in between that amount. Natural gas has been on a similar rollercoaster.

Armed with all this knowledge, why would someone so readily believe that their lease bonus should always be worth $15,000 per acre? Why would someone feel so cheated that their lease offer has been reduced to only $5,000 per acre, when the value of the raw land itself is $1,000, or $1,500, or even $2,000 per acre?
Being in the o & g industry for 29 years it makes me sick to see these unethical things going on. This makes the honest people (most are) look bad.

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