Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on February 6, 2018 at 4:00

If you own the surface, contact the most experienced O&G attorney whose practice serves land/mineral owners, not the industry, regardless of where their physical office is located.  Be prepared to provide the production history for your well over the last two years.  You should be able to get an opinion on the strength of your case for no charge.  If you wish to proceed from there, prepare to sign an engagement letter and pay an hourly rate.  A demand letter on your behalf coming from a well known O&G legal firm will be of greater concern than a demand letter that you send yourself.  Also be prepared to answer a question from your lawyer.  The most successful lawyers have their demands taken seriously because they follow them up with a suit if the demand is denied.  That entails a cost and a commitment from you.  Attorneys that make demands and do not follow up soon get a reputation for bluffing.  A successful O&G attorney does not wish to detract from their hard won reputation.

I can't speak to your comment regarding a "Pugh" clause without more information.  However, if this is the only well holding your lease and it does not meet the test then a horizontal Pugh shouldn't be an issue.

Permalink Reply by Craig Wascom on February 6, 2018 at 4:34

We had  some of our land in Texas released on a lack of production clause and it has worked out very good for us. It can happen get a good attorney.

Permalink Reply by Bob Zimmerman on March 2, 2018 at 8:47

I'm curious if your statement "a larger royalty fraction" is any indication that a 1/4 royalty will stick now or in the future, and that a 1/5 could be on the cheap side if the play "plays", as they say in industry parlance. Your comment?

Permalink Reply by Skip Peel - Mineral Consultant on March 2, 2018 at 9:32

I suspect that there are already leases with a quarter royalty for well located, large acreage owners with first rate legal assistance.  The play will have to prove economic and open acreage may have to be in areas where there is competition for leases by two or more operating companies to get those terms at this point.  Let a handful of good wells be announced and the bidding will likely go up. 

Here in the Haynesville Shale early leases prior to the Chesapeake announcement tied up a good many large acreage interests at a fifth and $200 to $500/acre bonus.  After the play was announced and the first round of well completions were reported, everyone got a quarter.  Didn't matter whether they owned 1,000 acres or 10.  Something along those lines may happen in the Central Louisiana AC but it is too early to bet big.  If the current bonus dollars are not enough to be life changing, I'd wait a while.

Permalink Reply by Bob Zimmerman on March 2, 2018 at 11:31

Appreciate your comments. Allow me to add an operator could insulate himself somewhat from whatever can go wrong during drilling by offering the fee owner a lease with a back-in after payout of 25% royalty and a stiff reduction the bonus. I don't know if many fee owners would go for that at the expense of royalties during payout, but it does seem somewhat more beneficial in the long run. The bonus money will be long gone shortly, but royalties can go on for decades. That five per cent spread between twenty and twenty-five is mighty attractive if going long.

Permalink Reply by Skip Peel - Mineral Consultant on March 2, 2018 at 11:38

I could use the pigs and hogs analogy but we decided to stop using it long ago as some mineral owners found it offensive.  I understand why.  It is better to simply state that one should have a feel for their negotiating clout/position and what is beyond reason in the way of lease terms.  In the early days of GHS too many members with low value tracts asked for the sky and got left behind.  At first some of them thought that was okay since a fair number of wells were paying out in 4 to 6 months at $13 gas.  Then the bottom fell out and many of those members have gone years with no payment.  Some of their wells may never pay out.  Those that have get pencil whipped regularly by their operators.

Permalink Reply by Bob Zimmerman on March 2, 2018 at 13:42

You make a strong argument to take the bonus money and run. Having seen the Austin Chalk in Louisiana turn on and then crash, you can lose your appetite for risk in a hurry. When they operators first developed Masters Creek East in the 90's they were going to build drilling pads for the chalk all the way to where the trend intersects the Gulf of Mexico. And then one day- POOFH, the bottom fell out from under both oil and gas. 

And it was all over but the crying.

Permalink Reply by Skip Peel - Mineral Consultant on March 2, 2018 at 13:52

Bob, you miss my point.  I'm not making any argument for taking the bonus money.  That would be an understandable course of action based on past AC plays however I think this time may be different.  With that said, it is unlikely that the AC will be economic across the entire area now seeing leasing activity.  So it's a game of musical chairs and the music has not even started.  What I am saying, explicitly, is that if the bonus payment would achieve something substantial in someone's life, take it and don't look back.  That doesn't mean ignore other lease terms.  It just means that trading a higher royalty for a bonus is a personal choice.  If the play fails, those that took the bonus and did or didn't place value on the other terms will feel validated.  If the play takes off, they may feel differently. 

Permalink Reply by Bob Zimmerman on March 2, 2018 at 16:49

I concur this time around the AC might play differently. I am cautiously optimistic the new lateral fracking technology will turn this play around. But then, so were the E&Ps in round one likewise optimistic. 

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