Replies to This Discussion

Permalink Reply by Dion Warr, CPL on October 2, 2013 at 19:33

Wm. Hill:

Not to answer a question with a question, but, where is the point of settlement between the mouth of the well and the marketing point, and who owns the gas in between?

If the answer is that the gas is sold at the point f.o.b. at the mouth of the well, then the net settlement at the mouth of the well is the point that applies, as this is the technically the point at which lessee receives its price, thus this is the price at which they pay you. If it is adjudged to be at some point downstream, the answer may change.

This is the point upon which CHK, CEMI, and others have hung their collective hats for the purposes of satisfying responses to various lawsuits all over the Arklatex. Cost free to the lessor, paid by the lessee, must be calculated at the point that lessee is adjudged to receive its credit from a third-party purchaser, absent clear and unambiguous language as to an alternate definition present in a lease contract. This is what the court cases always seem to boil down to in the event of a legal dispute.

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Permalink Reply by Francis Mayo on October 3, 2013 at 3:55

Not to answer a question with a question, but there is a good article providing some insight. Good read for those with hopes of fat royalty checks.

ProPublica made several attempts to contact Chesapeake Energy for this article. The company declined, via email, to answer any questions regarding royalties, and then did not respond to detailed sets of questions submitted afterward. The leading industry trade group, the American Petroleum Institute, also declined to comment on landowners’ allegations of underpayments, saying that individual companies would need to respond to specific claims.

 

http://www.propublica.org/article/unfair-share-how-oil-and-gas-dril...

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Permalink Reply by tony allen on October 3, 2013 at 5:43

Thanks, Francis. It is shame that even if you negotiate a "no cost royalty" , the operator does not have to honor the agreement. I am pro O&G but some of the operators are thieves and they use share holder value as their excuse. A contract should be legally binding to all parties.

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Permalink Reply by Francis Mayo on October 3, 2013 at 6:47

I am a firm believer in Exploration and Production but every mineral owner should know the pitfalls of leasing minerals. Just because a leasing agent is interested in your minerals does not mean you are home free. If a REPUTABLE attorney crafts a good agreement for you, proven to have been agreeable to some operators, and your present leasing agent has problems with it and walks, then you have a good idea how happy you would be in a long term relationship with your suitor or the scum that would be assigned your "mutually acceptable" agreement. Just saying.  Many forlorn posts on this board testify to this. Bonus money is not great now; it is more important than ever to not sign away your minerals on sweet talk.

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Permalink Reply by william j. hill on October 3, 2013 at 9:35

Thanks Francis.  The Pro Publico article is indeed very enlightening!!  I see that I am not alone with this problem. It would seem that the Louisiana State Legislature should look into this situation.  When donkies fly?

 

William J. (Bill) Hill

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Permalink Reply by Francis Mayo on October 3, 2013 at 9:49

Bill:

I have met a few landmen interested in leasing in my day. In the past seven years I have dealt with five of them for two seperate deals. When the time came to come to terms it was not the bonus money or the royalty being problematic. It was my attorney who has done countless deals for knowledgeable (much more than I) landowners. It is the ironclad language problematic for SOME operators. Obviously not for all.

Do not be surprised, when our more recent plays come to fruition, we will have a new set of posters with the same set of problems. If the language of the agreement is a deal killer, so be it. However, some are thankful for any bonus money or any royalty. There is nothing wrong with that, just do not rely on sweet talk and sweet dreams when opening the mailbox. Also, have lube handy.

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Permalink Reply by william j. hill on October 3, 2013 at 11:32

Thanks for your words of wisdom, Francis.  I am a geologist (SMU 1950), did Geology and Land for fifty years plus..  So I hear where you are coming from.

Bill

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Permalink Reply by william j. hill on October 3, 2013 at 10:56

Thanks Dion.  Do I interpret you correctly when I state that if my lessee receives credit downstream from a purchaser, including  aDBA of the Lessee, then in that event, the alternate definition of royalty payment present in the underlying lease contract is void and of no effect? And further, that there are Louisiana Court case histories affirming this?

Thanks again for your reply.

 

William J. (Bill) Hill

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Permalink Reply by Two Dogs, Pirate on October 3, 2013 at 14:51

When the Bass boys out of Fort Worth can't get it right, then who can? This whole thing boils down to just a few outlaws in the industry. There is nothing that is bullet proof in the  USA that we live in today.

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Permalink Reply by Henry on October 4, 2013 at 0:19

"There is nothing that is bullet proof..." 

You are so right, TD.  My experience is that the justice system is set up so that the bias is in favor of the wrong-doer.  It usually pays to do the wrong, profitable thing, because the costs and efforts required to go to court to right the wrong are usually prohibitive.  And, in Louisiana, where there is no such thing as punitive damages, there is no real harm to the wrong doer. At the worst, he loses in court and just pays what he owes.  And if he doesn't want the thing to go to trial because he fears that others may subsequently come after him, he just settles and moves on.

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Permalink Reply by Francis Mayo on October 3, 2013 at 15:07

Cannot disagree with that. That was one reason to make the statement but human nature is human nature. Plus, many people will feel pressured to sign for reasons of dire need. I certainly hope everyone knows that the only lawyer to trust is the lawyer with known happy clients, not by word of mouth but by confirmation. Some folks signed with this wave for 300 bucks an acre and 20%. Bet some did not have a lawyer because they wanted and needed the cash and signed. The tactics initially thrown my way led me to believe I was "better off with 20% of something rather than 25% of nothing." Now those type of tactics must have worked this go round because they were effective for many. I am sure many felt the need to take it or leave it. This was especially true if the agent had the contract drawn up. You think I am kidding? It did not fly with me but it must have worked for a certain Mississippi operation active of late. 

Also, some people will invariably be happy to see some revenue and activity as to their way of thinking they are happy with any royalty activity. As has been pointed out by many good posters on this site, do you want a lease agreement or not? My point is, do not rely on sweet talk and sweet dreams. Having any money in hand, coupled with the banter and hope, will lead to the type of posts I have seen these past two years.

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Permalink Reply by Francis Mayo on October 4, 2013 at 15:05

Mr. Warr:

There is a deep frustration on the part of many landowners in dealing with the process. There is much suspicion involed by history and current practice. The industry has refused to self police or even comment on the practices of some of the bad players. The power and control of many legislatures and agencies have increased, not lessened.

When any operator or agent objects to language seemingly non problematic to some operators one must pass judgement on the reason from a prudent standpoint. My comparison of land men to car salesmen was rash and incendiary, I am sorry if I offended you. However, I firmly believe that as car salesmen once said, "what is a good deal? It is subjective to the buyer," applies to the oil and gas business. Some might be very suspicious and outraged, others would jump at the chance to lease. I have no outrage at others' decisions. Everyone has their needs and standards. You, meaning all landmen, are performing a service and doing legal activity. It is a needed activity. You have great knowledge and people skills. You deal with the public and very demanding corporations. I could not handle your job.

I personally feel that the line of good business and ethics is pushed by a good many of your colleagues. At times, I have allowed my experiences to color my opinons and judgements. I can easily conflate valid legal explanations and recent court decisions as a prime examples of "legal larceny" and general frustration at industry practices and industry influenced magistrates. But, that is my problem and not yours.

Yes, I know you are trying to make a buck and no doubt making more than a few. There are plenty of other things you could be doing not nearly as commendable. I have my opinion and what I will tolerate. It is simply mine and certainly not universal. This is a situation that is bad but could be worse, how about a government takeover?

No more comments about this situation and I have no doubt that one would be hard pressed to prove a lack of professionalism on your part. I will not hold it against you for attending Episcopal, or even Tulane. I do hope you were severely harrassed by the 2nd ward cops at Fat Harry's in your college days.       

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