Replies to This Discussion

Permalink Reply by 1kw6x71km1v37 on June 24, 2013 at 8:45

Dunno if I ran this out there before, but here it is again for good measure, a quote that came up during the Austin Chalk play on LA in the late 90's:  "If you're going to deal with CHK, you are going to need a lawyer."

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Permalink Reply by Skip Peel - Mineral Consultant on June 24, 2013 at 10:15

Good advise.  And I would add, an experienced Oil & Gas Lawyer!

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Permalink Reply by Andrew on June 24, 2013 at 18:31

Both statements are spot on, especially since the attorneys CHK regularly employs in Louisiana are exceptional.

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Permalink Reply by Henry on June 24, 2013 at 12:51

I would also advise putting in language that obligates CHK to provide you the information necessary to ensure they are in compliance with the lease.  All of these companies are horrible about providing information.  So my rule of thumb is this:  If you are going to put something into an addendum that requires them to do something, make sure you also put in wording that they must provide sufficient information (and be specific) so that you can ensure they are in compliance.

Often our leases have these words about "no deductions."  But finding out if the operator is taking deductions can be nearly impossible.  When you write or phone them, you just get the runaround.

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Permalink Reply by Jo Ann Carter on June 24, 2013 at 15:02

Henry, I had to send a certified letter to CHK. asking for this information. I did get it, but only for one month. Wish I knew then what I know now.

 

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Permalink Reply by Andrew M. Brewer on June 25, 2013 at 5:14

Great advise Henry...  that's what we do.  We make sure the contracts/leases are specific enough to ensure they aren't ripping us off.  We also have a clause that if they fail to provide the information we request/repair the roads, etc within a specific period of time (via registered letter, return receipt requested), the lease becomes null and void, AND they forfeit their interest in the well.  We would then take it over without a hearing or court action and operate the well ourselves, contracting to sell the gas on our own!  This actually is very successful  and it works. 

We haven't had to take over any wells yet, and they respond to us very quickly.

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Permalink Reply by MARG on July 9, 2013 at 13:15

WOW!!!!!!!!!!!!!!!

SOUNDS GOOD TO ME, ANDREW.  I AM IN TX, BUT I DO HAVE A LEASE EXPIRING THIS MONTH.  I WROTE A LOT IN MY OTHER ONE; PERHAPS THIS WILL BE EVEN STRICTER.   LOL

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Permalink Reply by 1kw6x71km1v37 on June 25, 2013 at 13:24

Don't rely on operators to provide accurate and truthful information. This should prove interesting reading:

http://www.oilandgaslawyerblog.com/2011/01/the-importance-of-audit-...

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Permalink Reply by lee on June 28, 2013 at 4:36

Being part of a 640 unit is crap for the folks with small acreage. Its all a pyramid scheme. We all joined in this thing together to make money together...at least that's what the feeling WAS. I remember when the first checks were given out, many Shreveport natives boosted the economy for this area by shopping for big ticket items like cars, houses, etc. in hopes of getting more and better checks. But what did Chesapeake do? Send out Div Orders with stupid decimal points in the writings, such as .00003 for example. A lease in the beginning stated that the mineral owners would receive 25% of monies made. The Div Order to be signed states different rhetoric with that decimal crap. When I asked Chesapeake where did they get those numbers from, they answered me back with, "It's something we made up."  Mineral owners are treated like the enemy. What if Walmart was in this situation? They own the merchandise, but the only folks who make the real money are everyone except Walmart, (except mineral owners). Doesn't make sense. Try doing the math with screwed up numbers such as .0003 and see what you come up with. A bunch of zeros after a decimal point adds up to horrific under payments made to the mineral owner, the ones who own the product.

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Permalink Reply by Skip Peel - Mineral Consultant on June 28, 2013 at 6:46

Every lessor in a producing unit has a decimal participation number based on their proportional share of the unit acres and their royalty interest.  And yes those numbers are small decimal fractions especially so for small acreage interests.  For a mineral lessor with a 4 acre interest in a 640 acre unit and a quarter royalty, it would look like this.  4/640 =  0.0062 x 0.25 = 0.0015.  There is nothing sinister or manipulative in calculating decimal participation interest,  It is the same for every operator in every unit in every play.  The math is actually quite easy.

 

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Permalink Reply by Spring Branch,mineral owner on June 28, 2013 at 11:54

Lee,  like Skip said, the ownership interest reflected in a Division Order is very easy to calculate, if you know your acreage count, royalty rate, and the exact number of acres in your producing unit.  Producing units are usually not exactly 640 acres.  If you have a lot of zeros after the decimal point, it simply means you don't own much land!  In the example you used, i.e. .00003, it simply means that you own LESS than 1/10 of an acre and you couldn't possibly have thought that was going to make you rich!

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Permalink Reply by w.r. frank on June 28, 2013 at 12:21

Lee, Skip and SB are correct. You own what you own. The unit survey will set the total acreage in the unit. Thereafter, it is just simple math. However, what CHK sells the NG for and to whom it sells the NG, what CHK discloses on the royalty statement as the price/mcf and the proceeds from the sale, and what your lease language says about deductions for post production expenses are different matters. You are most likely being screwed by CHK.

Furthermore, don't sign CHK's "form" DO. You are not required to do so. You are only required to give your address and tax identification number. Never, ever sign without counsel review. CHK has recently added new printed language in a brazen attempt to modify the lease or create an argument that the DO overrules the royalty clause. If your interest in .0003, you might not want a lawyer, but don't sign the DO without marking out everything. In addition to marking out all language, I have a stamp which I affix to all checks and DO expressly disclaiming that my execution of the DO or endorsement and cashing of the royalty check modifies the Lease or waives my rights to contest CHK's deductions, calculations of royalties or sales of NG to affiliates. Months later you will get a form letter saying the marking out of all language printed on the DO is unacceptable, but CHK keeps paying anyway, and keeps screwing royalty owners.

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