Contacted about leasing.. not sure what to ask

Oil and Gas Leasing Help
1

Members of my family were contacted recently by a land agent (from RWT Land Services) concerning some property in Cherokee County, Texas that had been owned by my stepfather's parents. This is land that we were barely even aware of (my stepfather died several years ago) and now this agent is interested in establishing who the heirs are so that he can, with an affidavit of heirship, obtain lease agreements from the appropriate heirs and owners (I myself am not one of the heirs). I've kind of taken it upon myself on my mother's behalf to try to find out what I can about this whole process, but this is all really new territory for me -- the info on this website is a godsend, to be sure, and I plan to try to read as much as I can.

In the meantime, I am hoping to find out what should we be asking or trying to find out or looking for? The total acreage in question seems rather small to be worth much trouble (18.28 acres) and all I know about it is that it is in Cherokee County. Obviously it would be great to know more exactly where it is. From my small amount of online research, the numbers the agent told me over the phone about the leasing terms sound fairly standard: $150 signing bonus, 3 year lease, 3/16th royalties. He did mention specifically that this would be for the 'surface rights' -- where do the 'mineral rights' come in?

But I guess my big question is: Given that absolutely nothing has been done with this land by anyone in the family for over 30 years (we are scattered all over), is there a downside to going forward with these lease agreements, assuming it gets to that stage? Obviously, there is the worry about being ripped off or taken advantage of, but other than just the mental energy it takes to worry about this, what are the most real concerns?

Sorry for the long message. I don't really have enough info yet to ask good specific questions. Thanks!

William

2

William- This may help get you started. Even small mineral interests can be pretty valuable with a good well.

http://www.mineralrightsforum.com/profiles/blogs/i-may-own-minerals-so-now-what

3

William,

I can only give you a few pointers from what that I have experienced in negotiating mineral acres for my own mom. I'm no expert and have learned the hard way and she has probably taken a $ hit due to our inexperience. Over the years we never thought the family's mineral rights would amount to anything but still sat on them for "future" possibilities. Our experiences have been all over the spectrum including having the State of North Dakota rob us of over 500 acres of mineral rights in the hottest spot in North Dakota. But that's another story for another time....

Some pointers:

1. In North Dakota one must file paperwork at the county seat that the minerals are located every 20 years. There must be either production or a Statement of Claim of Mineral Rights filed at the courthouse. You need to check on your State/ County requirements first to safeguard the mineral right to make sure someone doesn't grab them as "abandoned". Before you go any further, make sure you have made absolutely sure you have safeguarded your mineral rights!!!

2. If you are going to do this yourself, scour the internet for information. Time is your ally and you have lots of it. Once you have secured the mineral rights and made sure of the pedigree! Ask lots of questions and double check EVERYTHING! Research all data you can at the courthouse to follow the mineral owner pedigree as far back as you can.

3. NEVER accept and sign a lease agreement the first time around. You will find that if the minerals are worth anything the landman will be persistent and contact you with better offers over time. The art of negotiation is a waiting game. we went from an initial offer of $3,000.00/acre, 10% signing bonus, 3 year lease and 20% royalties to a negotiated $5,900.00/acre, 10% signing bonus, 3 year lease and 21% royalties over a 3 month period. Keep in mind the minerals are in North Dakota and in one of the "Hot" spots of the Bakken Shale play. You may not get anywhere close to these numbers depending on where your minerals are located. This was on 13.6 net acres. Hate to say it but 7 days before the lease bank draft was to be put in the back we were told that The State of ND was taking possession of these mineral acres as they are under "navigable" waters of Lake Sakakawea. They had 2 years earlier taken over 480+ acres in a different tract that was also under water. Motto of the story is that "pennies" from Heaven can dry up and disappear. The court case went all the way to the ND Supreme Court and the State won.

4. Contact other landmen in the area and see if there is interest in your minerals and don't be afraid to ask what other mineral owners are getting. Check with multiple landmen. Play one against the other. The more information you have the more intelligent decisions you can make.

5. There is NO SUCH THING as a STANDARD lease document!!! NEVER lease out minerals on multiple Sections on 1 lease. If minerals are spread out over multiple sections make sure each section gets a separate lease. In North Dakota we leased several parcels found in Section 30, 31, 5, 8, 7 and 6. A drilling unit was established in Sections 30 and 31 tying up ALL the mineral rights in the lease. When they established another drilling unit in Section 5 and 8 we only received royalties and were not able to re-negotiate the lease because the minerals were all tied together. A new drilling unit established in Sections 6 and 7 are all included in the original lease. If you have to lease everything as a whole package and then make sure you have the lease include "Pugh" clauses. There are 2 types of Pugh clauses : Horizontal and Vertical. The Horizontal Pugh clause will allow you to re-negotiate any unused mineral rights in other sections/drilling units at the end of the lease. The Vertical Pugh clause protects you if there are other "plays" above or below the current play. An example would be the Bakken Shale is drilled horizontally and accesses the formation. Later they drill again into the 3 Rivers formation below the Bakken and there would be another lease. The Red river formation is just below the 3 Rivers and again another lease to access this formation. The best distance between formations is 100' to cover you adequately. Have the landman explain each line of the document. If in doubt pay a lawyer to read and explain the document.

6. The State of North Dakota makes available a web site that is dedicated to oil and gas information and one can find just about anything about everything with just a basic paid subscription to the service. I use the map GIS server and confidential well list and rig lists to keep a pulse on what is happening. I would suspect that each State Public Service Commission or Industrial Commission will have a similar site available. Use all the tools at your disposal. Information is worth Many, Many $$$ in your pocket in the end. I use both the ND web site and monthly statements to compare production information.

Again, by no means am I an expert and any losses incurred by using this information can only total what I charged you for this information. :>) Hopefully I have shared some experiences that will help you in your travels through the maze of leasing mineral rights. While I don't advocate paying a lawyer to do these things, paying someone to protect your rights may be an avenue you want to go travel down. You will have to decide if there is enough value to offset the cost of using a lawyer.
Hope this helps.

4

Also, I would suggest finding out who RWT is leasing for. Different companies have different behaviors. IF they are a flipper, you may not have any activity for a long period of time...

5

The minerals are located in Texas. Different laws apply. None of what was mentioned in Paragraph 1. would apply in Texas.

It is true that competition drives terms up. Probably also true that quoting North Dakota terms to him is doing a disservice. J.J. Watt gets paid more than Michael Sam. So what?

He can't play one landman against another. That would be impossible. He only has one offer.

Time often is not your ally. People often get left behind because they don't accept the offer in a timely manner.

Steve Gunderson said:

William,

I can only give you a few pointers from what that I have experienced in negotiating mineral acres for my own mom. I'm no expert and have learned the hard way and she has probably taken a $ hit due to our inexperience. Over the years we never thought the family's mineral rights would amount to anything but still sat on them for "future" possibilities. Our experiences have been all over the spectrum including having the State of North Dakota rob us of over 500 acres of mineral rights in the hottest spot in North Dakota. But that's another story for another time....

Some pointers:

1. In North Dakota one must file paperwork at the county seat that the minerals are located every 20 years. There must be either production or a Statement of Claim of Mineral Rights filed at the courthouse. You need to check on your State/ County requirements first to safeguard the mineral right to make sure someone doesn't grab them as "abandoned". Before you go any further, make sure you have made absolutely sure you have safeguarded your mineral rights!!!

2. If you are going to do this yourself, scour the internet for information. Time is your ally and you have lots of it. Once you have secured the mineral rights and made sure of the pedigree! Ask lots of questions and double check EVERYTHING! Research all data you can at the courthouse to follow the mineral owner pedigree as far back as you can.

3. NEVER accept and sign a lease agreement the first time around. You will find that if the minerals are worth anything the landman will be persistent and contact you with better offers over time. The art of negotiation is a waiting game. we went from an initial offer of $3,000.00/acre, 10% signing bonus, 3 year lease and 20% royalties to a negotiated $5,900.00/acre, 10% signing bonus, 3 year lease and 21% royalties over a 3 month period. Keep in mind the minerals are in North Dakota and in one of the "Hot" spots of the Bakken Shale play. You may not get anywhere close to these numbers depending on where your minerals are located. This was on 13.6 net acres. Hate to say it but 7 days before the lease bank draft was to be put in the back we were told that The State of ND was taking possession of these mineral acres as they are under "navigable" waters of Lake Sakakawea. They had 2 years earlier taken over 480+ acres in a different tract that was also under water. Motto of the story is that "pennies" from Heaven can dry up and disappear. The court case went all the way to the ND Supreme Court and the State won.

4. Contact other landmen in the area and see if there is interest in your minerals and don't be afraid to ask what other mineral owners are getting. Check with multiple landmen. Play one against the other. The more information you have the more intelligent decisions you can make.

5. There is NO SUCH THING as a STANDARD lease document!!! NEVER lease out minerals on multiple Sections on 1 lease. If minerals are spread out over multiple sections make sure each section gets a separate lease. In North Dakota we leased several parcels found in Section 30, 31, 5, 8, 7 and 6. A drilling unit was established in Sections 30 and 31 tying up ALL the mineral rights in the lease. When they established another drilling unit in Section 5 and 8 we only received royalties and were not able to re-negotiate the lease because the minerals were all tied together. A new drilling unit established in Sections 6 and 7 are all included in the original lease. If you have to lease everything as a whole package and then make sure you have the lease include "Pugh" clauses. There are 2 types of Pugh clauses : Horizontal and Vertical. The Horizontal Pugh clause will allow you to re-negotiate any unused mineral rights in other sections/drilling units at the end of the lease. The Vertical Pugh clause protects you if there are other "plays" above or below the current play. An example would be the Bakken Shale is drilled horizontally and accesses the formation. Later they drill again into the 3 Rivers formation below the Bakken and there would be another lease. The Red river formation is just below the 3 Rivers and again another lease to access this formation. The best distance between formations is 100' to cover you adequately. Have the landman explain each line of the document. If in doubt pay a lawyer to read and explain the document.

6. The State of North Dakota makes available a web site that is dedicated to oil and gas information and one can find just about anything about everything with just a basic paid subscription to the service. I use the map GIS server and confidential well list and rig lists to keep a pulse on what is happening. I would suspect that each State Public Service Commission or Industrial Commission will have a similar site available. Use all the tools at your disposal. Information is worth Many, Many $$$ in your pocket in the end. I use both the ND web site and monthly statements to compare production information.

Again, by no means am I an expert and any losses incurred by using this information can only total what I charged you for this information. :>) Hopefully I have shared some experiences that will help you in your travels through the maze of leasing mineral rights. While I don't advocate paying a lawyer to do these things, paying someone to protect your rights may be an avenue you want to go travel down. You will have to decide if there is enough value to offset the cost of using a lawyer.
Hope this helps.

6

Thanks for the responses so far, especially the link about the mineral rights. I also appreciate hearing about your experiences in N.D. although it does seem like the situations are different, even if the underlying principles (negotiate your lease, get all the information you can) are the same. I'm still trying to learn what I can!!

7

Your welcome William! I understand what Dave was saying but everybody has different experiences. Like I said, I'm no expert but I wish I would have had more info earlier in the game. I still feel time is on the side of the mineral right holder and one shouldn't run into a lease willy-nilly without making sure they fully understand what they are doing or what they are getting and making sure they are not leaving money on the table. I have dealt with a less than scrupulous landman and hate to see anyone get the same treatment. If a lease is in a play that is worth something, the land men will come knocking so I stand by my comment that time is one thing a mineral holder has on their side. Wade has Great list of things to know! Sure wish I had those resources when I started.

8

William, I’m having a hard time understanding the “surface rights” comment as opposed to mineral rights. I wish someone else would speak to that portion of your query. And I agree with Steve, I too have dealt with landmen that have tried to take advantage of my lack of knowledge and/or treated me in a less than professional manner. Don’t count on anything until the papers are all signed by everyone, a man’s word in the mineral rights world is not always something you can count on, unfortunately. Take your time and learn all you can about your mineral rights, where they are, what comparable leases in the area have gone for in terms of bonus, and especially what percentage of royalty is the norm. It’s not a question of playing one landman against another, it’s a question of being proactive in getting the best deal you can for your future interests after educating yourself as much as possible. Good luck.

9

William,

I think that there was some misunderstanding in the surface vs. minerals. Maybe the landman was trying to explain that the royalties were to be paid on the minerals (production), but that the lease would allow the company to drill on the surface. That is usually how it works. You seem to be getting a lot of one size fits all type advice. It really sounds like your area hasn't had a lot of oil & gas activity, so there probably isn't any norm in the area for you to draw comparisons from. From your description, it sounds like you have never been contacted before by a landman. If that is the case, others in the area may not have been either. Terms are generally much less in a wildcat type area, or in an area not known to be productive. If anyone agrees with Steve, who was the one who suggested to "play one against the other", well, for that to work there has to be more than one company interested. In your case, that advice may not apply. Best of luck.

10

William, I own mineral interests in Cherokee County, Panola County and Smith County. The area is heating up; I can tell you from first-hand knowledge and which is also obvious as evidenced by your family being contacted to begin with. I would be happy to discuss the area with you privately for obvious reasons. I will send you a friend request so that we may communicate privately if you so desire. Linton

11

William,

Be very careful about taking one size fits all type advice. E.G. Panola County doesn't even adjoin Cherokee.

Geologically, I wouldn't lump the two together. Panola has always been more active, and more productive.

Be careful also as to what is presented to you as being obvious. One could also easily argue that it is obvious that since you have never been contacted before, that your area is wildcat, or in an area not known to be very productive. Why would they contact you? Maybe they see some potential, but also realize that there is a lot of risk involved. One thing is certain. Their expectations aren't on the same level as those in certain areas of North Dakota. Dry holes still get drilled, in spite of what some people may think.

12

William,

In April of 2014, there was 25,486,315 MCF of gas produced in Panola County, or 25 X that of Cherokee County, which had 1,616,264 MCF gas.

Oil was about twice as much.

Panola: 32,460 BBL of oil

Cherokee: 18,448

I don't know if the reasons are obvious as to why the discussion should be taken off the thread. I think though that you should ponder the motivation carefully. A private discussion is one not capable of rebuttal. I think that you have already seen that Steve's North Dakota flavor posting does not apply across the board to other states such as Texas. E.G.: Paragraph No. 1.



Dave Quincy said:

William,

Be very careful about taking one size fits all type advice. E.G. Panola County doesn't even adjoin Cherokee.

Geologically, I wouldn't lump the two together. Panola has always been more active, and more productive.

Be careful also as to what is presented to you as being obvious. One could also easily argue that it is obvious that since you have never been contacted before, that your area is wildcat, or in an area not known to be very productive. Why would they contact you? Maybe they see some potential, but also realize that there is a lot of risk involved. One thing is certain. Their expectations aren't on the same level as those in certain areas of North Dakota. Dry holes still get drilled, in spite of what some people may think.

13

William, here is a link below that you might find interesting and helpful from another member of this forum, Clint Liles, who is a great help to many people on this forum. You will find there are some here who will try to help you and others, not so much. As for my motivations, I am simply a mineral interest owner just like you. I don’t think Steve or I have posted anything that is a “disservice” to you or with malicious motivations.

Comment by Clint Liles on April 1, 2014 Click on this link from the Anderson County Group. Some discussion here on the Graem Resources, LLC and other interesting comments about activity in the Cherokee, Anderson and Smith Counties area. http://www.mineralrightsforum.com/group/anderson-county-tx-oil-gas/… Clint Liles

14

William,

You have the stats on production re. Cherokee vs. Panola. I think that they speak for themselves.

Anyone who gives you the bonus monies that he received in the hottest area of the Bakken Shale may or may not have been doing you a disservice. In any event, the terms that he quoted would not apply to your circumstances. I think that you know that. Lastly, be very careful regarding the motivations on this site. Don't get confused as between open, personal animus some may hold against oil companies and landman, with someone actually trying to help you with hard facts. Comparisons in offers as between North Dakota, Panola and Cherokee counties, is like comparing the salaries of J.J. Watt and Michael Sam. There is no comparison. Watt makes $100,000,000.00 and is All-Pro. Sam makes $100,000.00 max, and is on the Cowboy's practice squad. Don't be taken in by that.

Best of luck.

15

Are you a landman, Mr. Quincy? I see you keep your profile “private”. That’s interesting, especially in light of you continuously calling mine and others’ motivations into question.

16

I'm someone who likes to help people with hard facts.

Can't go tit for tat anymore, but all replies were directed at Wm.

Gotta run.

17

Guess that is a, yes, you are a landman.

18

William, I believe that Ms. Tomlin made a gracious offer to assist you and I would accept. The fact that she owns minerals in various counties, including the one where yours are, would only lead me to believe that she had broader experience, not that she was claiming that the counties were exactly the same as someone may have erroneously inferred.

If someone had actual fact based advise to give and not just complaints about the advise of others, they could give it and should not worry that you are speaking to someone in private, unless their real purpose here was merely to criticize the advise of others. Someone worried about you talking to someone in private sounds like someone afraid you will take their fun away.

Don't be thrown off by red herrings. You may also look and see if someone is actually offering advise, or merely criticizing the advise of others for some reason only known to themselves.

Linton Tomlin said:

William, I own mineral interests in Cherokee County, Panola County and Smith County. The area is heating up; I can tell you from first-hand knowledge and which is also obvious as evidenced by your family being contacted to begin with. I would be happy to discuss the area with you privately for obvious reasons. I will send you a friend request so that we may communicate privately if you so desire. Linton
19

Hrm, I didn't mean to start a heated discussion. I really do sincerely appreciate all the information and suggestions, but I am also quickly understanding that none of this is a simple matter. Obviously, there are dangers in comparing apples to oranges -- but basically right now I am just trying to figure out what the relevant issues are. At some later point I can worry about the details, like whether I am looking at an apple or an orange ;)

thanks again for the pointers.

20

William, more than bonus consideration, I would be concerned with royalty and and any deductions that may be taken from your royalty. There is also the surface use to be negotiated. If they place a pad on your surface they should pay you for the use of the land and is negotiable to some degree. I would not grant easements or the right to drill a water well in the lease, these are separate agreements. The water under your land may hold more value than oil or gas. Some might say that the well is for your benefit so your surface and easements should be free but the well will not be for your benefit alone and I see no reason why you should not be paid for an easement when your neighbors will be. I would tell them straight up oil and gas lease, no water rights, no easements, no hunting no fishing, just oil and gas. Surface use payment for pad and road to be negotiated separately. Is this what you were looking for?

William Horton said:

Hrm, I didn't mean to start a heated discussion. I really do sincerely appreciate all the information and suggestions, but I am also quickly understanding that none of this is a simple matter. Obviously, there are dangers in comparing apples to oranges -- but basically right now I am just trying to figure out what the relevant issues are. At some later point I can worry about the details, like whether I am looking at an apple or an orange ;)

thanks again for the pointers.