Are lease renenewl offers normally less?

My cousins and I just got a lease renewal offer for our land in 27/13/12. The original lease was for $4500 (3 years ago) but no drilling, etc. has happened and we're up for renewal this month. The land agent (same company) called and offered us $2000 and we told him that seemed low for that area. He claims that with the change in gas prices the leasing bonuses are a lot lower. We're not trying to be greedy, we just don't want to feel cheated. Are re-leasing offers always that low? Since Chesapeake surrounds our land we're going to see what they'll offer, but we'd like to have information as to what a fair price should be.  THANKS!

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Permalink Reply by word2_99 on April 20, 2011 at 11:49
Do not know how many acres you are talking about or with whom you were originally leased, but with the price of gas these days, the lease bonus is important. I will only speak for myself and no one else on this site, but I would never choose Chesapeake as the company for leasing .  See the tread titled "What are you getting for gas" and various other threads from those leased with Chesapeake.  I am sure there are those with stories of discontent with all of the operators that are active in the Haynesville play, I am just saying that there is a loud, constant opinion when in comes to Chesapeake and you should make sure the difference in the upfront money is worth what you have to deal with on the back end.

landownerPermalink Reply by Henry on April 20, 2011 at 12:18

I would look to the recent state leases.  The two tracts in DeSoto Parish went for about $7k, if I remember correctly.  One poster on this site got about $7k from CHK just a few months ago.

 

I'll also throw in some advice.  If you have no choice but to lease with CHK, it is critical that you get a lease with cost-free royalties.  Use a good O&G lawyer to give you the language you need.  Do NOT accept any language that the landman proposes -- CHK has run a scheme where they gave people the language for cost-free royalties, and then they refused to honor it later on when royalties were paid.  Sad, but true.  Use a good O&G lawyer for help.  Protect yourself. 

 

 


landownerPermalink Reply by Henry on April 21, 2011 at 12:00
One more comment...  Before you negotiate, it would be good if you could find out what fraction of your section is leased, and when the leases expire.  I know of one section in which an company had about half of a section leased up, and the rest was leased to a couple of other companies.  When the first lease expired, the company who had half of the leases went to the guy to re-lease.  They offered $5k.  The guy held out for more.  Well, the operator walked.  Now that section isn't getting drilled.  (And it is in a great area -- many wells within 5 miles have IP's over 15 mmcf/day, wit pressures >8000 psi).  So it would help if you knew whether CHK had only about half the section (you might have less bargaining power) or a high fraction of the section (your bargaining power would go up).

landownerPermalink Reply by Mac Davis on April 22, 2011 at 7:15

If it's a great area, it will get drilled later when gas prices go up and the glut of HBP well production works its way through the system.  Lease rates may be better, and ultimate production may be better as they improve production techniques.

 

You may have to wait a few years, though. 

 

I definitely agree to insist on your lease terms.   Throw out about half the language in most leases to start with. 

 

Be sure Chesapeake doesn't scam you by selling the gas to a company they own at below market prices. 

 

Has anyone ever gotten a lease with royalty rates based on some standard rate like Henry Hub or NYMEX rates?  "20% of Henry Hub price" instead of "25% of wellhead rate" or some such?

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