Replies to This Discussion

Permalink Reply by Cynthia Payne on April 2, 2013 at 15:49

We have been offered a 3 year lease on over 800 acres $350 an acre 22 1/2 royaly with a 3 yr extension that woul pay the bonus if this happen

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Permalink Reply by Andrew on April 7, 2013 at 0:11

Adubu,

My landman days were mostly spent in due diligence and title work, so I don't have a whole lot of personal leasing perspective like some of the other members might have. My impressions from working at a firm with several landmen who were in negotiation are as follows: 

Assume the lessee hopes to drill 1 well in a 640 acre gas unit, and hopefully additional wells if the first one is good. Also, assume the landowner in each scenario is being "tough" in negotiations, asking for significant concessions but not making any absurd demands.

>10 acres: This person is met with a mixture of frustration and amusement. The landman is not thrilled to be spending this much time haggling over this tract. Occasionally these people will get a good deal simply because the higher bonus or royalty they get won't have any material affect on the lessee's investment anyway. Then again, neither would letting them go unleased...

11-39 acres: enough acreage to take seriously, and negotiation should at least be simplified by the fact that it's probably still too small for any surface operations to negotiate over. The lessee isn't going to give anything he doesn't want to give on this tract. He make an honest effort to reach a deal on the terms he wants, and if he can't he walks away and plans to worry about it once the rest of the unit acreage is under lease.

40-80 acres: Unlike the smaller owners, this person is neither an amusement nor a mere annoyance. The thought of having to carry this owner for 6-12% in the well is causing the lessee's ulcer to flare up again, but he's not going to kow-tow for 6-12% either. Neither party is willing to give at first, but communication continues, even if the landowner wants a 7-page cost-free royalty clause or a 35% royalty. This may lead the lessee to blame his woes on GHS.com on more than one occasion. For fleeting moments, stonewalling them into being a UMI seems appealing, at least as a last resort.

80-160 acres: Carrying this owner is no longer a viable option. Getting a deal here is crucial, not just for the economics on the proposed well, but also because the lessee very well may need this acreage for a location in the future. Privately the lessee knows he probably won't drill the well if he has to carry this owner, but he continues working them down as best he can until the rest of the unit acreage is leased, at which point he is free to give them what it's going to take (within reason) without any fear of having to do the same for the neighbors.

160-320 acres: Simply put, this is bad news. Every one of the lessor's requests have to be considered carefully, and discussions of how to fix this problem occur several times per day. This entire prospect is being reevaluated. The more assertive landman eventually alerts the owner that the "you won't drill without me" position they are taking is in danger of becoming a self-fulfilling prophecy. The lease bonuses already paid to others in the unit would have been an efficient waste of money if this doesn't work out. The lessee is secretly praying someone else will be dumb enough to lease this tract. 

320 acres+: Once you get to a tract that's over 50% of the unit, negotiation becomes simpler in a way. Meaning, the lessee has to decide for himself how badly he wants to drill in this particular unit. It would be a shame to let months of geology and engineering work go to waste, but who knows--this may not end up to be that good of a prospect. After all, walking away won't sting that bad because he hasn't bought any leases here yet - this person was his first call. Eventually a decision is made to either proceed with the prospect and come to an agreement with the landowner, or to walk away disappointed but not devastated. 

*10,000 acres+: The lessee has already mentally committed to a bulldozing before contacting this person about their lease. Depending on how strong his appetite for the property is, flattery by the lessee will range from a few extra "yes sirs" and outright groveling.

Ok, I'll admit that my last days of lease takeoff work were in the pre-Haynesville times, and my firm's clients were small private operators. A lessee with hundreds of millions in his lease acquisition budget probably wouldn't respond as I've described the lessee above. While this post was about 75% tongue-in-cheek, i hope there was some shades of genuine lessee's perspective in there somewhere.

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Permalink Reply by Andrew on April 6, 2013 at 22:47

Ahh Skip has the answer I should have looked for before I asked TD,P my question.

At the sake of being overly picky for details, I'm not sure that the 80% requirement applies to co-owners of land in perfect ownership, Articles 166 and 175, where that 80% figure comes in, only deal with the right of a servitude owner or co-owner, respectively. I'm fairly certain that a co-owner of land not burdened by any mineral right would be free to drill if he wanted without needing consent of any of the other co-owners.

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Permalink Reply by david kenneth merritt on May 7, 2013 at 11:04

IF I OWN PROPERTY IN A SECTION THAT HAS PRODUCING WELLS AM I ENTITLED TO SOME

ROYALTIES EVEN IF I DON'T HAVE A LEASE AGREEMENT ?

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Permalink Reply by Skip Peel - Mineral Consultant on May 7, 2013 at 11:12

Depends, david.  With horizontal wells the surface location may not be located in the section being produced.  It is common for wells to have a surface location in one section yet be drilling the lateral into an adjoining section to the north or south.  If your minerals are indeed in a producing unit and you are unleased you don't receive royalty you receive 100% of your pro-rated share of production in the unit after the well pays out.  In other words you would not receive any payment unless the well made enough to pay for its cost to drill, complete and operate.  If it did, at that point you would receive your share of production less ongoing operating expenses.  The first thing to determine is whether your mineral interest is located in a producing unit.  For that you need to post the section-township-range location description for your minerals.

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Permalink Reply by david kenneth merritt on May 7, 2013 at 11:31

SW /4 OF SE/4 OF SEC 8 25-13

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Permalink Reply by Two Dogs, Pirate on May 7, 2013 at 11:50

What state are you located in?

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Permalink Reply by david kenneth merritt on May 7, 2013 at 11:52

louisiana

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Permalink Reply by Two Dogs, Pirate on May 7, 2013 at 11:58

You need to clarify section-township and range S-T-R? there is no township 25 in Louisiana 

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Permalink Reply by david kenneth merritt on May 7, 2013 at 12:01

sorry sw/4 of se/4 of sec 8 23-15

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Permalink Reply by Skip Peel - Mineral Consultant on May 7, 2013 at 12:10

david, there has not been a well drilled in your section since 1983.  And the only producing well is a marginal Gloyd gas well drilled in 1936. 

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Permalink Reply by Two Dogs, Pirate on May 7, 2013 at 12:17

Skip there is a well producing that was drilled in 1936 that is still producing.got a lapse of 4 months in 2012. Can't pull up the well file, but that just may be me.

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