Replies to This Discussion

Permalink Reply by FTW on October 5, 2018 at 16:59

Pardon my O&G ignorance...

Does only ONE Broker lease for an "operator"?

ie/If one doesn't like the O&G lease language/agreement, can you seek out a different "broker" to see what their lease looks like and if they will make you an offer?

If yes, how does one find another "broker" for the "operator"?

Permalink Reply by Skip Peel - Mineral Consultant on October 6, 2018 at 1:26

Let's clarify the difference between a speculator and a broker.  If a company, say EOG or COP, want to lease lands for development they hire one or more land companies.  Let's call them brokers or land companies.  Even large Exploration & Production (E&P) companies, call them clients, do not keep enough landmen on their payroll for large leasing programs so they hire companies that specialize in performing that work, land companies.  In this case all the lease forms are the same because they are approved by the client.  The terms are the same no matter which land company you are dealing with.

A speculator is offering leases just as the land companies are but has no client.  The speculator is investing in the leases with the intention to assign them to one or more operating companies (E&P) for a profit.  Usually cash per acre and a royalty interest in any production.  Speculators may be companies with a wealth of subsurface knowledge and data and a track record of successfully leasing prospective areas that were later proved economic.  Amelia Resources/Kirk Barrell would be a good example.  He gets the science right often enough to have a profitable company.  Then there are speculators that simply observe what other companies are leasing and take a chance on taking leases in the same areas without any of that background knowledge.  In the old days they were called "corner shooters" or "block busters".  In all cases, the main profit potential is the royalty that a speculator receives by assigning leases to a company that wishes to drill wells.  The lower the royalty fraction that a speculator can get a lessor (land/mineral owner) to accept, the greater their royalty interest in the leases upon assignment.

Permalink Reply by FTW on October 8, 2018 at 18:04

Hi Skip

I have another "dumb question".

If a landman offered a friend of mine a lease for Hawthorne Field.

How do I know if this landman is an inside landman or broker for Prize Explorations (just registered with the state Aug 30 2018)  or if he is a landman trying to buy up leases for cheap to resell later once Prize is "set up" .

We would want to sign a lease with the Operator or direct landman....

How would we know who that is? 

Permalink Reply by Skip Peel - Mineral Consultant on October 9, 2018 at 0:11

1. Re: O&G, mineral ownership, leases, rights-of-way, etc., there are no dumb questions.  Questions from laymen members are what drive GHS and provide education and opinion to help manage mineral assets.

2. As to whether an offer comes from a land company representing an operating company or a speculator, just ask the company behind the offer.  You may get an answer, you may not.  If enough land owners are asking and not signing, chances are a decision may be made to divulge the company looking to develop the leasehold.  If there is a situation where a known E&P company, say EOG or COP, is leasing in a specific area, what is the royalty fraction that they are offering?  The business model of a speculator is to offer a bonus per acre in the same ball park as the operating company, or a little better, in an attempt to acquire leases with a lower royalty fraction than what they think, or possibly known, the operating company will accept.  As an example, and I must interject that I am not up on current offers so this is strictly hypothetical,  if EOG was offering quarter royalty leases a speculator might be offering one fifth royalty leases.  The major profit potential for a speculator is not what EOG would pay them per acre for assigning the lease but the 5% royalty interest in any future production.  Imagine a 2.5% to 5% royalty interest in hundreds or thousands of acres.  Potentially big bucks.

3.  A lease may be assigned from one company to another without your permission however the terms of the lease can not be changed.  Every company that receives an assignment of your lease must abide my the terms.  So, in the end, what matters most is the terms to a large extent rather than the company you choose to lease with. 

For those who can't get an answer as to the company behind the lease offer, do this.  Go to the courthouse and ask the Clerk of Court staff how to review O&G leases recently filed in the public record of your parish.  You want to find recorded leases as close to your minerals as possible.  If there are more than one company offering leases, get their contact information and ask them all to make you an offer. 

Bonus vs Royalty.  Much of the area of central LA receiving leasing interest has not had much historic success with producing oil and gas fields.  So many families down through the generations have become focused on the per acre bonus.  The sure thing.  If their lease turns out to be non-productive, that would be a good decision.  In many cases with modern development, a productive lease will return a significantly greater revenue stream over the life of production compared to the one time bonus payment.

Risk.  There is plenty to go around.  The LA AC is not an unconventional reservoir which means it is not continuously productive over large areas.  So it is a conventional reservoir with sweet spots.  Those who by chance have minerals in a sweet spot may reap many years of production and royalty revenue while another land owner only a few miles away may get nothing beyond their bonus.  Those mineral owners with some reasonable level of financial security can always delay if they own sufficient acres that would keep them from being Force Pooled under LA mineral law.  Then, if they turn out to be in a good area, they can get better lease terms.  Those with small acreage interests can be forced pooled in these typically large units without making the production economics unacceptable for the unit operator.

When in doubt, get help from a qualified, experienced O&G law firm.  The vast majority of attorneys and firms are not experienced in O&G law.  You want an attorney or firm who deals with O&G as a major part of their evry day practice.  It doesn't matter where that firm is located.  Get referrals and use the best that you can find regardless of where they are located.

Permalink Reply by Lisa Melder-Johnson on December 17, 2019 at 7:33

Looks like they repermited this one today SN# 252151.

Permalink Reply by Skip Peel - Mineral Consultant on December 17, 2019 at 10:07

Thanks, Lisa.  Good luck to  'em.

Permalink Reply by FTW on December 17, 2019 at 18:41

Why would they let it expire? The well serial numbers and names are different? What does this indicate. Scouting reports were not helpful "to me". 

Thanks

Permalink Reply by FTW on December 19, 2019 at 19:21

Thanks