Need Oil & Gas Lease Information/Advice

Factual Questions
1

Hey, all.

You may have heard of the Haynesville Shale dealio, happening in East Texas and Northwest Louisiana. It’s been in the works around here for a couple of years, and I’ve been approached more than once about signing an oil & gas lease, releasing my mineral rights to the unmentioned company.

Doe anyone have any experience with this? I’ve done a bit of research on terms, options, clauses and the like, and I think I understand the parts where I need to look most closely at, to make sure that I’m not being taken advantage of. Given that the company isn’t out to make me a rich man, I’m mostly trying to nail down what is fair.

I understand that if I don’t opt to sign such a lease, I could be force-pooled when a certain percentage of the property owners in my area do sign up. Of course, the agent in contact with me would like me to sign up as soon as possible, and never question any part of the contract he hands me. That may sound cynical, but I understand that business is business, and he’s paid to get his company the best terms, not to look out for my best interests. Therefore, I’m leaning very strongly toward signing a lease, but I’m not going to do so blindly. I have a few specific questions, as follows:

What is the amount of time, in years, that I should sign for? My beginning research seems to indicate a period of 5 years, and that a 10-year lease might allow delay of any royalty payments to me (if a well is indeed drilled and begins producing).

His company is offering a signing bonus of up to $4,000.00. I don’t know the caveat behind “up to,” and my property is 0.235 acres. Should I nail down that this bonus is based on a ratio of “up to” 4 grand per acre, and how strongly should I insist on that 4 grand figure?

Should a well in my area be drilled and start producing, I will be eligible to receive royalties. Now, a “unit” is defined as 640 acres (about 1 square mile), so you can see that my property is quite a small percentage of that, thus I don’t see royalties, if any, putting me on Easy Street. His company is offering 25% royalties, which I’m assuming is split between all the property owners in that one unit. Again, from my initial research, 25% is higher than I’ve seen listed anywhere else, but those were different parts of the country and from Web pages or articles that are dated 1 to 4 years ago. I’m of the opinion that such an offer seems, on the surface, to be fair. Anyone think otherwise?

Staying on the subject of royalties, I’ve read that they’re paid out 1 of 3 different ways, and that basing royalties off of gross production is the best option for the landowner. Does anyone have knowledge of this particular detail?

By now it should be obvious that I’ve never done this before. I believe the above areas of interest are ones I should be closely scrutinizing in any lease presented to me for signing. Regarding the above details, any further knowledge I can glean as to what will constitute a fair deal for me would be most appreciated. Going further, if there are areas that I should know about that are of equal or greater importance, please, I could use all the advice I can get.

I’m going to do this before I’m force-pooled and thus lose any negotiating rights. I want to get rich, sure, who doesn’t, but I recognize that this lease will not make me so, and will likely only get a little extra folding money, if that. I don’t want to make too many demands and have the company back out and let me be force-pooled. I may sound disingenuous, but I honestly only want a fair deal, and I need help recognizing what that might be and how to go about ensuring it.

Thanks in advance for any and all information and advice you might be able to offer.

2

I worked in O&G for 10 years, but not in Land, and in Alberta, not the US. My obvious advice would be to talk to a lawyer.

Ask the landman to explain exactly what they mean with regards to the signing bonus and what that means for you. Should you have production in your area, you typically receive a percentage (as they state) either monthly or annually - probably annually. I don’t know the averages in your area, but it might be a good idea to talk to your neighbours and see what they’re being offered/signing. While it’s true the landman is there for the company, he should also be patient enough to explain everything to you, so if you have questions, you need to ask.

One other thing you need to bring up is environmental liability and damages. What are their responsibilities per the contract if they have a blow out, if they spill 100 gallons of frac fluid, or if they have a leak when in production and leach 50 barrels of oil into the ground or your water table? What about hours of work? Are they asking to work 24 hours a day? Drill rigs are noisy. What about truck access and dust control? What are they drilling for, exactly?

I’m not telling you to be difficult, but these are the questions I’d ask.

Also, you’re right about not getting rich, but it could be a good amount if you’re on production land. I’ve seen annual rentals ranging from $500 to $10,000.

3

A 1/8 lease is standard. A 3/16 is considered a bonus. So your 25% lease sounds great to me. The $4,000 signing bonus may depend on the time of the lease. You need to ask more about that. The bonus and lease money is all you get before any production so lock that in. For that small of an acreage, I’d jump at $4,000 and five years. When it comes to production, the Texas commission has strict rules on payment. Producers can’t delay a long time without paying you. Read everything you sign up to.
My belief has always been that you don’t want to be obstructive. The money is in production so you want to encourage the party to be successful. Forced pooling almost always happens to a few on every section. They receive the average or some formula. You can Google for all this.
The person or company who is soliciting you for the lease is most likely not the party involved with the drilling. These people are merely paid to secure leases and pass them on. You really don’t care as long as the check is good.
When you agree and sign it, forget about it because it will take a long time for anything to happen. The fact that somebody is interested in leasing and drilling if always exciting though. Good fortune to you.

4

I can’t offer any help/advice on your deal but I just wanted to say that I am a Geologist working the Haynesville shale, I’m on a rig right now just outside of Belmont, LA.

Unclviny

5

Here in western Oklahoma, the signing bonuses are around $700/acre with a 3/16ths share. To get 25%, you have to forego the bonus. $4000 for 1/4th of an acre sounds like a lot to me.

6

Thanks for all the replies so far. They have given me good advice and perspective. I think I was rather vague on that signing bonus. What I meant to convey was that the company was offering “up to” $4000 per acre. Since my lot is 0.235 of an acre, I would see a lot less than that even in the best scenarios (for me).

I will be talking with the landman on Tuesday, and doing more research before then. I’d be lying if I said the money was not a motivation, but another, stronger motivation is to act now before I get locked into something I don’t want. I put off doing anything about this for the better part of two years, but this will happen, whether I act or not.

I’ve thrown the word “fair” around a few times, but if I really say it out loud, I’m going to try to get the best deal I can for me, and avoid getting locked into a deal I don’t like or want. So, I guess that means I’m really going for what I can get out of this. Ah, capitalism. Or is it greed? I don’t think I’m being greedy, but I’m not looking at my situation from the outside.

Anyhow, this is just business; it’s happened to many long before I came along, and will keep rolling long after I’m dust. Thanks again for the replies.

7

There is some good advice in this post. Talk with a lawyer; preferably one who is experienced in oil and gas matters. Such legal practitioners are common enough here in Alberta where we have plenty of oil and gas; I would imagine that they are also plentiful in Texas.

IAAL, but I am not an O&G lawyer. Regardless, I do remember a law school class in oil and gas leases: top leases, bottom leases, obligations of lessor and lessee, mineral rights, royalties, and the like. However, I cannot advise you based on my experience and jurisdiction (and I would not, even if I was an Alberta O&G legal expert). But I can say that the subject is a lot more complicated than simply leasing an apartment to a tenant. Again, consult with a local lawyer who is experienced in O&G, and find out what your rights and obligations would be under the proposed lease.

8

I am in the middle of this exact same situation with the Haynesville Oil Shale myself. My family’s holdings are substantial so we have multiple professionals handling it. Where are you exactly? There are associations forming for people with smaller holdings and lots of information on the web. I have people I can ask in general if you PM me or I can point you to some things on the web. I own wells in both East Texas and Northwestern Louisiana.

9

I have general questions / comments about royalties. Although its not specific
to my property alone, I am a recipient of royalties (not very much) per year.
Ive been doing alittle research and would like clarification if anyone can. Most
lease agreements state something to the affect that royalties will be paid based
on oil / gas that is pumped and brought to market. Additionally,most agreements
state that lease agreements will be extended if the companies can show oil / gas
production.
Again, this question is not about my situation directly, but for your
information I have a lease agreement in Caddo Parish Louisiana.
How is it that everyone can be promised all kinds of things (monetarily)
concerning their lease, but a lot of oil / gas companies get around the lease
expiration by producing the equivalent of a leaky faucet, which seems to be
enough to tie up the landowners mineral rights?
Second, I’ve researched alittle, and have read articles about 1-3 different
companies that are in the business of STORING oil / gas for the petroleum
companies here in the US. AND THEY MAKE MILLIONS EACH YEAR !! So my second question is this…If any oil / gas company pumps barrel after barrel or thousands of cubic feet of gas a day…then pays a company to STORE it, which illuminates it from going “to market” and thus bypasses royalties being paid to the owner until that oil / gas finally goes to market, how are the landowners made to sit back and wait?? If the oil / gas industry has millions of barrels or gas stored…and keep it stored because of “low prices” right now…basically hoarding…what can a landowner do??? It seems like another example of the small guy getting the shaft !

10

You have to realize that it is sound energy management policy for them not to flood the market with such huge discoveries of natural gas. That would collapse the market and bring prices down right away for everyone. The equivalent of your stored gas combined with everyone else’s wouldn’t be worth much of anything if it all to be sold tomorrow because the demand isn’t there. It is a fuel with a long and promising demand horizon. I know you want your money NOW but it may be better even for you if they wait.

I don’t know about the particulars your lease. My family has leases all across Caddo Parish, Desoto Parish, and East Texas and they do pay extremely well when the gas companies decide to cash in on the equivalent of the gas from your lease. My family already been paid millions from it with more to come so it isn’t a scam.

You will have to read the fine details about how your lease is structured and possibly consult a mineral rights attorney but there are many people in the same situation as you. The money will be paid eventually but don’t rush things and try to understand why it has to work that way.

Speaking from one Louisiana to Doper to another, don’t format your posts that way and proofread them. This stuff is Google searchable and read by people around the world. We are trying correct some stereotypes about Louisiana and you have to help.

11

I should say Welcome Aboard! as well peepers. This is a good and unique board that can answer just about anything that is answerable. My comment about formatting is just because this board is popular on Google and it does have above standard norms for posting. There is a lot to see besides just information on mineral rights and you might find some other things of interest if you stick around. We have a whole lot of true experts, self-appointed masters, and just plain crackpots that can try to answer anything you ever wanted to know to the best of our ability.