My sister had a company come by a while back and ask to check for gas on their land. When gas was found, they were told that they were going to drill and that she would get royalties and/or property access fees. So, now that the time has come for numbers/contracts to be discussed, what does she need to look out for? I'm sure there will be a different amount if the drill rig is on her land or not. More if they need to build access through her land. How does that work? Also, how does the actual gas production pay work? Is it a straight percentage or a fixed amount per month? If it's a percentage, what is typical? This is in the Ft. Worth area if that helps any.
She should get an initial bonus and at least a 1/8 royalty based on production. With the market where it is, she probably could do better (1/6 maybe?). Edit: You sound like she's pooling in with other properties - you should add that to the equation. Her first check should be bonus + ((Her surface area / Entire pooled area) x at least 1/8 cost-free royalty).
I'd love to hear how they "found gas" without putting a hole in the ground. Since they've already found gas, hold out for a quarter.
As the owner of a well, I would highly suggest hiring a lawyer who knows these type of contracts. There are many things to consider besides a hole in the ground, such as a road, restoration of the property, etc.
I am an attorney, not an oil and gas attroney. I would echo the sentiment about hiring an oil and gas attorney. One thing I can remember from deep on the recesses of my brain from law school is that you need to make sure you do not give the oil/gas company any of the rights to the land. You should keep all the rights, the mineral rights as well as the surface rights. A lease is just that, the oil/gas compnay can come on your land and take the oil/gas, but they do not have the rights to any other minerals, fossils, etc. found underground. Furthermore, they do not have the right to use anything on the the surface such as water from a pond (unless it is part of the lease). Just remember, I am not an oil and gas lawyer, and you should not take what I say as soild legal advice, but you should definitely hire a lawyer with expertise in that area.
I'll tell you what I'd do: I'd take the deal, then crawfish and drill that ole oil company in the ***.
Get a lawyer. The mineral estate is the dominant estate, and if you don't have a good agreement, they can totally destroy your land.
with a lease you are conveying a mineral interest. The mineral interest is the superior interest. With the conveyance of the mineral interest (fee simple determinable) they get the exclusive right to use the surface (using the pond and roads) unless the accomodation doctrine applies (prior existing use with reasonable alternatives). I would echo the sentiment about getting an oil and gas lawyer to draw you up a lease (I am merely a lawyer to be pending results so don't take my word for scripture.) However, the bonus and royalty number spit out above are pretty fair. I would try to get as big a bonus as possible because there is no guarante on how long the gas will be there. I think you should be able to get at least 1/5 if not 1/4 for cost free royalty. If you are pooling I would make sure you have a pugh clause included in the agreement (mention that to the attorney and he should know what you are talking about). These are just some of my thougts. I hope they help.
I negotiate lease contracts for land owners in the Barnett Shale, which is the gas formation currently being developed in Tarrant, Johnson, Wise, and Parker counties. The reason they know there is gas under your sister's land is the Barnett is a "blanket" formation. Its not "if" your going to hit gas, it is simply how thick is the formation in your area. Western Tarrant county is a pretty prime location, if she is in that area. Leases are written with bonus money per acre, and a royalty percentage, as mentioned above 25% is what I would ask for. The bonus would simply be based on the size of the acreage. Drilling sites are paid to the landowner on a "per well" basis, which is negotiated in the original contract. The current rate is $10,000 per site in Johnson county, but should be more in Tarrant. Important items that MUST be in her contract: Pugh Clause- The gas company cannot pool only a portion of your land and hold the total amount by production, they must pool it all or release the unpooled land to be leased again by the landowner. No arms length transaction- The gas company cannot sell the gas to one of its subsidiaries at a discounted rate and pay the landowner based on the discounted rate. No transportation fees- Have the gas company pay all transportation to one of the three "hubs" that it can go to in Texas: Beaumont, Decatur, or El Paso. Everyone involved pays their pro rata share from that point, but at least get it paid to there. Please PM me if you have any questions. Chief
I'm an oil and gas attorney. I was going to suggest asking for a 1/4... and not settling for less than a 1/5. A fifth is pretty common for boilerplate lease forms in Johnson County. I would only add that depending on the size of the property and the extent of development already on it, that you add some very stringent surface use restriction clauses to your addendum, as well as some strict surface restoration and damage provisions. There are also some definite items you should toy with such as altering the pooling provision and a pugh clause, as noted above.
Lat, I figured you for a Wilcox man down there in Duval County. This Barnett tight formation is crap, but the ungodly reserves they are giving it per acre makes it look good on the books. Chief
This Barnett hype is going to collapse fast when gas prices go down. While you will always make a well, you need a good price to make money. With the extreme money being paid there, some companies are going to get hit hard. I have drilled to wells in Wise county that may be the worst in the Barnett, based on what everyone else is reporting. They are making 20 mcf each. I am not a fan of the Barnett, give me South Texas or South Louisiana any day.
Seems like they're not too worried about negotiating and offered 1/4 up front. $1500/acre as the mineral lease payment. Not bad for "found" money!
If you think $1500 is crazy, Chesapeake paid $12,500 an acre for the Little Hoss Ranch on the Tarrant, Johnson, and Parker county lines. Its 7600 acres and has a NO DRILL CLAUSE!!! THEY CAN'T SET FOOT ON IT. We set the deal up for $100 an acre, and now Chesapeake is refusing to pay the $760,000 commission on a $95 million deal....********. I'll get it out of them from somewhere else. And as far as the Barnett goes, I'll take Wise county over this crap down here in Johnson. Up there, you have the Viola under there to save your ***, if you drill a little deep down here its the Ellenburger, and all the salt water you can haul off. Phil is right, this is a house of cards, a stock play based on inground reserves, if you are not publically traded, you have no business in the Barnett. These wells have $5 million in incurred expensives before they are even on line. I'll take Bossier, Cotton Valley, and maybe even Wilcox over this **** anyday, and twice on Sundays. And I can lease all of that I want for $350-700/acre. BUT: Back on topic, Jeevsie, how much land does your sister have?? I can tell you if the offer is fair. Chief
