Replies to This Discussion

Permalink Reply by Jesse Joyner on September 22, 2014 at 6:44

If I was in your shoes, I wouldn't take the bait. Since you are dealing with a flipper/speculator (or possibly the shadow of a hidden company), just say no and cash the 2-year option check when they pay you next year, which they are telegraphing that they will. They are simply attempting to renegotiate your initial deal to their advantage. And a low offer, at that. So when they pay you the option, as you know, you will be under lease with no way to shop to anyone else at that time. They might do you a favor and not pay you the upcoming option, but that is very doubtful. 

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Permalink Reply by Dion Warr, CPL on September 22, 2014 at 8:58

Marilyn:

I would have a slightly different take on this, but it begs a question: do you know if  the original lessee has already assigned their leases to another party?

If yes, what you are describing amounts to a top lease, in that the original lessee would currently have no rights in and to the lease, and thus is then betting that the assignee will not be able to develop your lease prior to the expiration.  In essence, for 10 cents on the dollar, they reserve a first position to your leasehold in the event of the lease expiring of its own terms, and the right to retain your lease for up to an additional five years (three years longer than currently the case),if the lease obligations are timely paid in lieu of production (top lease payment, balance of the lease bonus upon signing the new lease, and paying the extension payment before the third anniversary date of the new lease.  At their option, they can hold the lease or assign same to whomever they wish (presumably the highest bidder).

If not, they are in effect reserving the option to extend your lease for up to an eight-year primary term, for what amounts to an incremental payment on current terms.

The effect of these two possibilities are albeit subtly different, while both indicate an interest to acquire additional leasehold rights over an extended term.  The top lease idea indicates a reasonable certainty that no operations will occur within the next few months to hold your lease, and your original lessee (whom you believe might have been speculative) would be looking to acquire the same property again before it even has a chance to go unleased again.  If it is in fact the same lessee as before, then that lessee would ensure the ability to retain your lease for another year past which they are otherwise entitled by simply paying $100 more for the extra year, with a right to retain yet longer for the (presumably increased) extension payment.  A lessee extending their own lease in this manner would thus likely be indicating that not only do they not foresee development in '14 or '15, but likely neither in '16 and possibly not even by end of 2Q '17; otherwise, they could just maintain the lease by payment as prescribed in your current agreement.  And of course, in either case, leasehold could be maintained through 2Q '20 if desirable.

In either event, I would state that the idea is that with reasonable certainty that the prospective lessee (whether top lease or not) is indicating very little likelihood of any development within the next nine months which would otherwise hold the lease (or at the very least, "definitely iffy").  Otherwise, why attempt to obtain a new lease at more preferable terms to you?

I understand that you wish for level playing ground, however, if that includes "telling you what their plans are or when they might drill with any certainty", that is not forthcoming.  The best that you can do is try to divine what this means based upon their actions (ie., "why ask for a lease renewal in this manner at this time?") and go from there.  They are telling you what they want to do.  It is up to you to decide what you want to do.  That is about as level as it gets.

Good luck to you.

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Permalink Reply by marilyn warren on September 22, 2014 at 9:15

Thank you both for your responses, it's certainly a lot to think about and a gamble either way.

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Permalink Reply by 1kw6x71km1v37 on September 22, 2014 at 15:36

Think about the psychology behind their approach.

First, your current lease is set to terminate without possibility of extension. That means no more money to you. OMG to most people.

But, they can get you more money by signing you  to a new lease. OMG again, this time in the other direction. Money. Get it! You're saved.

It's obvious they didn't learn their trade last week.

In law, the scheme the lessee has laid out is similar to Fraud in the Inducement, although there appears to be nothing illegal here. But it's near the zone.

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Permalink Reply by Dion Warr, CPL on September 22, 2014 at 18:18

Marilyn:

The above post is so irresponsible and inept in its analysis that I find it nauseating, and thus it bears response.

First, as you have stated, your original lease contains a provision that allows for an option to extend the lease, at Lessee's option, for two years.  Irrespective of your current negotiations, Lessee at present retains that right, even if that Lessee states that it won't.  If your negotiations fail, the existing written contract constitutes the law between the parties.  Although I do not always agree with Mr. Joyner, he recognizes this, as do I.  Why the above poster does not seem to grasp this concept is beyond me.

To even mention or allege fraud in the inducement in this example amounts to patent stupidity.  Parties to existing written contracts may renegotiate their contracts at any time during the life of the contract as they wish, provided that they can agree to the terms.  Should they not agree to such terms, the contract merely exists unchanged.  Any attack based upon fraud in the inducement, per the facts in your recount, would hinge upon this portion of your statement: "they will not extend the lease at that time"; the statement that you will not receive an extension payment in the future thus would be relied upon to induce to you to accept a longer term deal (with additional marginal inducement) now.  To be considered a reasonable implication, you must thus be convinced in believing that a party that will not retain your lease later and pay you as agreed (even though it is their sole right to do so) would only want to pay you more, now, nine months early, in order to hold your lease three years longer than what they are already entitled to do.  Moreover, if the above poster's logic is to be followed to complete absurdity, in nine months, not only will they not want to pick up your lease, no one else will either (emphasis added), leaving you unleased and virtually no possibility of anyone wanting your lease, thus, you are compelled to lease.  Reasonable?  Believable?  If you were being offered several thousand dollars an acre, ehhh...  Otherwise?  Didn't think so.  IF this were the case, we would have all sued those "Act NOW!  Supplies are limited" TV offer purveyors into oblivion before Ronco had a chance to sell us those food dehydrators and countertop rotisseries.

With advice like that posted here, maybe the above poster should reconsider the link that is thrown around as his own personal joke, enroll in a few classes (contract law, perhaps?) and not be such a cheap joke to the rest of us shalers...

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Permalink Reply by Joe Aldridge on September 23, 2014 at 1:04

Dion,

Would there be another direction for Marilyn to consider? Since she thinks that a speculator has her lease (and probably does) would it be a good idea for her to go to the primary leasehold "operator" in the area and see if they are interested in "top leasing"? Seems to me that the operator in that area does not want to deal with the speculator.

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Permalink Reply by Dion Warr, CPL on September 23, 2014 at 2:41

Joe:

It is likely that a primary operator may not wish to deal with a possible speculative interest. That said, the current Lessee possesses an additional nine months in the primary term which is already paid up, and a right to extend the term for an additional two years should they choose (despite verbal advice that they won't). A third party cannot reasonably rely on anything else other than what is available in the current lease agreement.

Nine months is a long time for something to occur in the life of a lease, and if one could induce an offer to top lease from a primary operator, all that would be required from current lessee would be to pay its extension payment, which they would likely consider despite all current verbal pronouncements to the contrary. Thirty days, sixty days prior, maybe - but then I would expect that your new prospective Lessee would want to monitor whether your current lease would be extended by payment, and then execute a new lease with you once reasonably convinced that said payment has not been timely paid.

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Permalink Reply by Skip Peel - Mineral Consultant on September 23, 2014 at 3:22

Marilyn is leased to Jet Energy Partners, LLC

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Permalink Reply by Dion Warr, CPL on September 23, 2014 at 3:50

Skip:

Thanks for the info.  Jet would be an investor-type speculative interest.  I would suspect that their reserves are such that they could contribute to development if they so chose, as opposed to the stereotypical block-buster interest.  Whether they would participate in a TMS well on or near Marilyn's property remains to be seen.  Jet does not operate wells in LA.

Quick followup on the members in this LLC yields Twelve07 Capital as a member out of Atlanta, GA.  Their primary mover is Steve Witmer.  Per information on their website, the entity is involved in landfills and mitigation banks as well as E&P waste management, presumably created and operated at reasonable returns for well-capitalized investor clients.  They went into the "TMS business" in 2/2012 - link here.

One should be able to make a trip to Greensburg to determine if Jet has assigned their leasehold - St. Helena does not have online records.

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Permalink Reply by Dion Warr, CPL on September 23, 2014 at 4:13

Marilyn:

It would assist if you were to post a discussion in one spot.  It helps to avoid multiple parallel discussions on the same topic.  I recently discovered your identical post mirrored on the St. Helena Parish TMS page - Skip was able to tell me who you had acquired your lease in 2012; that set me to digging around.

Not all of us check all of the pages, so it is likely for you to receive the same questions, the same information and same suppositions again and again from members who are responding to one thread or another.

Please take this into consideration when making future inquiries.

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Permalink Reply by marilyn warren on September 23, 2014 at 5:56

Sure thing Dion,

I posted here and thought that I might should have posted it there instead so I posted it again to be sure it got seen.  :-)  I appreciate all of the feed back I have received so far and intend to visit the courthouse as soon as I can get up there.  Thanks again!

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Permalink Reply by 1kw6x71km1v37 on September 23, 2014 at 10:10

Dion Warr,

The OP made it perfectly clear the lessee was firm that the lease would not be extended. What the lessee's legal rights are and what the lessee actually intends to do is immaterial to this argument. This is not about right and wrong. It's about a lessor being gamed by some vultures.

You are out of line elsewhere in your comments regarding me.

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