Contract question regarding broker vs. operator as lessee (DeSoto)

My family has had two leases in DeSoto with Chesapeake, one negotiated in 2010. The other one (signed before my time) for 80 acres in Section 16 11N 15W ran out. A landman recently contacted me about the property. His comment: “Vine Oil and Gas has hired us as the broker to buy the leases for them. They will be the operator and own the leases. This is a common practice among oil companies and land companies.”

My issue: The lease (which I haven’t even read yet) does not mention Vine. It names the broker company as the lessee. The Chesapeake leases named Chesapeake as the lessee. When I pointed that out to the landman, he said he would check on it but hasn’t contacted me again. I am very suspicious. How would Vine possibly "own the lease" if the broker is on the contract and Vine is not? I’d appreciate feedback. I'm just now starting my "homework." Thanks very much.

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It is quite common for a client (Vine) to hire a land company (there are many) to take leases for them.  Most operators don't have a lot of landmen who work directly for the company.  Unless it's a very limited lease project those companies always hire a land company.  At the end of the lease project the land company will assign the leases taken in their name to the client.  In a good many cases the land company will keep the clients name confidential.  In your case the landman is telling you up front that the client is Vine.  That's good and the way it should be in all cases.  The Chesapeake leases taken in their name were not the norm and CHK took a lot more leases in the names of the land companies they employed in the Haynesville Shale.

Here's the bottom line.  Unless you own a large acreage position, you likely won't have any other option than to negotiate and sign with the land company.  Personally I would be glad that an active operator is interested in developing my minerals under the present circumstances.  There is not a lot of leasing going on.

Thanks very much, Skip. That's what I needed to know.

I'd be interested in hearing about anyone else's experience in new DeSoto Parish leases.

You're welcome, Gayle.  For an idea of areas where Vine plans to drill in the near future, you can review their alternate unit well applications in the state database.  Or check their as yet drilled well permits.  Vine is currently running four rigs.

Thanks. I'll check on that.

Skip is there any other place to look for permits other than Sonris? GEP applied to DNR to drill 6 alternate wells in Sec. 7 of 14/14 Desoto. I am in Shreveport this week & drove by the property and noticed there are now survey flags up marking section lines. I know for a fact the property hasn't sold, so am wondering if GEP is doing their own survey of property lines and if you see permits approved for Sec. 7. Thanks in advance

No,  If there is a survey, there may be an application for alternate unit wells on the Commissioner's public hearing schedule.  GEPH has applied for a number of alt wells but has not spud any of the wells as yet.  I hope this may signal the beginning of their drilling program.

Thanks Skip. They got approval to drill 5 alt wells in Sec. 7 of 14/14 Desoto in February but so far I have not found anything on Sonris showing any further action so appreciate your info. Just hopefully they will start their drilling soon.

The sequence is usually alternate well approval then any survey or site work then a permit to drill.  Use this SONRIS search option for checking for permits.

http://sonlite.dnr.state.la.us/sundown/cart_prod/cart_con_allpmtwels1

Thank you

Gayle N:

In the alternative, you could always request that the lease be taken in Vine's name.  He volunteered that the broker was working on behalf of Vine - this would normally mean that there is no issue with client confidentiality.

When I have been commissioned to work on behalf of a client which did not want to disclose their involvement, I was not allowed to disclose same to potential lessors except with specific permission, or to certain extent as authorized by the client.  On occasion, I could state that my client was a "driller and developer", "actively engaged in production" or "non-operated working interest".  I could even allude to the relative size of the entity involved or certain exclusionary descriptions, e.g., "not a speculative interest".  The main point in this situation as a broker / landman is to respect the client's wishes for anonymity, disclose information deemed "approved" by the client, but not to deceive or mislead the lessor.

The point for you should be whether or not you feel reasonably certain that the broker is working for Vine or not.  If you don't feel that way, insist that Vine shall be the lessee.  In the alternative, at least obtain a written offer (ie, letter) that ties the broker to Vine ("On behalf of [our client] Vine Oil and Gas, [I] have been authorized to extend the following terms...") that can evidence that your acceptance of an offer is predicated on Vine being the ultimate lessee, or have him come back when he can disclose the actual Lessee in the public record.

If this is a broker that you can reasonably trust (good reputation, long track record, etc.), this would be another possible "bona fide" factor to consider.  A good broker with established integrity is much less likely to chance their reputation for a single deal or prospect than "someone you've never heard of".

To answer your question - "How would Vine possibly 'own the lease' if the broker is on the contract and Vine is not?" - the answer is, they don't, unless there is specific evidence that the broker has been retained by Vine made available to you, e.g., Master Land Services Contract showing the broker being retained by Vine to acquire OGMLs, etc., which would contractually obligate the Broker to assign the lease(s) from time to time at the Client's request, etc. - which you're not going to see.

Good luck to you.

Thanks very much for the rep.ly.

Sometimes the broker is paid in an override so they may want to take it in their name so they can reserve an override when they assign this. Vine may allow this to lower their broker costs.

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