We have a land in Ness County, KS that has been leased since 2008. We received a request to amend the lease to include horizontal drilling and pooling to the existing lease. Lease owner is Ecana. Since we are not very knowledgable about the whole leasing procedure, we wanted to make sure that this is a normal procedure. Reading these forums has already pointed out that we made some mistakes in the process like signing the automatic extension. Thanks for any input.
Charlie
Charles,I think if they want something from you you should negotiate a new lease and not amend the old one. That way you can address issues from the first lease. If they won't negotiate a new lease, just wait for the old one to expire. I think they need the pooling and horizontal agreement or they wouldn't be asking for it, so even if they drill a verticle well and hold your lease they still need to come back to you to drill a horizontal. Negotiate hard, Ecana got a favorable lease the first time, they just didn't think to ask for what they want now. Ecana wasn't worried about a fair lease when they first leased you, they were perfectly willing to take advantage of your ignorance the first time. This time, negotiate a lease that is more favorable to you.
Charles:
I agree with rw in letting the lease expire and negotiate a new one. The deal all the way around will most likely be in your favor.
Not that it matters that much, but the original lease was through J. Hambright Inc.. Encana recently acquired it .
r w kennedy said:
Charles,I think if they want something from you you should negotiate a new lease and not amend the old one. That way you can address issues from the first lease. If they won't negotiate a new lease, just wait for the old one to expire. I think they need the pooling and horizontal agreement or they wouldn't be asking for it, so even if they drill a verticle well and hold your lease they still need to come back to you to drill a horizontal. Negotiate hard, Ecana got a favorable lease the first time, they just didn't think to ask for what they want now. Ecana wasn't worried about a fair lease when they first leased you, they were perfectly willing to take advantage of your ignorance the first time. This time, negotiate a lease that is more favorable to you.
How long until the lease expires? It is understandable why Encana would want to amend the lease, since they are now drilling Horizontal Wells, but I would tell them if they are willing to give you an additional bonus you will consider it. I would also ask for increase in Royalty to 3/16ths I'm assuming that the lease is 1/8th since it was taken in 2008. Make sure their is nothing else that is onerous in the amendment. Larry Tittle the attorney in Ness County should be able to help you out.
The lease expires on July , 2014. The orginal royality is 1/8. Can't believe I left out an important detail. My wife and I jointly own the ground and mineral rights with her brother and sister inlaw. Total land in lease 320 acres. If they have already signed the amendment do we have any power to get a better deal
John Jameson said:
How long until the lease expires? It is understandable why Encana would want to amend the lease, since they are now drilling Horizontal Wells, but I would tell them if they are willing to give you an additional bonus you will consider it. I would also ask for increase in Royalty to 3/16ths I'm assuming that the lease is 1/8th since it was taken in 2008. Make sure their is nothing else that is onerous in the amendment. Larry Tittle the attorney in Ness County should be able to help you out.
You are right that it wouldn't matter much, the landman for any oil company works hard to get the best deal for their client which leaves less for the mineral owner.
Charles Karst said:
Not that it matters that much, but the original lease was through J. Hambright Inc.. Encana recently acquired it .
r w kennedy said:Charles,I think if they want something from you you should negotiate a new lease and not amend the old one. That way you can address issues from the first lease. If they won't negotiate a new lease, just wait for the old one to expire. I think they need the pooling and horizontal agreement or they wouldn't be asking for it, so even if they drill a verticle well and hold your lease they still need to come back to you to drill a horizontal. Negotiate hard, Ecana got a favorable lease the first time, they just didn't think to ask for what they want now. Ecana wasn't worried about a fair lease when they first leased you, they were perfectly willing to take advantage of your ignorance the first time. This time, negotiate a lease that is more favorable to you.
I would suggest that you tell them not to sign. You together own a big enough block that your bargaining power is considerable. Sorry I am not familliar with the rules on establishing a spacing unit and forced pooling in Kansas. Some places , if the operator could not get a majority leasehold, they could not force drilling and 320 acres could easily be half of the area they want to drill. I hope your relatives haven't thrown away your bargaining power. If your relatives have not signed I suggest you get professional O&G help in negotiating.
Charles Karst said:
The lease expires on July , 2014. The orginal royality is 1/8. Can't believe I left out an important detail. My wife and I jointly own the ground and mineral rights with her brother and sister inlaw. Total land in lease 320 acres. If they have already signed the amendment do we have any power to get a better deal
John Jameson said:How long until the lease expires? It is understandable why Encana would want to amend the lease, since they are now drilling Horizontal Wells, but I would tell them if they are willing to give you an additional bonus you will consider it. I would also ask for increase in Royalty to 3/16ths I'm assuming that the lease is 1/8th since it was taken in 2008. Make sure their is nothing else that is onerous in the amendment. Larry Tittle the attorney in Ness County should be able to help you out.
Interesting, Encana very recently filed a notice to drill horizontal well in Lane Co. which is next co. west. That will be the first horizontal well in Lane Co. They must have some predictions of profit.
Ron
Mr. Karst, it is poor advice you recieve suggesting you allow your lease to expire 2 full years from now so that you can lease again under hypothetically better terms. A lot can happen between now and then; for instance dry holes or poor wells might be drilled on nearby tracts, frac'ing is banned in Kansas, oil prices decline that do not justify expensive horizontal drilling, or any drilling whatsover (as in the recent natgas collapse), the Lessee drills a vertical well that holds your lease HBP for 20 years and you never get included in a far more prolific horizontal unit. At the same time you grant pooling you are in a good place to ask to amend other provisions in your lease to your benefit also, including a significant increase in royalty reservation and a cash consideration. Encana is a good company that has the financial resources and the R&D to use today's horizontal technology....to your benefit. Pooling benefits you and your family as much as it does Encana. Consider the time value of money, yours and your brothers needs at the moment, the risks associated with playing the wait and see game and remember that the only thing you can count on in the oil business is that it seldom works out like you think it should and that most of the time when opportunity knocks you need to be answering the door.
Mr. Karst, it is poor advice you receive suggesting that you ammend your lease rather than making a new lease as I suggested, which would void the old lease which is flawed from your perspective. Why try to fix a flawed document when you can start fresh on equal terms ? I think you should negotiate a new deal, now would be fine, but if you don't get what you want, I would wait. O&G people are always in a hurry when it's to their advantage, and if it's to their advantage, it may not be to your advantage. I hope your relatives have not signed and you get professional O&G help.
Thanks for all your replies. Turns out my brother in law has signed their lease. I don't really have a problem with our lease other than we shouldn't have done the automatic extension. With this in mind ,can I expect any chance of getting a better deal? As posters had suggested I am looking at increasing royalty to 3/16 and getting a per acre payment closer to the going rate. Thanks
Charlie
Mr. Karst, yes you can expect to improve your position I would expect, perhaps even more so now that your brother in law amended. Encana needs you to amend or that tract cannot be pooled. Good luck, sir.
Mr. Kennedy, I am indeed in the oil business; I drill my own prospects based on my geology, negotiate leases, engineer my own wells and operate. I came by what I have with hard work, by taking lots of risks, by being fair and honest with all people, all the time. I have been doing this for 60 years and don't particularly feel in a hurry at all. I am also a mineral owner under land that I own and care for with great passion. I realize that this is a mineral rights forum but some folks might appreciate hearing a different perspective on mineral related issues, from the other side of the fence, so to speak. You clearly or a professional royalty owner that does not trust the very oil companies that you rely on and always speaks negatively of them and with considerable anomosity and anger. It is regretful you have had so many bad experiences. I sometimes feel the same way about plumbers but I generally assume people are honest until they prove themselves otherwise. Plumbers sure don't make me angry. When my toilet leaks I really need them and appreciate them.
As you advise Mr. Karst to not ammend and to wait until his lease expires in 2 years I am sure you will make yourself available to him, for more advice, in the event he has no offers to re-lease in 2 years, yes?
Mike, I enjoy spirited debate and I wrote a doozy of a reply which I deleted, pointing out where you mischaracterized my advice. If you re-read you will find that I am recommending that Mr. Karst negotiate a new lease before the old one expires. To make certain that my intent was clear I posted again. "I think you should negotiate a new deal, now would be fine, but if you don't get what you want I would wait." I guess you missed that part Mike. Since you are "honest and fair", by your own admission, now what ? I think we were advising him in the same direction, just using slightly different methodology, new lease vs. amendment. What is wrong with waiting if you do not get reasonable terms ? Wouldn't you wait if you thought the terms were not reasonable ? Please explain this from your obviously vast knowledge. Normally if I disagree with someone I say I disagree, but I took the "poor advice" as a crack, so I sent it back to you. Mike, I never asked an operator to drill my acres. That's the thing I am missing, where do I need them ? Have a great day!
Mike said:
Mr. Karst, yes you can expect to improve your position I would expect, perhaps even more so now that your brother in law amended. Encana needs you to amend or that tract cannot be pooled. Good luck, sir.
Mr. Kennedy, I am indeed in the oil business; I drill my own prospects based on my geology, negotiate leases, engineer my own wells and operate. I came by what I have with hard work, by taking lots of risks, by being fair and honest with all people, all the time. I have been doing this for 60 years and don't particularly feel in a hurry at all. I am also a mineral owner under land that I own and care for with great passion. I realize that this is a mineral rights forum but some folks might appreciate hearing a different perspective on mineral related issues, from the other side of the fence, so to speak. You clearly or a professional royalty owner that does not trust the very oil companies that you rely on and always speaks negatively of them and with considerable anomosity and anger. It is regretful you have had so many bad experiences. I sometimes feel the same way about plumbers but I generally assume people are honest until they prove themselves otherwise. Plumbers sure don't make me angry. When my toilet leaks I really need them and appreciate them.
As you advise Mr. Karst to not ammend and to wait until his lease expires in 2 years I am sure you will make yourself available to him, for more advice, in the event he has no offers to re-lease in 2 years, yes?