Replies to This Discussion

Permalink Reply by Aubrey C. Sanders, Jr. on June 23, 2012 at 5:03

Ed, Those persons need to add a "most favored nation" Pugh Clause to lease.

Permalink Reply by inthestix on June 23, 2012 at 9:42

We dealt with a young landman 3 years ago when we leased for 22.5%.  He was a college graduate and a very nice and respectful young man.  He visited us in our homes. First thing i told him was that all of the cummunity was either kinfolk or knew each other and we talked to each in the community. I warned him to be fair and give the same deal to everyone.  He did so and leased us all with no problem!  Never heard a complaint from anyone.  So it can be done in a manner to satisfy both parties but companies' landmen shouldn't come at landowners with bogus threats and mis-information to try and get you to lease!  It only T's us off! lol      Thanks for your input Ed.  You seem to be one of the few good landmen.  I can say I have met 2 now !

Permalink Reply by Aubrey C. Sanders, Jr. on June 23, 2012 at 4:59

Gosh Darn, The posting  you made above is outstanding and will benefit all who thoroughly digest it. Obviously you are speaking from experience. If landowners do not ask every possible question they only hurt themselves. If they do not know questions to ask they need professional help.

WHY CANNOT PEOPLE SEE THAT A LEASE IS PROBABLY THE MOST IMPORTANT DOCUMENT THEY WILL EVER SIGN?

I am not intimately familiar with extreme NE Bossier Parish (Springhill & west) but do have some small interest in area. It is obvious that the  focus there is on Haynesville Sand, and rightfully so. Look at Jag! Slow but steady.

I believe that those who study your postings can profit by doing so. Perhaps the least important thing should be affixing their signature to that bonus check!

 

Permalink Reply by GoshDarn on June 23, 2012 at 6:11

Thanks, Mr. Sanders.  Your concern to help others with your straight-up honesty (and your many years of experience in the oil patch) has always been very much appreciated on GHS. 

Oh, my 94-year-old uncle -- a number of years back -- mentioned to me the "most favored nations" clause.  And this was after that particular clause had previously been discussed on GHS back around 2008/2009 (or so).

Now, of course, since my uncle was born and grew up in Bossier P. and goes way back to around the first oil boom as it progressed into the Bossier area -- I mean, he really knows some stuff when it comes to leases and clauses, too.  His counsel to me (per my role as the bell cow; family negotiator; mineral estate manager) over the years has been darn helpful.  And my uncle's tips have saved our rather large family some serious money over the years, for sure.

Furthermore -- a good bit later after he'd mentioned "the favored nations" clause to me -- as it turned out, he was exactly right in his thinking (probably via having heard about it from one of his landowner friends -- whom he'd grown up with -- and that family's management of their vast holdings).  Indeed, there are some very savvy folks (here on GHS) who were, in fact, able to insert that particular clause in their leases.  Very true.

So, again, your advice is sharp and spot-on, Mr. Sanders.

It's always educational to read your opinions, and your thinking is always greatly appreciated.

Take care.

GD

 

   

Permalink Reply by inthestix on June 23, 2012 at 9:22

Goshdarn,  I would like to thank you and Mr. Sanders for input into many of these these threads on GHS..  We have all learned from your words of advice and experience.  Thankyou both so very much!

Permalink Reply by Skip Peel - Mineral Consultant on June 23, 2012 at 13:26

Does everyone deserve the same lease offer or does the value of mineral acres vary?  The idea that all mineral acres are equal and therefore should receive the same lease terms seems logical and "fair" to many land/mineral owners.  However in fact a lease agreement requires two parties to agree and it's less about what a mineral owner considers "fair" and more about how a lessee values particular minerals and what they are willing to agree to in order to acquire a lease. 

Location is the first consideration.  Unconventional reservoir prospects create hopes that minerals distant from discernible activity may be included in the operators area of interest.  Early in the leasing process it is difficult to tell.  And the question is whether to accept initial lease offers or wait until the objective of the leasing becomes more clear or lease offers improve.  Many mineral owners and their families who have had one or more leases in the past that were not drilled or were drilled and proven unproductive tend to place their emphasis on the bonus offer and ignore the royalty and other lease terms.  As more development targets are unconventional in nature that is a relatively uninformed and increasingly poor way of thinking of leasing.  Early in a developing play wide areas may be considered to be prospective.  As wells are drilled, the area of concentration becomes more defined and minerals in some areas become more prospective and some become less.  The value of minerals under or in close proximity to a productive well is enhanced.  This begs the question, are the unleased minerals in a proven area worth better lease terms than those in the same vicinity leased before a well was drilled?  In the opinion of the industry, yes.  And if those minerals are located in an area designated for near term development and are of a size that would make a unit less profitable if unleased, wouldn't it be "fair" to assign them a greater value?  Should those mineral owners who take the risk by not accepting early lease offers be rewarded?  Or should they only deserve the terms that others accepted upon first offer?

The size of a mineral interest has an impact on lease value.  Obviously the larger the mineral estate the better and when contiguous and located in an area that is important to an operator it can be key to development, and to value.  Using a section, 640 acres, as the size of a compulsory drilling unit, an operator may be willing to develop with 5% of the unit acres unleased.  Force pooling allows them to produce those minerals without a lease from the mineral owner (LA).  However after well payout the operator receives only the cost of operating the lease and no profit from those unleased minerals.  Therefore as an abstract example the operator may be willing to accept no less than 608 acres under lease in the unit in order to drill.  Does a mineral owner with sufficient acres to forestall development deserve the opportunity to negotiate a lease with better terms than those who own insufficient acres to forestall development?

Value to an operator is about more than the right to develop minerals.  There is value in surface use.  And the value of surface use is especially important when dealing with horizontal drilling.  The prime location for horizontal well pads is only a very small fraction of the entire unit acres but are essential to orderly and efficient development for the operator.  Does the owner of that surface acreage deserve to be compensated for that value over and above what others in the unit receive?

The definition of "fair" is subjective.  And those who believe in free market capitalism would hardly argue against an owner's right to negotiate the best terms possible under specific circumstances.

Permalink Reply by Ed on June 23, 2012 at 16:13

Skip... that is a profoundly accurate and insightful explanaition. Very good points, and valid reasons why minerals are not worth the same.

 I agree and this is the fault of the favored nations clause. If I make a deal greatly in my favor and the company gets more value from another Lessor in the same area, I shouldn't have to give them back my better deal.

It is the same when another Lessor gets a better deal.... the compnay should not have to give that deal to everyone they have already made a deal with. It is one reason for forced pooling, to keep some people from demanding far moret han the unit area's median deal. To orevent a part from blocking the developement of the whole.

 

The main thing I agree with is that all of these definitions are subjective. And all valid from both sides. Working together is the key.

Permalink Reply by Skip Peel - Mineral Consultant on June 23, 2012 at 16:23

Ed,  IMO a most favored nation clause is fine if a lessor can negotiate it.  I have reviewed thousands of O&G Mineral leases and can count the number of most favored nation clauses on one hand with more than one finger left over.  They are very rare and granted only to those mineral owners with exceptional circumstances.

Permalink Reply by GoshDarn on June 23, 2012 at 19:29

True, Skip.  Kinda rare but not impossible.

Now, if GHS members were to have believed some of the b.s. that had been posted here years ago on the topic of "favored nations" . . .  i.e., were to have bought into that b.s. as unquestionable dogma -- then most well-educated folks would've thought that a "favored nations clause" was totally impossible to ink into a lease.

And, y'know, this thinking was being bantered about by some so-called sharp GHS folks, including -- as best as I can remember -- a few of our member attorneys.

But it was absolutely wrong.

Bad advice, really.

So, the takeaway lesson is/was that a wise GHS member really does have to question and vet whomever is posting on this forum.

True, because not all is as it appears to be.

True.

Note:  There's an old adage with top million-(plus)-dollar negotiators (e.g., this includes some with many decades of experience) and some who actually have earned their "years" of training on the national level via paying some serious dues and per not just coming to whatever game late in life.

The saying goes:  "Everything is negotiable."

Ergo, for those working at the top corporate or the top federal gov. level -- knowing the craft of how to negotiate is as important as knowing some of the inconsequential facts of whatever focus that the negotiation involves.

Hey, there are many ways to skin a cat.  And a key skill set is to always keep an open mind and be willing to learn what one does not know (and especially be willing to learn from those with more experience).

Of course, there's much more to this than I'm explaining; but hey, I can't just show all the cards, Skip.

When the casino house has the odds on its side, us little underdogs gotta keep some hands close to the chest.

Indeed, one set of cards, one hand of cards, one shoe of cards -- like one tennis shoe -- don't fit all.

Always a pleasure, Skip.

 

 

 

Permalink Reply by Ed on June 24, 2012 at 5:37

Thanks. I am not major player and always welcome any information I can gather.

1 decade in the biz, 1 in college...about half the time working for majors and the other half working re-entry wildcats with small independants. Most of my opinions come from my earlier work, where I got a chance to really get into all aspects of prospecting and drilling.

 

I worked with attorneys for years in there. They can have all that, IMO.

 

Thanks for the input.

 

Ed

 

Permalink Reply by inthestix on June 27, 2012 at 10:44

Merit pulled out of T22 in Bossier parish, guess they couldn't get enough takers on what they were offering, altbough the company that hired them, their money was good. One's who leased did get the money from the draft.  Heard  that Merit sent a letter out to the ones who leased that said they would not be drilling at this time. Also hearing that drilling will start soon in T23 Bossier parish! Wishing JAG the best on their current well that is well underway in Webster parish!

Permalink Reply by Skip Peel - Mineral Consultant on June 27, 2012 at 11:07

Merit Energy Services LLC recorded 66 O&G Leases with the Bossier Clerk of Court on June 22.

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