Oil/gas, Mineral rights question.

[slydog]

I have 16 acres in north central Arkansas. There has recently been a mad rush at all the county courthouse by the oil and gas companys to search the mineral rights on all the deeds, then send out offers to lease/purchase the rights for a certain period of time. After some research, I learned that my land is sitting on the "Fayetteville Shale Play" area as it's called. Seems that it has recently become profitable to extract natural gas from the pockets in the shale rock. I don't intend to sell or lease to anyone right now, but I have a couple of questions if anyone might offer some answers.

1. What is the process to get the gas from shale rock? I know it involves drilling a well, but I don't think it "flows" like a natural gas field, ie, not gas under pressure.

2. They are making offers to even folks with a half acre size lot. This makes no sense to me, unless possibly that anyone sitting over the "Shale Play" area might possible be intitled to royalties since the gas is actually coming from under all of our property. Could that be the reason they are trying to snap up all the mineral rights? I don't see why they would pay any money for something as small as a half acre,unless they were guaranteed at least the return of their investment. And I don't see why they would bother putting a well on this half acre, if they could just move over 500 feet and put the well in there.

3. If they put a well on the property next to mine, could I possibly have a royalty claim, as it is more likey than not they are also pulling my gas/oil out from under me? Seems to me it should work like the Alaskan Pipeline royaltys, since it is coming from under all of our properties.

The way they are "selling" it now is, lease us your rights for 3-$400 per acre for 5-10 year lease. We MAY come in and put in a well, (as they have on a few folks property), and we will give you 12% of what we pump out (based on a 640acre tract you lease them the rights to) so it would actually be a percentage of the 12 percent if you only had a few acres. How could this be even an attractive offer to a small land owner? I don't trust em.

4. Any idea what they might be able to get out of one of these wells, dollar wise?

Any other thoughts, ideas, or suggestions would be much appreciated.

 

[JerryG]

Here is some information.

 

[slydog]

Thanks Jerry. I didn't even think to Google the name of it!

 

[TillerofdaEarth]

Hi Ken,

When a gas company leased my land, they had to encompass the land of four neighbors, to make up a minimum 60 acre lease. Even a small lot would have had to been included if necessary to make up the 60 acre lease.

The well was drilled on my land. I received extra $$ for property damages to drill the well. I now have a beautiful waste water tank, pump jack and well head in my back yard.... /forums/images/graemlins/frown.gif Not to mention the pumper who has to drive through most every day to check on it.

The royalty payments are divided up amongst us 5 land owners. The one with the most acres in the lease gets the biggest check, and that isn't me... /forums/images/graemlins/mad.gif The one with the fewest acres gets the smallest, that's not me.... /forums/images/graemlins/smirk.gif

So to answer one of your questions... Yes, the gas company has to lease even small tracts of land if they are in the proposed lease survey.

Is it worth it to the 1/2 acre land owner? Most likely not, if they want to do the drilling on his little 1/2 acre lot. But hey, if they do the drilling on someone else's property why not, A little bit of something is better than nothing.

Hope they hit a big one for ya!!!....Brian

 

[Egon]

If in doubt spend a few dollars on Legal advice!

Try for 16%. /forums/images/graemlins/grin.gif

Egon

Egon /forums/images/graemlins/grin.gif

 

[Freds]

This is what I know. I have a commercial gas well on my property. There are 8-10 people that get royalties, with me getting the biggest check because my plot is largest. I am also allowed so much "free" gas per year because the well is located on my property. A well tender checks on it every now and then, but the original owners stated he was not allowed to use the driveway and access had to be from the rear of the property, so I don't really notice when he's here.

My well was sold to another company a little over a year ago and a lot of verbal agreements/arrangements that the previous property owner had with the previous well owners, which transferred over to me, are now beiing renegotiated with our attorneys /forums/images/graemlins/mad.gif.
I don't think I like this new company much, but the royalty checks increased by about 400%, so it leads me to believe don't trust any of them.

 

[44trxfun]

First, and foremost, I agree with Egon. It may go without saying but I'll say it anyway, find a lawyer with real estate / gas well experience.

Secondly, you are, to a great degree, in the driver's seat. If you are interested in leasing the resources / rights, regardless of what they gas company offers,you can negotiate whatever you want into that lease. (Of course, there is no deal until both parties agree, and it's what's in writing that counts.) The local Audubon here signed a lease with one of the natural gas companies for a new lease. They had literally pages of additional environmental protections vs the "standard lease".

In NY, the industry is regulated (to some degree) by our Dept. of Environmental Conservation. You might check your counterpart's website or contact them directly for more info. Also, your Cooperative Extension folks may have some good info for you about how gas leasing works in your state.

I have a lease I inherited when I bought the property. Although I've had no issues (on the ground) yet, I've been alerted by the gas company that they'll be coming in to refracture the well. The well is about a half-mile back from the Town road on the back side of my property. Though they've done nothing more for the last 20 years than send a well tender back to check things weekly, if they make good on their intentions, it's likely I'll have a mess on my hands. But that's because the lease I inhereted had very little about who's responsible for what. The market changed so my world could change. I can't say they'll do a lousy job because they haven't done anything yet. But, if it was up to me, for the royalty I'm currently receiving (or probably would recieve, even with increased royalties) I'd end the lease in a heartbeat.

Good luck to you.

 

[rlk]

Slydog, I went through this back in the 70s.

The company rep who negotiated the lease with me stated that the surrounding land was divided into 40 acre blocks. Everyone in a block had to agree to lease the mineral rights, otherwise, no land in the 40 acre tract was leased. If gas/oil were found, the royalties would have been distributed to us according to the amount of acreage. If you had one acre, you would have received 1/40 of the royalty.

I leased my property after they changed the contract. The original contract stated they could use my land for storage whether they dug a well or not. I refused to sign that lease for obvious reasons. They removed the storage clause, but wanted an indefinite lease. I refused to sign the lease until a timetable was put on the lease. They finally agreed to a 10 year lease so I signed.

When they started exploring, they brought in a big truck that had some type of device on the rear that they would place on the paved road. Whatever the device was would produce sound waves, or something similar to detect gas/oil. They did find gas/oil but stated it was imbedded in shale, and at that time decided it would not be feasable to try to recover the gas/oil.

After the 10 year lease expired, someone called to renew the lease, but only wanted to make a one time payment of $5.00 per acre and get another 10 year lease. I told him to forget it, and have not heard from them again.

As others have stated, if you are seriously considering this, I would get an attorney onboard, and make darn sure the contract is written the way you want it.

Bob

 

[slydog]

Thanks guys for all the great advice, insight, and wisdom! I knew there would be some TBN'ers who had some kind of experience with this, and it was exactly what I was looking for. Im sitting right where I'm at for now. I wouldnt even consider leasing away my rights for less than what I paid per acre of land. That is the only amount that would be worth it to me. I can't see where any royaltys on 16 acres would amount to a significant sum anyway. I guess I'll have to call Mr. Dryesdale and cancel that savings account now!

 

[mwechtal]

slydog,
In New York, if you have a small parcel and most of the other land in the area is leased, they don't need your lease. So, you're out the lease money, but they do send you royalties. It's in excess of $1000 per acre each month in some cases. This is for Natural Gas in our case. No we're not one of the lucky ones or I wouldn't have a 25 year old tractor!

You CAN have the lease written so that they're not allowed on your land you know. In that case, they're just "using" the underground portion. We have 1 1/4 acres, and other than putting a string of geophones along the road frontage they've never been on the property. And they asked permission to put the geophones in. They're just a metal rod they stick in the ground with a sensor on top. They are all linked with wires that you just drive over if they're in the way. The biggest inconvenience was after the geophones are in they come by with a string of thumper trucks and vibrate the heck out of the road. It wasn't bad enough to knock anything off a shelf, but you wouldn't sleep through it. They didn't start until 8:00 am anyway.

Mike