Did I get a fair offer? SEC 23-9N-11E

Oklahoma Mineral Rights Hughes County, OK
1

Hi:

I recently received a lease offer from G. H. Land Company out of Oklahoma City for Section 23-9N-11E at $175/acre, 3/16 royalty. I countered with no bonus and 1/4 royalty; they countered with $250/acre bonus, 3/16 royalty.

Any info on this area and whether this is a fair offer?

Also, does anyone have an easy way to check how wells are doing in any given area of Oklahoma? I know about the “well locator” method via the Oklahoma Corporation Commission site, but it seems very time-consuming. Plus, I don’t know what wells to look for—I just want a general idea of activity in Hughes County in and around Section 23.

Thanks in advance for any help you can offer!

2

That second offer is probably in the ball park, but I would not snap it up just yet. There are no leases posted in the last 999 days for 23-9N-11E so it is not generally a good idea to be one of the first because they are usually low. In my experience, the early offers can be one third to half of what they will be.

http://www.occpermit.com/WellBrowse/ is an easy way to see what wells are doing. It does go to the OCC, but is faster. There are many section 23's, so you need to key in the township and range to get yours. Remember that older wells are conventional vertical wells and much of the new leasing is for horizontal wells, so you may be looking at apples and oranges (but not always).

More importantly than the offer is the actual substance of the lease. Most likely, the lease they offer you will not have some of the clauses that will protect you best. Come back if you need help to get a better lease.

3

Thanks for the info, Martha! You go above and beyond at this board–your effort is very much appreciated.

I’ve had a hard time getting G. H. Land to respond to my phone and email requests to get Exhibit A clauses added to the lease. Finally received an email from the landman that he’s going to email me the clauses they agree to. When (if) I receive that list, I’ll post that as an attachment here, as it could help others who want to learn more about this important part of negotiating a lease.

The lagging on the landman’s part (not returning calls/emails) is a clue to me that G. H. may not be completely on the up and up…just a hunch. I asked him in our initial conversation if he worked on behalf of an oil company and if he’s a member of the AAPL (American Association of Professional Landmen) and as I recall, his responses sounded legit, but now looking at the letter he sent us back in November requesting to lease, there’s no mention of any oil or gas company he’s leasing for…isn’t that a clue that he could be a speculator who’s just looking to “flip” a tract for his own benefit?

Now that you’ve offered the info about no leasing going on in Section 23, I’m not in a hurry to sign anything. Thanks again!

Angela

4

Angela, you said “I don’t know what wells to look for–I just want a general idea of activity in Hughes County in and around Sec. 23.” The following is an excerpt from a post to this forum on Oct. 23, 2014. Since that was before you joined here, you may have missed it.

For O&G company activity, open this link http://imaging.occeweb.com/imaging/OGWellRecords.aspx, then enter the Legal Location. Next check the box Exclude ECM (unless your minerals are in the Panhandle). Click Search, to see EVERYTHING in the OCC system that has been scanned for that section. You may wish to limit the search to a more recent date if the section has been heavily developed over the years. Drop down to Scan Date, enter a beginning date and use today’s date in the last field. These are documents that the O&G companies never send mineral owners. As you begin researching your minerals, leave the Form # blank. Later you may want to limit to specific documents. Some of these are: Form 1000, Permit to Drill, Recomplete or Reenter; 1001A Spud Notice; 1002A Completion Report; and 1073 Transfer of Operator. There are other forms, but these will probably be of most interest. IMPORTANT - because surface location for horizontal drilling is often in an adjacent section, be sure to search all 9 sections!

One additional tip using the Well Records link - if you use %, the wildcard symbol, instead of the section number, you will pull up all documents for the entire Township, especially timesaving if your section is in the interior of the Township.

Horizontal drilling activity began in the southeast portion of Hughes County in 2007-08 with many wells drilled in 4N-10E, 4N-11E, and 5N-11E. I took a quick look at your Township, 9N-11E, and there are 819 Completion Reports which have been scanned, but only 18 since 2005 and none are horizontal wells. If you want to check the current status of a well very quickly, use this Oklahoma Tax Commission link https://www4.oktax.onenet.net/GrossProduction/PublicSearchPUNbyLegal.php. There were a few other links in my Oct. 23 post you may find helpful.

5

Angela:

I received an offer from G.H. Land in 9N-11E also. The initial offer was for $175/acre. I never got any further in my negotiations because I would not accept their lease terms. If you read the body the lease, for gas production, it is clearly a net proceeds lease. I sent them my standard Exhibit “A,” which has a “No Deductions” clause. They refused. I replied to them and asked if they were negotiable on the terms of THEIR lease. They never replied.

I simply refuse to execute to a net proceeds lease. It has cost me dearly in the past! Thank you very much, CLR! Who owns their own trucking company and deducts MORE in fees than the taxes.

I hope you carefully read the lease from G.H. Land before you signed it, but I do think $250 is the going rate in that area right now. Even though it has been suggested that if you hold out, you may be able to get more. Have you thought about asking for a Favored Nations Clause in your lease?

6

M Barnes … I refused to sign their OGL. Terms were not agreeable.

M Barnes said:

That second offer is probably in the ball park, but I would not snap it up just yet. There are no leases posted in the last 999 days for 23-9N-11E so it is not generally a good idea to be one of the first because they are usually low. In my experience, the early offers can be one third to half of what they will be.

http://www.occpermit.com/WellBrowse/ is an easy way to see what wells are doing. It does go to the OCC, but is faster. There are many Section 23’s, so you need to key in the Township and Range to get yours. Remember that older wells are conventional vertical wells and much of the new leasing is for horizontal wells, so you may be looking at apples and oranges (but not always).

More importantly than the offer is the actual substance of the lease. Most likely, the lease they offer you will not have some of the clauses that will protect you best. Come back if you need help to get a better lease.

7

Wesley:

Thank you very much for this information, especially for going above and beyond and looking up some info on Hughes County for me. The experts here are so helpful it’s like a college course in oil/gas leasing. :slight_smile: I always tell those who help me out I hope to be able to return the favor sometime. Clint Liles, another member here, is a very helpful resource on how to browse wells, and was equally gracious in providing me information awhile back, but I figure it’s always good to hear from various experts. I have ventured into the well reports area of the OCC a couple of times previously and now I’m resolved to master it. The link to the OK Tax Commission looks good too, and I will indeed look at the other links in your 10/23 post. (Should have perused the area more carefully as it sounds like my question on wells is one that’s been previously addressed–sorry about that–and thanks for being gracious in “repeating” the info).

Angela

Wesley Skinner said:

Angela, you said “…I don’t know what wells to look for–I just want a general idea of activity in Hughes County in and around Sec. 23.” The following is an excerpt from a post to this forum on Oct. 23, 2014. Since that was before you joined here, you may have missed it.

For O&G company activity, open this link http://imaging.occeweb.com/imaging/OGWellRecords.aspx, then enter the Legal Location. Next check the box Exclude ECM (unless your minerals are in the Panhandle). Click Search, to see EVERYTHING in the OCC system that has been scanned for that section. You may wish to limit the search to a more recent date if the section has been heavily developed over the years. Drop down to Scan Date, enter a beginning date and use today’s date in the last field. These are documents that the O&G companies never send mineral owners. As you begin researching your minerals, leave the Form # blank. Later you may want to limit to specific documents. Some of these are: Form 1000, Permit to Drill, Recomplete or Reenter; 1001A Spud Notice; 1002A Completion Report; and 1073 Transfer of Operator. There are other forms, but these will probably be of most interest. IMPORTANT - because surface location for horizontal drilling is often in an adjacent section, be sure to search all 9 sections!

One additional tip using the Well Records link - if you use %, the wildcard symbol, instead of the section number, you will pull up all documents for the entire Township, especially timesaving if your section is in the interior of the Township.

Horizontal drilling activity began in the southeast portion of Hughes County in 2007-08 with many wells drilled in 4N-10E, 4N-11E, and 5N-11E. I took a quick look at your Township, 9N-11E, and there are 819 Completion Reports which have been scanned, but only 18 since 2005 and none are horizontal wells. If you want to check the current status of a well very quickly, use this Oklahoma Tax Commission link https://www4.oktax.onenet.net/GrossProduction/PublicSearchPUNbyLegal.php. There were a few other links in my Oct. 23 post you may find helpful.

8

Claudia:

You’re a gem for passing along this personal experience with G. H. Land and for pointing out the lease is NOT acceptable. The more I learn about what to look for in leases, the better. My sense is that I didn’t want to work with them, and having received their paltry list of Exhibit A clauses today (finally, after a month of trying to get a reply–I attached their clauses in another post above as I couldn’t do so here) I said to myself “forget it.”

Now, after reading your information, I am confirmed in my decision. At $250/ac we would have received a $4500 bonus, and my mother was arguing with me that we should go ahead and sign up as drilling appears to have slowed down with the recent downturn in oil prices, and we may not get any other offers in the near future. However, she will agree when I pass along the info you provided on “net proceeds” leases. Sounds like the “net proceeds” method is a way for flippers like G. H. to get a large share of the profits for themselves. A $4500 bonus short term is not worth possibly losing much more in the long term.

Angela

Claudia Kemmerer said:

Angela:

I received an offer from G.H. Land in 9N-11E also. The initial offer was for $175/acre. I never got any further in my negotiations because I would not accept their lease terms. If you read the body the lease, for gas production, it is clearly a net proceeds lease. I sent them my standard Exhibit “A,” which has a “No Deductions” clause. They refused. I replied to them and asked if they were negotiable on the terms of THEIR lease. They never replied.

I simply refuse to execute to a net proceeds lease. It has cost me dearly in the past! Thank you very much, CLR! Who owns their own trucking company and deducts MORE in fees than the taxes.

I hope you carefully read the lease from G.H.Land before you signed it, but I do think $250 is the going rate in that area right now. Even though it has been suggested that if you hold out, you may be able to get more. Have you thought about asking for a Favored Nations Clause in your lease?

9

Just for others’ information, here’s the Exhibit A clauses I received from G. H. Land. Bah!

I sent them the list of clauses I wanted to see, which included about eight important ones…obviously ignored by them.

Based on their paltry clauses, along with Claudia Kemmerer pointing out their lease is a “net proceeds” variety, I won’t be leasing with them.

1440-ExhibitAfromGHLand.doc (26 KB)

10

Angela:

G.H.Land is, indeed, on the up and up. They are actually leasing for Bravo Resources. I spoke to a veteran in this business today who sits on both sides of the desk. He is an operator, lessee, and royalty owner. I understand the logic that the only gas pipeline company in this area is taking a lot of these fees out of the operator’s pocket. I so sympathize with that! The operators can’t really make much of a profit and they feel a need to pass along those fees to the royalty owners. In this particular case, it is my understanding the Bravo will be drilling the Woodford, which is gas. G.H.Land’s lease is gross proceeds for oil but net proceeds for gas.

It’s a risk. I own 40 acres. Should I take the money now - apply the “future value of a dollar” theory, with the hopes that the $10K will make me more money now than in 3 years when they drill (assuming they aren’t in a hurry to drill).

I’m trying to consider as many facts as I have and be a prudent royalty owner while not holding up progress!

Thanks for sharing the Exhibit “A.”

11

By the way, does anyone here have any tips on finding my own lessees? I’d like to be more proactive in getting our properties leased rather than waiting to be approached by sometimes untrustworthy landmen/women. Is it acceptable to just call or email an oil company involved in a certain area (after doing a well browse) and let them know what you have available to lease? I’ve seen this issue addressed before somewhere at the M.I. board, but figured it wouldn’t hurt to ask here for additional ideas.

Angela Havel said:

Claudia:

You’re a gem for passing along this personal experience with G. H. Land and for pointing out the lease is NOT acceptable. The more I learn about what to look for in leases, the better. My sense is that I didn’t want to work with them, and having received their paltry list of Exhibit A clauses today (finally, after a month of trying to get a reply–I attached their clauses in another post above as I couldn’t do so here) I said to myself “forget it.”

Now, after reading your information, I am confirmed in my decision. At $250/ac we would have received a $4500 bonus, and my mother was arguing with me that we should go ahead and sign up as drilling appears to have slowed down with the recent downturn in oil prices, and we may not get any other offers in the near future. However, she will agree when I pass along the info you provided on “net proceeds” leases. Sounds like the “net proceeds” method is a way for flippers like G. H. to get a large share of the profits for themselves. A $4500 bonus short term is not worth possibly losing much more in the long term.

Angela

Claudia Kemmerer said:

Angela:

I received an offer from G.H. Land in 9N-11E also. The initial offer was for $175/acre. I never got any further in my negotiations because I would not accept their lease terms. If you read the body the lease, for gas production, it is clearly a net proceeds lease. I sent them my standard Exhibit “A,” which has a “No Deductions” clause. They refused. I replied to them and asked if they were negotiable on the terms of THEIR lease. They never replied.

I simply refuse to execute to a net proceeds lease. It has cost me dearly in the past! Thank you very much, CLR! Who owns their own trucking company and deducts MORE in fees than the taxes.

I hope you carefully read the lease from G.H.Land before you signed it, but I do think $250 is the going rate in that area right now. Even though it has been suggested that if you hold out, you may be able to get more. Have you thought about asking for a Favored Nations Clause in your lease?

12

Angela,

You were correct to not take that Exhibit A. It is totally insufficient. (1) Poor depth clause, (2) fair-middling Pugh clause (3) OK warranty clause. Did not have Commencement of Drilling clause, no deductions clause, limited shut-in clause, etc.

Yes, you can shop your mineral rights around to the drilling companies in the area. They may or may not respond to you given the current climate. Many no longer handle their own land work, but farm it out to other folks in the area. Cycles come and go, so things will be tight for a while then should loosen up in the future.

13

I tend to be a little too quick to judge and am obviously still in the “learner’s” phase of leasing, so thanks for the clarification about “net proceeds” and G. H. Land’s status. (I remember now the landman told me he represented Bravo.) The fact that Bravo wants to drill for gas in the tract I own interest in (which I believe you’re referring to as well) is a consideration I didn’t realize until you mentioned it, as the prices there are pretty stable for the time being, correct? I will wait for a better lease terms offer.

I understand your point about the trade-off for a bonus now as opposed to the possibility of more profit later, though. Could end up a half-dozen of one, six of the other. However, I’m 51 and assuming I live another 20-25 years, I tend to privilege the long-term, given that my mom and I are pretty frugal and not hurting for quick cash right now in the form of bonuses. That, and I don’t have much of a pension plan from my day job and we all know social security isn’t sufficient. I’m hoping the modest share of oil/gas royalties I’ll inherit from mom will cover those deficiencies.

Claudia Kemmerer said:

Angela:

G.H.Land is, indeed, on the up and up. They are actually leasing for Bravo Resources. I spoke to a veteran in this business today who sits on both sides of the desk. He is an operator, lessee, and royalty owner. I understand the logic that the only gas pipeline company in this area is taking a lot of these fees out of the operator’s pocket. I so sympathize with that! The operators can’t really make much of a profit and they feel a need to pass along those fees to the royalty owners. In this particular case, it is my understanding the Bravo will be drilling the Woodford, which is gas. G.H.Land’s lease is gross proceeds for oil but net proceeds for gas.

It’s a risk. I own 40 acres. Should I take the money now - apply the “future value of a dollar” theory, with the hopes that the $10K will make me more money now than in 3 years when they drill (assuming they aren’t in a hurry to drill).

I’m trying to consider as many facts as I have and be a prudent royalty owner while not holding up progress!

Thanks for sharing the Exhibit “A.”

Claudia

14

Angela Havel said:

Martha:

I posted the clauses they offered me because I thought it may be edifying…I considered also that it may be seen as “oversharing” – I assume some landmen/women peruse this site and don’t appreciate that such specifics are offered as a way of trying to show up a company to be “bad” – and I was quick to judge G. H. Land negatively in part because they have been slow in responding to me, but Claudia explains why the lease from G. H. for gas drilling was a “net proceeds” variety (it’s not necessarily greed, as I assumed) and made the point that G. H. Land is on the “up and up” (they represent Bravo).

Every time I think I’m gaining a little on learning this business, I realize how far I have to go…ack.

Thanks also for the info about looking for lessees on my own.

Angela

M Barnes said:

Angela,

You were correct to not take that Exhibit A. It is totally insufficient. (1) Poor depth clause, (2) fair-middling Pugh clause (3) OK warranty clause. Did not have Commencement of Drilling clause, no deductions clause, limited shut-in clause, etc.

Yes, you can shop your mineral rights around to the drilling companies in the area. They may or may not respond to you given the current climate. Many no longer handle their own land work, but farm it out to other folks in the area. Cycles come and go, so things will be tight for a while then should loosen up in the future.

15

Martha:

Thanks for the info…as soon as I see an upturn in oil prices again (I predict it won’t be long) I’ll start shopping around for lessees. Maybe I don’t even need to wait, as I assume those in the oil business are by nature positive thinkers, or at least realize that per barrel oil prices will, after falling, always rise again.

Angela

M Barnes said:

Angela,

You were correct to not take that Exhibit A. It is totally insufficient. (1) Poor depth clause, (2) fair-middling Pugh clause (3) OK warranty clause. Did not have Commencement of Drilling clause, no deductions clause, limited shut-in clause, etc.

Yes, you can shop your mineral rights around to the drilling companies in the area. They may or may not respond to you given the current climate. Many no longer handle their own land work, but farm it out to other folks in the area. Cycles come and go, so things will be tight for a while then should loosen up in the future.

16

G H Land is not on my happy list. I signed with them in September and did not receive the bonus check until late December and only after 5 phone calls and a demand letter. I will not be signing with them again.

17

Thanks for the info, Mary. I’ve already experienced G. H. Land’s sluggish ways…and your additional info reduces their credibility.

Mary E Walker said:

G H Land is not on my happy list. I signed with them in September and did not receive the bonus check until late December and only after 5 phone calls and a demand letter. I will not be signing with them again.

18

@ Mary Walker … thanks for sharing your information. How very discouraging! It is my understanding that their mode of operation is to contact mineral owners based on previously filed leases. They send you a lease. You sign the lease. They begin title work. If the title matches, then they send you a check.

In the old days, a land man approached a mineral owner knowing EXACTLY how many acres they owned because they had already run title. The offer was based on that. Go back even further, and the banks handled bank drafts for our leases (showing my age here!).

The industry continues to change. I’m sticking with my old school ways of doing business!

19

Angela:

I frequently “pitch” my minerals to brokers that I have an established relationship with.

Go for it! All they can do is say, “not interested.” On the flip side, if a company is going to drill a well, they generally hire a land broker/landman to locate mineral owners and get them leased.

Have fun!

Claudia

20

A couple of landmen have asked if I had other properties (or I asked them if they were interested in others) while conversing on the phone. What’s your pitch method? I’d think sending an email to ask what counties they’re interested in, then sending list of properties in those counties may work well. Have you had good luck pitching your unleased tract with landmen you trust?

Angela

Claudia Kemmerer said:

Angela:

I frequently “pitch” my minerals to brokers that I have an established relationship with.

Go for it! All they can do is say, “not interested.” On the flip side, if a company is going to drill a well, they generally hire a land broker/landman to locate mineral owners and get them leased.

Have fun! Claudia