I have been offered a “Memorandum of Oil and Gas Lease” on property in the Grant District, 124 acre tract just slightly northeast of the town of Pine Grove by EQT Production Company, their deadline being about November 9 according to their certified letter that I received on October 9. However, their Memorandum completely ignores all of the previous negotiations I had with them two years ago in 2017 regarding this same tract. At that time I was making progress with my landman, almost had an addendum approved in October 2017, and then EQT suddenly went silent for two years. Now they’re back and offering me less than half of their previous offer. How unusual is this and do I demand that we simply start up negotiations back to where we were two years ago? They changed landmen this time and it looks like we’re back to square one again. I previously consulted with Kyle Nuttall to gain my previous progress, which ultimately ended up with no final results.
I would tell the landsman what terms you had negotiated before and ask him to inquire with EQT if the are willing to do meet your terms. You might not get as high a bonus since oil and gas are both down in price and production is up and EQT is downsizing.
To see if EQT has well permits for your property:
Look on WVDEP Oil&Gas Well Information and enter EQT in the “operator” search field and choose Wetzel in the county box, then search. It will show all of EQT’s well and well permits. You can click on each one and see where it is on the map. Or you can find your approx location on the map and then zero in on what well permits might be close to your property.
Then you can coordinate with “WV Property Viewer” and/or “ArcGIS Web Application” to find your property to compare the maps.
If they have a well permit near your property, then you have a negotiating tool.
Thank you very much for the advice. I will do that.
I followed the instructions as you said and reviewed all nearby wells. What is interesting is that all of the nearby wells are owned by Tribune Resources, and EQT owns no wells in the immediate vicinity. That would seem to indicate that EQT would have little leverage in demanding a quick contract. The trends also show both gas and oil production to be generally decreasing in each well, although in some cases oil production is increasing slightly while gas production is decreasing. Tribune Resources also contacted me but their initial offering was vague with little detail: $2,500 per acre; 12.5% royalty; 5 years primary term, with 5 year option to renew. If they were to put another well on my leased premises, it probably wouldn’t even be 1/4 mile away from their closest active well.
Did you see any “permit issued” wells under EQT that were close or under your property? On the map you need to follow the dotted line with any permitted well track to see if it might come close. We have gotten an EQT offer for Wetzel recently as well. They might just be trying to get their foot in the door in front of Tribune, or they might be in the process of buying out tribune’s leases or something like that. Who knows? Since you have been contacted by Tribune, you could talk to both of them and try to use each other offers to push for the best deal from one or the other.
No, all of the nearby wells are Tribune wells. I called Tribune and talked to them. The landman said he could send out a “standard contract” to look at, rather than the three bullet points in a letter, prior to getting approval from his management, but I told him that I might as well respond to EQT instead first, since I was closing in on negotiations with them in October 2017. The Tribune wells are producing from the Gordon Formation, i.e., their horizontal wells. My main question now, relative to conditions two years ago is: if their standard contract calls for 12.5% royalty of net proceeds, should I take my Addendum request to 15%, or 18% like I would have two years ago? I’ve read all of the comments regarding how “gross proceeds” is better than “net proceeds,” but it also seems like you can’t have it both ways, i.e., gross proceeds with a higher royalty than 12.5%. What is realistically achievable in Wetzel County right now?
Their standard contract would probably be 12.5%, but you should definitely press for the most possible. Ask for 18% or 20%. Once you ask for a lower # you can’t very well go up. But also push hard for gross proceeds (no post production expenses or “marketing enhancement” expenses). The expenses they take out can amount to as much as half or more of your part of the production, so it is better to agree to a lower royalty percentage with gross proceeds if you cannot get both. A year ago we got an 18% gross proceeds lease in Wetzel with one company.
Thank you very much. But how would that approach compare to what I was thinking of, which I thought had already compensated for the possibility for their marketing enhancement and post production expenses? “The Lessee shall pay monthly to Lessor a royalty of 18% of the net proceeds realized from the sale of oil produced and sold from the premises after deducting charges for making it merchantable and transporting the oil to the point of sale, and shall pay monthly to Lessor all gas produced and sold from the Leased Premises, a royalty equal to 18%, utilizing the “net-back” method (as defined below) to calculate royalties owed to Lessor pursuant to this lease governed by West Virginia Code § 22-6-8(e). Lessor’s royalty shall be based on the volumes of oil and gas sold by the Lessee, and Lessor shall not be entitled to any royalty payments for any volumes not sold, regardless if produced or measured at any point other than the point of sale. Lessor recognizes that gas products may be sold at various points downstream from the wellhead in various states of production and that the further downstream, the higher the price. The “net-back” or “work-back” method to calculate royalties is industry recognized when processing the oil and gas into a marketable commodity. Lessee will properly allocate all reasonable post-production expenses actually incurred. The reasonableness of the post-production expenses is herein defined as capped at $0.60/MMBTU.”
Still best to try to get gross proceeds. If the price of gas continues downward a cap of $0.60 per mmbtu could be more than half of the price you get as the “post production expenses” don’t go down as the price goes down. For example in July 2017 we had a price from a well in Marion Co. of $1.05/mmbtu, which could mean as low as $0.45 /mmbtu income from the well with a $0.60 cap. Granted, if they will not give you gross proceeds it is good to have the clause you quoted with the cap as Mr. Nuttall probably suggested to you.
Agreed. 100%. It’s now possible to get a No Post-Production Costs clause from EQT. You still have to fight for it, but they’ve softened their position on this issue. I highly encourage everyone to only accept a No Post-Production Costs clause at this point.
Also, starting back where you were with them is a pretty good spot. Their current landman may not have a record of what you guys were doing, even though he should. Definitely push them for the higher bonus we were talking about and the other clauses.
My brother seems to think that EQT can start drilling if only a certain percentage of the “Lessors” sign their contracts in a parcel, i.e., those who agree to accept lower bonus payments and royalties, and don’t present any problems for them, and thinks I would be a fool to request an Order of Payment, royalties and a contract commensurate with current mineral rights in Wetzel County. He thinks they will just start drilling within that parcel anyway and don’t even have to negotiate with me if they can get enough other people to sign lease contracts. He just cares about his bonus payment (minimum) and nothing about what his heirs may inherit. We have an equal share. What rights do I have in making EQT negotiate with me prior to any drilling onsite?