http://www.reuters.com/article/2011/12/28/us-energy-giant-idUSTRE7BR0G420111228
LOL. Someone edited my posting. It should say the CROOKED COWARDS at Chesapeake and RedSky Land (Rick Dawson, John Brogan, Joe McFerron, Justin Shannonhouse, Carole Lindsey, Adam White, Dan Glashauser) continue to cheat mineral owners, unabated!
Out of curiosity, who did you deal with at RedSky? I can only assume ya did
I dealt with the Parker office (on Mainstreet) until they suddenly closed their doors and split town. The state said they were not licensed in Colo.
That does not surprise me one bit!
Please post the specifics about this, Kevin as I am new to this board and this is my first post. Just days ago, we signed a lease w chesapeake/redsky as we own mineral rights in LaSalle, TX. Despite my best attempts to 'obtain an internet education" on the mineral oil biz, we STILL don't know what are reasonable expectations (if there truly are any as opposed to speculation and grand-scale dreaming). We signed a 25% lease, $4,400 bonus for 3 years and we have 20 acres (mineral rights only) in LaSalle, Tx. They are to 'break ground' on July 12th. I have been dealing w Jeff Beushler (spelling?). We thought chesapeake was a reputable company w a standard lease in a very promising area in TX. ANYTHING anyone can tell us would be appreciated. Thanks in advance!
Doreen,
First, welcome to the board, I am sure you'll find a lot of useful information and helpful people here. I am a land/mineral owner from Michigan that was involved in the CHK lease cancellations that are in the article that Kevin Koonce posted back in January.
Could you provide a little more detail about your situation:
1. You say your bonus was $4,400. I suspect that was total (for all 20 acres) correct?
2. 25% royalties is very good.
3. 3 year lease is good. Does your lease include an extension option? hopefully not.
4. the important question: how where you paid? was it a Sight Draft, Bank Draft or Order For Payment? It is here that you would have some risk. Your lease may also be written in a way that gives them the right to not honor the payment method and permits them to get out of the lease.
You also mention that CHK having a "standard lease" - does that mean that you signed their lease without and revisions or use of addendums?
and lastly, you state they are "breaking ground" - do you mean that they told you that they would be drilling your land (on your 20 acres or you in a drilling unit or just somewhere they would be drilling) by July 12? Do you have anything in writing, in your lease, that says they would be drilling your mineral acres by July 12? Some times the promise of drilling is used as a tactic to get people to sign leases and doesn't actually occur as promised.
Is LaSalle an active area (with drilling and production)? or is it on the outskirts of a productive area?
Wilson
THANKS FOR REPLYING SO QUICKLY, WILSONTOWNSHIP. WE JUST SIGNED THIS LEASE, SO PRODUCTION IS SCHEDULED TO BEGIN ON JULY 12TH. THERE IS 20 ACRES AND, ACCORDING TO TEXAS LAW, SHE GETS 2/3 AND THE REMAINING 1/3 IS SPLIT BETWEEN 3 DAUGHTERS AND I AM ONE OF THEM. I HAD JEFF TYPE A LETTER STATING THE BONUS HE SPOKE OF. I CAN ONLY PARROT WHAT HE STATED AS I AM NOT WELL VERSED IN OIL DRILLING JARGON, BUT ATTEMPTING TO LEARN WHAT I CAN QUICKLY. HE STATED $,400 TO ME ALONE AND THAT IS WHAT IS IN THE LETTER. HE ALSO STATED LaSALLE HAS OIL PRODUCTION, BUT OUR ACREAGE HASN’T BEGUN YET. HE SAID THERE WERE NO DRY HOLES IN LaSALLE AS OF YET AND SOUNDED VERY PROMISING. I WANTED TO HAVE THE LEASE LOOKED OVER BY A PROFESSIONAL, BUT THE FAMILY DIDN’T THINK IT WAS NECESSARY AS CHESAPEAKE IS VERY REPUTABLE AND ONE FAMILY MBR FELT WELL-VERSED ENOUGH. THERE IS AN EXTENSION OPTION OF 2 YEARS. I DON’T KNOW HOW WE ARE TO BE PAID, I ONLY KNOW THAT HE STATED THAT OUR AREA “COULD” PRODUCE 500-800 BARRELS PER HOLE WHICH “COULD” RESULT IN $5,000-$8,000 PER MONTH TO ME ALONE. I DID ASK HIM IF THE OIL STAYS WERE IN LaSALLE SPECIFICALLY, OR JUST IN SURROUNDING COUNTIES THAT HAVE “HIT THE NEWS” AS GUSHING OIL AND HE STATED LaSALLE HAS HAD GOOD OIL PRODUCTION, SO FAR.
WE DID HAVE ONE LEASE, ABOUT 10 MOS AGO, FROM SOME TWO-BIT COMPANY THAT WE SIGNED WITH IN HASTE. WE WERE THEN CONTACTED BY CHESAPEAKE/REDSKY WHO WERE ALARMED THAT WE SIGNED A LEASE ALREADY. THE ‘CHECKED W THE COUNTY’ AND FOUND OUT THE SMALL OKLAHOMA FIRM NEVER FILED THE LEASE, AND THIS IS NULL AND VOID. I AM NOT CERTAIN IF THAT PART IS RELEVANT OR NOT.
WHILE WE ARE CERTAINLY NOT COUNTING CHICKENS AS HATCHED, WE WOULD LOVE TO HAVE SOME RELEVANT INFO AND REASONABLE EXPECTATIONS IN SOMETHING THAT WE UNDERSTAND IS, ULTIMATELY SPECULATIVE.
THANKS FOR ALL YOU CAN TELL US - IT IS APPRECIATED, WILSON!
ONE QUESTION, WILSON. WHY WOULD AN LAND COMPANY DESIRE A LEASE ONLY TO NOT HONOR IT BY BEGINNING PRODUCTION? WHAT IS THE ADVANTAGE OF THIS TO THEM?
Hi Doreen,
Good question. It isn't a company's "strategy" to lease and then not honor it, per se - at least initially". The initial objective is to lease as much land (mineral acres) as quickly as possible and at first for as little money as possible. As the area heats-up, then the lease terms improve (via competition) and also successful wells will make lease terms more favorable. Again keep in mind that the initial focus is to lock up as much land as quickly as possible. Without the land (minerals) then of course a gas/oil company has no strength - they must have the mineral rights obviously.
In addition, all gas/oil companies have their own lease which they will present to a mineral owner at the start of discussions. These initial offers/terms should almost always not be accepted. You can imagine that the lease contract they offer would be heavily weighted in their favor. This is where a website like this becomes invaluable plus consulting with an experienced attorney for contract review. There are many aspects of a lease agreement which look good, but once you use an industry decoder ring you find it full of loop holes and clauses that are helpful to the gas/oil company.
OK, so your question; what advantage to the gas/oil company to not honor the lease? Especially if they are planning on drilling on July 12?
Many mineral owners are told that drilling will commence "if you sign", rarely is this the case. To have any chance of enforcing that statement it would need to be a component of the lease, but even then tough to enforce in court and expensive. So we don't really know if their promise to drill is legit. Hopefully.
Drilling aside, why would they cancel? It has occurred in many states and in particular by Chesapeake Energy et al (I say et al, because there are generally other companies working on CHK's behalf).
I have to emphasize that I do not know CHK/Redsky intention in LaSalle (or anywhere for that matter). I can only speak to my experience.
In your case, Redsky was contracted by CHK to function in the capacity of Landman securing leases in your area. You mention that the LaSalle area is outside the "hotspot" but looking encouraging (or anticipated to be productive). Thus it would be in a gas/oil company’s interest to lock up every acre of minerals that they could - right? They don't really know how productive the area will be, but they have to lock up the land, it does them no good to find out it is productive (especially with oil) after someone else has leased it. We are getting close to the answer!
Generally, while the leasing is going on test drilling is occurring. It is the results of these test wells that has in the past dictated how CHK has chosen to honor or not the leases. In fact, I have seen recent examples of their contracts which have evolved into much more clear verbiage from when I encountered this tactic 2 years ago and that verbiage gives them a clear and legal out of the lease for any reason. now the drum roll...
CHK is leasing land all over the nation and they are on a frenzied search for OIL and secondarily wet gas. Currently dry gas has “no value”. CHK already has an enormous acreage holding of dry gas (and other) and now are feverishly pursuing oil. ready????
If there test wells result in dry gas, they must decide - keep the leases and move on or just move on? Of course, if OIL is discovered that is great and now they honor/pay and record all leases. But what if dry holes or dry gas? It is here that they have walked in the past and moved on to the next region - actually that leasing in some other area is already on-going and so the cycle continues.
So the reason it is to their advantage or possibly strategy to cancel a lease is if they don't find oil production.
Now how is that for a infomercial!? It is for these reasons I asked so many questions about your lease circumstance. Again, I must emphasize I don’t know what Redsky/CHK plans are for LaSalle, however, what I do know is that it is more and more important for mineral owners to “bullet proof” their leasing to prevent the opportunity for the Lessee to not honor the lease and walk away. There are ways to minimize your vulnerability and it requires working with an expert in the state where the leasing is occurring.
Hope this helps.
Wilson
Doreen Juola said:
ONE QUESTION, WILSON. WHY WOULD AN LAND COMPANY DESIRE A LEASE ONLY TO NOT HONOR IT BY BEGINNING PRODUCTION? WHAT IS THE ADVANTAGE OF THIS TO THEM?
Thanks for sharing your wealth of experience in these endeavors. From what I gather, I can only hope that they hit 'gushing oil" in order to satisfy a lease to my advantage. If not, It seems the odds are stacked against me if the ideal outcome isn't obtained. I did see sites on the internet somewhere re: how to note the activity in specific counties within Texas, but I don't recall where I saw those and it asked for 'case #s" in order to follow them, I believe. What would you suggest I do in order to keep abreast of the course of action that would follow now that the lease has been signed? I suppose it is too late to involve an attorney and I honestly don't know how I would retain one in FLORIDA! (I may wind up having distain for oil/gas representatives, but I don't favor attorney's promises nor their fees either). I am not sure where to go from here. I honestly felt this was a crap shoot from the start, but when we saw how much of a hot bed that area in TX really is for oil, we felt confident that it was good to be w a "large company" that is aggressive and successful in obtaining oil. UGH. I am an RN practitioner and you have no idea just how out-of-my-league I feel right now. Thanks for your thorough and prompt responses to my questions. I wish I could return the favor.
Doreen,
You may have nothing to worry about regarding your lease deal. I only give the worse case scenario since it is what I lived and what Kevin Koonce was warning about (i.e. lease cancellation and not paying sign bonus). This cancellation stuff only happens in a small percentage, but because it can happen I and others just suggest taking steps to minimize the possibility and that occurs in how the lease is written and also how the sign bonus is paid. Speaking of which, how did you get paid, how are you getting your $4,400? Did they pay you with a bank draft (or similar) that is due in 90 banking days (or some such thing)?
If so, you are at their mercy at the moment and there would be a chance you might not get paid. Since you have a signed lease, it is too late to involve an attorney (can't make changes at this point).
However, since you feel you are in an area with oil productivity potential you may be fine - of course that is what a landman told you. Others on this board are better able to speak to TX leasing laws and drilling successes in your area - I hope they contribute some info like that to help you further (i.e. your question about how best to look into how the area is producing etc.).
Once a lease is signed, I just suggest people enjoy the journey (no point in looking back and fretting). Do keep in mind that a small percentage of mineral owners actually lease and and even smaller percentage end up with a well. Hopefully all will be fine and they will drill as they have suggested and you'll get the big payout.
Keep us posted.
Wilson
Doreen Juola said:
Thanks for sharing your wealth of experience in these endeavors. From what I gather, I can only hope that they hit 'gushing oil" in order to satisfy a lease to my advantage. If not, It seems the odds are stacked against me if the ideal outcome isn't obtained. I did see sites on the internet somewhere re: how to note the activity in specific counties within Texas, but I don't recall where I saw those and it asked for 'case #s" in order to follow them, I believe. What would you suggest I do in order to keep abreast of the course of action that would follow now that the lease has been signed? I suppose it is too late to involve an attorney and I honestly don't know how I would retain one in FLORIDA! (I may wind up having distain for oil/gas representatives, but I don't favor attorney's promises nor their fees either). I am not sure where to go from here. I honestly felt this was a crap shoot from the start, but when we saw how much of a hot bed that area in TX really is for oil, we felt confident that it was good to be w a "large company" that is aggressive and successful in obtaining oil. UGH. I am an RN practitioner and you have no idea just how out-of-my-league I feel right now. Thanks for your thorough and prompt responses to my questions. I wish I could return the favor.
We haven't received any bonus payment yet as we just signed this lease and mailed it back 3 days ago. The leased DIDN'T state anything about the bonus info. as he talked about with me and when I mentioned that to him he stated, "That info isn't typically in the lease, but I will send you a letter that states the bonus info if you wish." I admit that it sounded MOST fishy to me but he said "...most people don't want that info on the lease as others can see it since it's filed w the county." He again assured me that he would send a letter. On Redsky LLC letterhead, the following is the body of the letter (that net mineral statement is the bonus I assume):
Redsky Land, L.L.C. is a petroleum Land services company who is proud to represent Chesapeake Exploration, L.L.C., Americas most active natural gas driller. On behalf of Cheaspeake Explration i would like to extend the following terms, in regards to a mineral interest that you own in La Salle County, Texas
- $2,000/ Net Mineral Acre
- 25% Royalty on all marketable oil and gas
- Three (3) year primary term. Two Year Option
If you have any questions about this offer, please don’t hesitate to call me with any questions. I thank you for your time and look forward to hearing from you
Jeff Buescher 713-857-3016
Hi Doreen,
I will say this, I do like that Redsky was open with you that they were representing Chesapeake (CHK) (often this is a secret and they lease anonymously). Your lease terms are also what I thought as I "analyzed" your emails. I can't say whether the lease terms are fair for the LaSalle county area, but in general they are decent.
It does mean that you would get $4,400 (for approx. 2.2 acres; as would each of your sisters) and the person (your Mom?) would receive $26,800. The 25% is your royalty share based on a complicated calculation which would reflect your share of the drilling unit. A drilling unit (DU) is the acreage (block of mineral acres) assigned to a well/drilling. It may be 1280 acres in size and if so, your family would have about 1.6% of the DU. Your royalties of 25% would be paid on the 1.6% share. That seems small, but can be big depending on what they find when they drill. A very important thing here, in addition to the 25% royalty, is production cost - or importantly not having to pay any expenses to get the gas/oil out of the ground and to market. That information would be in your lease.
Speaking of lease, often the simple lease terms are not included in the lease like Redsky said. It is included in a document which outlines the payment terms sometimes called an OFP (order for payment). Do you have some document, beside that Redsky letter that tells how and when you'll be paid the sign bonus. Once you get that payment is essentially consummates the deal. Once paid, they will record the lease with the county to make it official (sometimes this happens before the mineral owner has been paid). Honestly I doubt you are going to have this problem (lease cancellation) because of where your mineral rights are located.
Now, initially I wasn't paying attention to where you were in TX and I was just speaking to Redsky/CHK not paying and cancelling leases (which happened to me). But you are located in the Eagle Ford Shale area. There are threads on this board where you should introduce yourself and ask questions and they can help you about the specifics of that region. I don't know how much you know about it, but Eagle Ford is big. I understand that it has been determined that there are 3 zones of varying hydrocarbons; by that I mean, a region of dry gas, a region of wet gas and a region of oil. I was looking for a great map I saw recently, but no luck. Others will have it and can share it with you. Since CHK is leasing your minerals it is likely you are in an area with potential for oil (as redsky did indicate to you). We know this because currently dry gas has no value and CHK is cash strapped and needs oil discoveries badly. That is good news for you, in general. I'd have to study an Eagle Ford Shale map to see where LaSalle is located relative to oil plays - but I bet my guess is right.
Time will tell. I think we have exhausted what we can on this particular thread about the lease cancellation potential. You are probably fine I just hope your lease isn't too heavily weighted in CHK's favor. You can type LaSalle or Eagle Ford in the search box in the upper right corner of this website and you'll see lots of posts and get to chat with people that are from that area.
Good luck!
Wilson
One final thought, if you would tolerate this discussion just one more post further. I hightlighted the portion of the lease that I believe states "something" about costs incurred. It sounds to me that this statement is referring to marketing costs (??), but maybe it IS production costs. Naturally, when I asked Jeff about the cost of water, site damage, etc. he said "No, that has nothing to do with you. You are just a recipient of the mineral rights and don't incurr any cost(s)." Here is a fraction of my lease statement:
. Royalties on oil, gas and other substances produced and saved hereunder shall be paid by Lessee to Lessor as follows: (a) For oil and other liquid hydrocarbons separated at Lessee’s separator facilities, the royalty shall be 25 % of such production, to be delivered at Lessee’s option to Lessor at the wellhead or to Lessor’s credit at the oil purchaser’s transportation facilities, provided that Lessee shall have the continuing right to purchase such production at the wellhead market price then prevailing in the same field (or if there is no such price then prevailing in the same field, then in the nearest field in which there is such a prevailing price) for production of similar grade and gravity; (b) for gas (including casinghead gas) and all other substances covered hereby, the royalty shall be 25 % of the proceeds realized by Lessee from the sale thereof, less a proportionate part of ad valorem taxes and production, severance, or other excise taxes and the costs incurred by Lessee in delivering, processing or otherwise marketing such gas or other substances, provided that Lessee shall have the continuing right to purchase such production at the prevailing wellhead market price paid for production of similar quality in the same field (or if there is no such price then prevailing in the same field, then in the nearest field in which there is such a prevailing price) pursuant to comparable purchase contracts entered into on the same or nearest preceding date as the date on which Lessee commences its purchases hereunder; and (c) if at the end of the primary term or any time thereafter one or more wells on the leased premises or lands pooled therewith are capable of producing oil or gas or other substances covered hereby in paying quantities or such wells are waiting on hydraulic fracture stimulation, but such well or wells are either shut-in or production therefrom is not being sold by Lessee, such well or wells shall nevertheless be deemed to be producing in paying quantities for the purpose of maintaining this lease. If for a period of 90 consecutive days such well or wells are shut-in or production therefrom is not being sold by Lessee, then Lessee may pay shut-in royalty of Fifteen dollar per acre then covered by this lease, such payment to be made to Lessor or to Lessor’s credit in the depository designated below, on or before the end of said 90-day period and thereafter on or before each anniversary of the end of said 90-day period while the well or wells are shut-in or production therefrom is not being sold by Lessee; provided that if this lease is otherwise being maintained by operations, or if production is being sold by Lessee from another well or wells on the leased premises or lands pooled therewith, no shut-in royalty shall be due until the end of the 90-day period next following cessation of such operations or production. Lessee’s failure to properly pay shut-in royalty shall render Lessee liable for the amount due, but shall not operate to terminate this lease.
Thanks again for your time, Wilson.
Hi Doreen,
It isn't that I don't want to help you further, it is that I don't have the experience you now need with specifics that apply to your lease and the laws in TX. Plus I know very little about activity in LaSalle or the Eagle Ford Shale play. You'd be much better served to communicate with some of the boards that are associated with LaSalle.
Here is a good place to start go here and join this thread:
http://www.mineralrightsforum.com/group/eagle-ford-shale-la-salle-county-tx?xg_source=activity
I'd go there and post an introduction and say hi. You'll be quickly welcomed there and people will be able to tell you much more about the activity in that region. But they can also provide you with very helpful information and clarification about your lease and what you may expect moving forward.
My contribution was about why a lease might get cancelled since Kevin Koonce is no longer a member I responded because of my experience with cancelled leases via Chesapeake Energy. I don't think that is something you'll have to worry about since Eagle Ford is a hot spot and your region may be targeting oil.
I'll see your posts on that thread too and if there is anything I can contribute I will. You'll see there are a bunch of helpful members there and elsewhere on the board.
Wilson
thanks much - I will post there today. :-)
Doreen,
I'm sorry to hear that you are dealing with Cheaspeake. I live in Arlington, TX and they have some H well under our home. They have cheated us on the percentage they are paying, they stating that To-tal has decided to see the gas themself and that makes the differents in our percentage. Yet my lease states I get 100% of my share of gross. One of the problems is I don't get enough to go to a good lawyer to take care of this problem. Our HOA has consider getting a group together and doing something, but that is in the future.
Since you sound like you are new, this may be a great seminar for you to attend. It's by Okla Corp Commision, but will still give you lots of information that applies to TX. It's a Non-resident Oklahoma Royalty Owners seminar, Sept. 29 at Arizon Biltmore Hote in Phornis, Arizona.
Virginia,
That seminar would be of interest to me! I live in Phoenix, although my land/minerals are located in MI. Doreen's minerals are in TX but she is in FL. ha.
Do you have a link with information on that seminar?
Thanks for posting that.
Wilson
Wilson,
This is the information I have. You can email Donna at OCC and she will send you the rest of the forms. I realize that Doreen is in FL, but in today's world we need to get educated. I live in
TX, but a big portion of my property is in Okla. and have attended several out of state information seminar in order to take care of my property. It's costly to own property and manage it. But, we can sure be taking advantage of if we don't know what we are doing. I also use good oil & gas lawyers. Hope you can attend and learn a lot. I don't know that much about Oil & Gas laws in MI, but you still may be able to find out some of the basics.
WORKSHOP FOR NON-RESIDENT OKLAHOMA ROYALTY OWNERS”
Saturday, September 29, 2012 Arizona Biltmore Hotel Phoenix, Arizona
Scheduled Topics and Speakers
“ABCs of Oil & Gas for Royalty Owners”
Donna Darnell & Junior Freeman, OCC Staff
“Minerals Management 101 and Beyond”
Jerry Simmons, Executive Director, National Association of Royalty Owners
“A Practical Guide to Oil & Gas Leasing in Oklahoma”
Robert S. Abernathy, Chieftain Royalty Company
“How Do I Find Out What Minerals I Own, and How Do I Pass Them To The Next Generation?”
Timothy C. Dowd, Attorney, Elias, Books, Brown & Nelson
“Horizontal Drilling”
Loyd Tinsley, Senior Land Advisor, Devon Energy Production Company
“The OERB – Working for your Industry”
Mindy Stitt, Executive Director, Oklahoma Energy Resources Board
“Open Forum” Workshop Speakers
Contact: Donna Darnell d.darnell@occemail.com 405-521-2613
Wonderful Virginia. I put it on my calendar. I'll get a hold of Donna for more details. Thanks so much for posting that. I agree, it is essential to seize every opportunity to learn since it is so easy to end up on the short end of a leasing and royalty minerals deal. By the way, I've not really found any kind of gas/oil lease activity or drilling etc. around here (Arizona) - although I am sure there must be something somewhere in this state - but definitely scarce (today!).
Thanks again!
Wilson