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The Land Grab is going to roll over again -- this year and next

It was not until 2006-2013 that the largest single leasing effort, led by the most well funded companies bought every acre available on some of the largest trend pays in North America. 

Now is the time to do some math.  The industry has not been able to protect all leases by placing them in production (or continuing operations).  Those leases will come up for renewal this year and the next.  It is a great opportunity for landowners/mineral owners to up the ante, both in terms of bonus and royalty, but more importantly the lease form itself.  These leases rolling off the cliff will occur over the next several years, depending on where your property is located. 

Lease forms have two (or three) terms.  The initial primary term.  Let us say 3 years.  Many, if not the great majority, have an unilateral option on whether to extend the primary term for another period.  Let's call this the option term -- generally 2 years or so.  Then depending on your lease form, to maintain the lease past that option term, either operations (as defined by law or by contract) or actual production extends the lease into its secondary term.

 

For example, in the Marcellus Shale, big leasing come late 2007 and early 2008.  They are coming due.  In the Eagleford, the leasing began in the most desirable areas came about in 2009. 

Now, leases that were signed in the land rush that followed and have the typical five-year (total) primary term are beginning to expire - and will, over the next 2-3 years.  A tumbling down the slope of leases that will need to be either drilled or renewed, or leased by another. This creates a huge incentive for the mineral owner who is in that fortunate position. 

Refer to my blog piece here for my prediction of the beginning of the end for dry shale gas plays. 

Natural gas that has little liquids associated with it has little value for being extended.  Oil and Gas plays, like politics, are extremely locale in nature.  The economics for risk on future natural gas prices make it too uncertain to have some assurance that the venture would be economic.  When the dry gas plays took off, natural gas reached a high that year of arund $12.00 per MMBTU. 

Remember the option bonus, or option term that I talked about earlier?  Well, read your lease. You may want out to market your own minerals, but the right to exercise the option is unilateral in favor of the oil company.  And, the courts will not protect you from what turns out to be a bad deal for the landowner. 

As the interest in oil and gas increases (like the 2008-2009 boom) the quality of landwork goes down.  The two are inextricably linked in a reverse position.  So, read your lease again and find out if the operator/lessee has fully complied with its terms.  Many mistakes were made -- on both sides. 

This all provides 20/20 hindsight for those who have an opportunity to commercialize their mineral asset in the near future. 

I cannot emphasize enough to get qualified representation on negotiation of a new lease or briefing an old lease to see where your rights begin and end.  If you have reason to believe the lease has ended, you must take steps to have the expired leases released (forfeited) of record.  This prevents any cloud on your title that would be a barrier to leasing in the future. 

If you have years and years of leasing experience and are entirely confident in your actions, feel free to lease without any assistance.  It's like comparing an inexperienced sailor with an old salt. When the weather is clear, there is not much difference.  If the weather is bad, you want the best sailor piloting your boat through troubled seas that you can find.  if you are an inexperienced sailor, your boat will sink.  There are a graveyard of sunken ships on this website alone.  Go read the horror stories.

Get someone in your corner to help with the negotiation and the detail. READ THE LEASE.  If you don't know what something means, find out.  It's just that important.

 

Buddy Cotten 

Mineral Manager 

 

Mr. Cotten is a landman and editor of The Morning Report, a free news service. 

https://flipboard.com/section/the-morning-report-bzIyXx 

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Comment by Buddy Cotten on October 24, 2013 at 3:56am

Dear Ms Huggins,

If the VLB still holds the mortgage on the land, then their lease form will need to be used.  You will act as agent for the VLB, and 1/2 the monies go to them and it helps pay off the loan.  Now, since Dad has passed, the title on the land needs to be straightened out.  This, you need a lawyer for.  That is the only place that I would know where to begin.

Best

Buddy Cotten

Comment by misty huggins on October 23, 2013 at 5:42pm

Mr Cotten,  Hi I have a little land in Wilson County that my dad was buying thru the Tx VLB but he died and I have since taken over payments. At the time of his death my brother had also died 6 mtns earlier 

Then 6 mtns after my dad died my mom died  so i was kinda out of it for a while it was at that time that everyone started leasing land to oil companys, well everyone who called me and asked me if i wanted to lease it i told yes but i guess when they mailed me the contract i threw it away or it never came or something happened because all my neighbors leased there land and mine isnt. It is in stockdale well about three miles south of stockdale on hwy 123 it is 18 acres is there anyway you could help me out? Thank You Misty

Comment by Buddy Cotten on October 13, 2013 at 12:40am

Dear Mr. Nuncio,

Your questions are very fact specific.  You need someone to go through your lease, like a lawyer, trusted friend, etc and get their opinion on what the lease provides for.

What I was referring to in my post was for the leases taken earlier and not drilled and are still in a hot area are prime real estate to have a new lease let on the minerals.

Buddy

Comment by trinidad nuncio on October 12, 2013 at 12:17pm

I think our lease to burlington says that as long as they are drilling, they can pass the 3 yr plus the 2 yr extension. can that be true ? Also if they go deeped than the said set feet, will that turn into another lease ? is that what you mean by another land grab.

thank you, Trinidad Nuncio

Comment by Mineral Owner on September 27, 2013 at 2:01pm

First of all I would check the original lease and see what the expiration date is. Also if it had an option term. If it did not have an option term then you are in a position to probably make a lot more money leasing it than what they probably paid on the option. In any case if it had an option term and it had not expired and had not been paid I would keep quite and not alert the company and let the lease "expire", then I would contact them. In other words don't "alert" them to pay the option.

Comment by Buddy Cotten on September 10, 2013 at 5:04pm

Dear Patrick,

Generally, that entails going to the courthouse and searching the records.  In many parts of the country, the county records are online and are available for viewing and copying.  Most of the time, there is a fee attached.

Buddy

Comment by Patrick Murray on September 10, 2013 at 12:26pm

Is there somewhere online where you can see when your neighbors different leases are expiring too, to see if it is possible to form a landowner's group?

Comment by Mike on August 30, 2013 at 7:48pm

Look for other items as well. NDRIN is a good source. 

For instance have    there been any right-of-way leases for the area?

Like to OneOK for gas lines?

Have your relatives leased any rights? (how long, royalties rate)

What else is going on, look at the other item for the area.

Comment by r w kennedy on August 27, 2013 at 7:07pm

Ms. Downey, you can try the NDRIN Recorders Network, $25 a month and they accept credit cards. You can search for your mothers lease online and any modifications, extensions by subsequent filings. Sometimes just a memorandum of lease is recorded and not much information can be gleaned from that but in oil and gas $25 is a bargain if it provides any information you can use. Don't forget to cancel the subscription when you have completed your searches / before the month is up so the $25 does not become a recurring charge. I hope this helps.

Comment by Buddy Cotten on August 27, 2013 at 4:26pm

Dear Ms. Downey,

There are a couple of ways.  First, would make certain that I understood the bottom lease and the top lease.  Then I would contact the Land Manager for the oil company whom took the top lease and ask if they made the secondary payment (there should have been if it were truly a top lease).

Barring that, you would need to run title to the lands, but the above you give you the answers you are seeking.

Best

Buddy Cotten

Mineral Manager

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