Is it unusual for a landman who made a low offer to now say he made a “mistake” and not only call the party to announce he will send a better contract (like 3.5 times as much bonus, plus an increase of 4% on oil produced, etc.), but also say he will intercept a similar bad contract already signed and returned by a relative of the first party? This just happened to people I know. I’m happy for them, but am I the only one who thinks this seems odd? Is there something else going on here?
I’d venture to guess a well has recently been drilled nearby that is producing very well, and he REALLY wants the lease. It doesn’t do any good to low ball someone, and then not get the lease because of it. There are probably new competitors too that have come to light, that are offering far more than his original offer. I hope the same happens for you!
Dear Penny,
Speaking as a landman, I can only tell you what I do.
First, my business is one of relationships. For example, I only work in four counties. If I made a practice of paying one person more than another, then I would torpedo my business.
At my age and years of experience, I am able to pick and choose my clients carefully. I vet them to ensure that our philosophy is the same in regard to landowner relations.
My philosophy is that the mineral owner sets the price for his assets. To assert that the oil company sets them is counter-intuitive to the laws of business. The assets belong to the mineral owner. Not the oil company. The mineral owner is free to do with them as he pleases, which includes not leasing them at all. With that power, a transaction would not occur unless the scales are balanced in the mineral owners view, which has nothing to do with market price.
There has been more than one occasion when gone back and paid additional bonus to the landowner, because it was the right thing to do. Also, for those who are not aware, the bonus price for a piece of property hardly affects the MIRR or CpA of a project. The royalty rate does, but not the bonus.
A good, talented landman will never take advantage of a landowner. In the final analysis, his reputation is all that he has and if he has to go back to make things right, he will do so - if his client allows him to do so. Not all clients allow that.
Buddy: The originator of this topic raises an interesting question about landmen and negotiations. What is unclear is who does this Landman work for? Who is the Operator, if there is one, that this landman represents? Is he negotiating for himself to “flip” the mineral lease? A lot more questions than answers. I know there are exceptions to every rule, but I have a firm position in requesting any landman who wants to lease any of our mineral interests to disclose the identity of the oil and gas company he/she represents before any negotiations can commence. To date I have not had any problems with this request. I also want to be able to assess if the Operator is reputable, financially stable, and has a good performance record in drilling and production.
Buddy Cotten said:
Dear Penny,
Speaking as a landman, I can only tell you what I do.
First, my business is one of relationships. For example, I only work in four counties. If I made a practice of paying one person more than another, then I would torpedo my business.
At my age and years of experience, I am able to pick and choose my clients carefully. I vet them to ensure that our philosophy is the same in regard to landowner relations.
My philosophy is that the mineral owner sets the price for his assets. To assert that the oil company sets them is counter-intuitive to the laws of business. The assets belong to the mineral owner. Not the oil company. The mineral owner is free to do with them as he pleases, which includes not leasing them at all. With that power, a transaction would not occur unless the scales are balanced in the mineral owners view, which has nothing to do with market price.
There has been more than one occasion when gone back and paid additional bonus to the landowner, because it was the right thing to do. Also, for those who are not aware, the bonus price for a piece of property hardly affects the MIRR or CpA of a project. The royalty rate does, but not the bonus.
A good, talented landman will never take advantage of a landowner. In the final analysis, his reputation is all that he has and if he has to go back to make things right, he will do so - if his client allows him to do so. Not all clients allow that.
Best,
Buddy Cotten
www.cottenoilproperties.com
Co-Director, Region 3, NARO-TX
Board Member at Large, NARO-TX
Thanks Buddy, What sort of mistake would cause you to go back to an owner with a better contract? This, by the way was not just a bonus increase, it was also a 4.1 increase in the royalty %. And it was for 2 contracts on land contiguous with mine. I already had a better offer from a different landman, but have not yet signed. It happened right after I had talked with these owners, but without their contacting the landman. I and the other 2 parties have very small holdings of 30 mineral acres each. Maybe this landman really is a nice honest guy. Your obvious decency is changing my opinion a little.
Thanks Mike, for your comments. As I understand it, this is an independent landman working with Pima Oil.
Mike Igau said:
Buddy: The originator of this topic raises an interesting question about landmen and negotiations. What is unclear is who does this Landman work for? Who is the Operator, if there is one, that this landman represents? Is he negotiating for himself to “flip” the mineral lease? A lot more questions than answers. I know there are exceptions to every rule, but I have a firm position in requesting any landman who wants to lease any of our mineral interests to disclose the identity of the oil and gas company he/she represents before any negotiations can commence. To date I have not had any problems with this request. I also want to be able to assess if the Operator is reputable, financially stable, and has a good performance record in drilling and production.
Buddy Cotten said:Dear Penny,
Speaking as a landman, I can only tell you what I do.
First, my business is one of relationships. For example, I only work in four counties. If I made a practice of paying one person more than another, then I would torpedo my business.
At my age and years of experience, I am able to pick and choose my clients carefully. I vet them to ensure that our philosophy is the same in regard to landowner relations.
My philosophy is that the mineral owner sets the price for his assets. To assert that the oil company sets them is counter-intuitive to the laws of business. The assets belong to the mineral owner. Not the oil company. The mineral owner is free to do with them as he pleases, which includes not leasing them at all. With that power, a transaction would not occur unless the scales are balanced in the mineral owners view, which has nothing to do with market price.
There has been more than one occasion when gone back and paid additional bonus to the landowner, because it was the right thing to do. Also, for those who are not aware, the bonus price for a piece of property hardly affects the MIRR or CpA of a project. The royalty rate does, but not the bonus.
A good, talented landman will never take advantage of a landowner. In the final analysis, his reputation is all that he has and if he has to go back to make things right, he will do so - if his client allows him to do so. Not all clients allow that.
Best,
Buddy Cotten
www.cottenoilproperties.com
Co-Director, Region 3, NARO-TX
Board Member at Large, NARO-TX
Dear Penny,
Perhaps it was not a mistake at all. Perhaps he was doing what his client thought was the proper thing to do. It sounds to me that the company was exercising good business judgment. For example, if he would have not bumped them up, would we be having this discussion? Who would you rather deal with?
Most of the time, I want to deal with the best people, which is not necessarily who is offering the most money. Having said that, I vigorously represent my lessor clients and do everything that I can to properly commercialize their assets.
Bobby Jones, the great golfer gentleman, once called a penalty stroke on himself - and only he was aware that he suffered a rules infraction. When complimented on his actions, he responded, “You might as well compliment a man on not robbing a bank.” I suppose the point is that some landmen are long time professionals and not the ones that came about during the shale play explosions…ones that have no idea of the history of our profession…ones who are under-represented in education and training…ones that come from backgrounds that do not encourage long term relationships, but are only for the here and now with no thought to the future. In 1999. the price of oil dropped to $12.00 per bbl. The great field landmen did not miss a day during 1999. Likewise, late 2008 through late 2009.
A great landman is a pleasure to deal with. Most professional lessors can readily sense when they are in the presence of a true landman. Most landowners have never been with a great landman - a no BS authority in his field.
Mike, I know very few landmen who buy for their own account, without having someone lined up in the wings. Outside of the resource plays, most companies will not pick up trend acreage anymore. They all want 3D over the property before they buy a lease. It is just too expensive and there are an increasing number of companies who choose not to deal with landmen terrorists (block busters) if they can possibly avoid it. When I am buying leases in my name, it is most of the time at the request of the client. Sometimes, it is at my request, so that I can ensure that I receive my override in the assignment to the client company. Unfortunately, me negotiating an override is getting pretty rare. When a landowner insists on knowing my client, I tell them. Most of the time, its just not that big a deal. Main reason is to hide the client in the public records in a competitive situation.
penny rudolph said:
Thanks Buddy,
What sort of mistake would cause you to go back to an owner with a better contract? This, by the way was not just a bonus increase, it was also a 4.1 increase in the royalty %. And it was for 2 contracts on land contiguous with mine. I already had a better offer from a different landman, but have not yet signed. It happened right after I had talked with these owners, but without their contacting the landman. I and the other 2 parties have very small holdings of 30 mineral acres each. Maybe this landman really is a nice honest guy. Your obvious decency is changing my opinion a little.
Penny, don’t forget that if you all 3 act together, it would probably benefit you all–90 acres is more valuable than 30. I would talk to their landman, and they should talk to yours.
penny rudolph said:
Thanks Buddy,
What sort of mistake would cause you to go back to an owner with a better contract? This, by the way was not just a bonus increase, it was also a 4.1 increase in the royalty %. And it was for 2 contracts on land contiguous with mine. I already had a better offer from a different landman, but have not yet signed. It happened right after I had talked with these owners, but without their contacting the landman. I and the other 2 parties have very small holdings of 30 mineral acres each. Maybe this landman really is a nice honest guy. Your obvious decency is changing my opinion a little.
Thanks Lisa. Interestingly I think the 2 landmen are already talking. One is independent, the other is with GFL, which I think is a lease brokerage among other things. It was GFL that did the lowball, then after talking w/my landman, went back and offered new leases. Whether that had anything to do with my own still outstanding offer I don’t know. I’m know zip about the oil biz. I’ve tried to talk with the other 2 owners about sticking together, and trying to improve our position, but I’m getting the impression they are too scared of losing the new deal. So far I’ve learned that Prima is the only operator in my neck of the woods. So no competition along those lines. Baseline (I think they are another brokerage) and GFL and my independed landman, and Vecta Oil are the only ones active there right now. Do you know anything about Vecta? As I understand it Vecta is the seismic end of o&g exploration. They’ve done 10 o&g leases in my township area since January, but I’m not sure how they fit in. Do they have to lease mineral rights to do seismic tests? Again, thanks so much for your help.
Sorry, I know nothing about Vectra. I do know, thanks to the forum, that a lease doesn’t have to be in place for the seismic study, but that money is paid for it–like $25 per acre. GFL on the other hand, I do know. They are one of our three outstanding offers. The 320 acres that adjoins my neighborhood signed with them (all 35 acre parcels). They started at $20 and settled at $175 (including my next door neighbor). They didn’t hold out for any other offers from other companies. My neighborhood, (640 acres, all 35 acre parcels) is up to $750 with GFL, and he says he’ll beat any other offer. GFL says he is working for Lario, but not sure I believe that… Nobody is operating around us either, other than Renegade. Renegade has not reached out to us. We actually reached out to Anadarko, and they immediately matched all of our existing offers. Nothing saying you couldn’t do the same. If you’re bold enough, contact Trans Continent(al?), and they will tell you who the landman is that would be working in that area for Anadarko. Worse case, he says not interested. EOG was interested in our neighborhood, but when they weren’t getting enough land in the area, they lost interest, and so did we. You might consider reaching out to them, through Pride Oil and Gas. If you can just get 2 offers, it will likely force the price up.
penny rudolph said:
Thanks Lisa. Interestingly I think the 2 landmen are already talking. One is independent, the other is with GFL, which I think is a lease brokerage among other things. It was GFL that did the lowball, then after talking w/my landman, went back and offered new leases. Whether that had anything to do with my own still outstanding offer I don’t know. I’m know zip about the oil biz. I’ve tried to talk with the other 2 owners about sticking together, and trying to improve our position, but I’m getting the impression they are too scared of losing the new deal. So far I’ve learned that Prima is the only operator in my neck of the woods. So no competition along those lines. Baseline (I think they are another brokerage) and GFL and my independed landman, and Vecta Oil are the only ones active there right now. Do you know anything about Vecta? As I understand it Vecta is the seismic end of o&g exploration. They’ve done 10 o&g leases in my township area since January, but I’m not sure how they fit in. Do they have to lease mineral rights to do seismic tests? Again, thanks so much for your help.
