Has anyone out there been approached to sign an addendum to an oil lease to include horizontal drilling rights and “pass through” rights?
Nancy, I have been given a lease to sign which I was told includes horizon drilling and pass throuhgh rights, but I do not know the legalese and the contract is intimadating. That is where I am - looking for more date and help. Where is your property; mine is in Kern Country, Caliornia.
Richard, my land is also in Kern County, in Section 30 where OXY made their discovery. The addendum to the original lease was sent to me nearly a year ago; I fought it, and finally changed lined through the offending clauses before signing and returning the lease addendum. Basically, the way the new contract reads (if you are dealing with Occidental Petroleum, probably through Steve Bruce if so), the pass through rights mean they can literally drill horizontally right through your property to reach a field (perhaps even the same field also under your property), and take oil from an adjoining property (perhaps theirs in fee simple?). By the same token, they can put a well right dab in the middle of your property, then drill horizontally from that hole into other properties to recover shale oil, etc. They also increased the pooling acreage, but pooling or canceling pooling at their sole discretion. The way I read it, it seemed but another way to eliminate royalty payments to mineral owners. Where is your property? Mine is S30, R29S, T23E. They drilled a mega well on the adjoining property last year which they say is not yet in production… API #030-32137, and just notified the DOG of another drilling point in the same section.
RichardM said:
Nancy, I have been given a lease to sign which I was told includes horizon drilling and pass throuhgh rights, but I do not know the legalese and the contract is intimadating. That is where I am - looking for more date and help. Where is your property; mine is in Kern Country, Caliornia.
Dear Nancy and Richard,
I have seen this many times before, even in non-horizontal areas. Sometimes, it makes sense for the operator to drill a deviated wellbore (they call them extended reach wells now).
My business advice is to never to anything for free. If they need a subsurface easement, have them come to you at the time and grant them a subsurface easement of passage for a term, like 5 years, automatically renewable at a higher rate pegged to the Consumer Price Index.
They will complain, but they will do it if they have to.
Dear Buddy,
Thank you for the sage advice, which is basically what I have done to date, as I have dug my heels in solidly.
This is a property which has been under lease by OXY for over ten years. Seismics done, infrareds etc. There is no question on the existing field; there are several wells that were capped off in the late seventies (heat/pressure problems inherent to the technology of the era). New technology and CO2 injection in the shale will definitely release far more oil than was originally calculated in the base field, which is a good thing. Horizontal drilling (whether called slant wells, horizontal wells or extension wells) all give the oil companies the advantage of extracting more oil/gas with fewer drilling pads which is good for the ecology and for overall profits. I had no problem signing that part of the addendum. Pass through rights are a different matter altogether. The way their contract reads, they could pass under your property (leasehold to them) and drain the oil from an adjoining property (fee simple to them) with the ultimate result of your ending up with no royalties (pooling is at their discretion, of course), a drained oil field under your property, and a haz mat, abandoned drilling pad right smack in the middle of your property which you may very well have to dispose of according to CA ecological legislation. Not a good scenario. They offer token payments for permanent easements that wouldn't come close to the cost of the potential clean-up in five years. So I agreed only to the horizontal drilling rights, NO pass throughs, and the pooling standards per the original oil and gas lease. If they still want to negotiate pass through rights in the future, it will be on my terms, as you suggest. And no, they didn't like it.
Dear Ms. Hedges,
It sounds like you have a good understanding. If the surface location is actually on your property, make CERTAIN that you get plenty of money for it being there, if they are not producing Hedges gas and oil. I have negotiated in the recent past $75,000.00 for the location to drill one well. If they want an eco pad, then additional compensation for every well drilled. Also include Environmental Protection and Indemnity and surface restoration. Closed loop mud systems, all the bells and whistles.
Dear Mr. Cotten,
Thank you for your prompt reply. It is good to know I'm not crazy for not signing the addendum. If they care to pursue it down the road, I will definitely insist on environmental protection, indemnity and surface restoration above and beyond a hefty compensation for every drill pad! And yes, I guess I did learn a bit from my late father over the years, whose idea of a weekend vacation was to drive up to Bakersfield or Buttonwillow to check on things (ie, he and his old Atty/Landman, Mylo Mitchell, actually discovered an attempt at a clandestine slant well by one of the majors who had no lease interest in the property just before the Valwood-Hedges well was drilled; sued and got a nice, quiet settlement out of the deal). Of course, I detested the desert and hated the trips as a teenager. But if nothing else, I did learn a bit from the old geezers... especially to distrust, in particular, to distrust the majors.
I can no longer make trips to "check on things" as my father and Mylo did, as I live abroad. If this issue comes up again in the future, perhaps I can contact you? Have you dealt with OXY in the past? Are you familiar with Steve Bruce (Bruce Enterprises, Byron Pugh's landman in Bakersfield)? If the discovery is as enormous as purported to be by OXY, it might be wise for me to have local representation if it comes up again.
Best,
Nancy
Nancy, Thanks for your input; I have done nothing, and the offer has already been increased. So I might have something of value - now, how to know the facts against the big oils? My property is in T26S-R20E Sections 7 thru 18. APN 057-210-16, 17… It doesn’t sound like your propery and mine are close together, but I am just a novist on this issue. Can you assist on how to handle the lease with big oil. They tell me that it is a “standard” lease, and everybody get the same one - it would be to difficult for the accounting if they were all different. So the land company tells me. I do not know if that is true. Also, I do not know if the deal is favoring the oil company in to many ways or it is good for me too. Any suggestions here? Thanks
There is quite a bit of activity in that part of Kern County... you can check it out on CA's Department of Oil and Gas... weekly summaries of all activity in the area. ftp://ftp.consrv.ca.gov/pub/oil/weekly_summary/ just click on the year, then the summary by date... then look for the district (Kern County is District 4) township, range and section. It will tell you what company has filed to drill, rework or abandon any well. Although the majors try to keep most of the actual well information as confidential as long as they can, once you get the API number of a well close to your property and the oil company, you can surf around the website and check out the well production statistics. This will give you an idea of what oil companies are strongest in your area. If the landman is not revealing the company, it may be that it is a land-holding company trying to get the lease just to sell it to a major later; a common practice that just adds years of waiting for results. However, given that they have already increased the offer, it sounds more like it is a major company. They will probably ask for horizontal and pass-through rights. Horizontal isn't really a problem, but I have a definite problem with pass-through rights. You will get a much better handle on what is going on in your area once you have checked out the DOG's weekly summaries (look through the last year or so), well production stats and company profiles!
Hope this helps... it is a nerve-wracking process, but the more information you have, the easier it is to make a decision!
Best,
Nahncy
Hi Nancy - great information and site. What I have discovered is that most of the activity in district 4 is in APN’s starting in 029 and 030 and mine is 057. Is that close? How do I tell. FYI: I have been contacted by a land company salemen ( on behalf of a major) but he will probably combine the leases and re sell to a major - is that a problem for me? Can I require that the lease be modified for the "pass-through issue? What are the negatives here? Also, how to I determine that I have received the best offer of these mineral rights? I have read that some companies do not registar(file) the lease with the county, and then they hold back payment which ties up the property without compensation; and input here? Thank, Richard
Hi Richard - It sounds like you are dealing with a broker who is trying to tie up a lot of land to resell the leases. If you actually have an API number (the ones that start with 030 or 029, etc), that means you have a well, either an oil well or geothermal well. API numbers refer to actual oil or geothermal wells. You may be confusing the API with the Section number. 020 would be Section 20, followed by tract and range. If he says he is negotiating on behalf of a major, that is one thing... the actual lease would be with the major. If he is trying to tie up land with token leases to resell them, then it would depend on his track record, reputation within the industry, etc. I would be careful to check him out thoroughly before accepting any offer of a lease. And yes, you can modify a lease on the pass-through rights... it is usually one long paragraph, and if it reads the way mine did, it leaves you vulnerable for a possible haz mat clean up in a few years, and very possibly with no royalties. I XXXXXed through the entire clause in the contract. The lease MUST be registered with the county to be viable. The norm is they send you one long form lease, and one short-form lease that refers to the long form. You sign both (of course after making necessary changes) before a notary, send them back, then they send you an original, signed copy with the seal of the court where filed.
Offers vary a lot. If this is a broker trying to tie up leases to resell them, he probably will offer very little, probably no more than 25 an acre per year. It all depends on what they plan to do with the mineral rights. If they plan to sit on them until someone is drilling in that section, they will offer very little. If they plan to drill and it really is a major, then they will offer a bit more. The royalty of one twentieth seems to be a common denominator, sometimes they will go higher, but not often.
Hope this helps...
best,
Nancy
Hi Nancy, Yes, all the information really is a help, as I am just getting started on this isssue. I do not have an API allocation, just an APN which begins with 057-210- xx, and the Range is T26S - R20E. So I do not think that our properties are very close. Thanks for the input on the pass thru rights; I imagine it would really be more important if you are a land owner, not just a mineral rights owner as to pass thru rights. FYI: I was offered more than 1/20th royalities, but maybe there is more to come. And to filing/payment, I hear that some companies hold the lease and do not file, and this way they do not pay the premium to the leasor, but the land is tied up; your input here.
Thanks,
Richard
Hi Richard, I have located your property... which you can do too, by going to http://www.earthpoint.us/Townships.aspx You plug in the Section, Tract and Range numbers, and click on Fly on Google Earth and it will take you there. It is actually not far from mine.
On companies holding leases and not filing: that is done only by the brokers who are collecting leases on spec without investing a dime in the deal. The majors who actually want to drill file the leases immediately because they cannot file an "intent to drill" unless they have a legal right to the minerals. I avidly avoid anyone that has the slightest scent of a wheeler and dealer . If the landman purports to be representing a major, you have every right to ask which one. Also, I have never signed a lease that did not have a check literally attached to it for the first year's lease rent and the signing bonus. Remember, under CA law, if there is no "consideration" (money), the contract is not valid. The wheelers and dealers will "negotiate" major royalties... often up to one tenth, which is ludicrous because no major will pay it, huge signing bonuses and great lease rents, have you sign a lease with no money (which renders the contract invalid and GOOD LUCK taking them to court on it), then they peddle your mineral rights using the "lease" somewhat like a real estate broker uses an exclusive listing. Once they get a deal, they come back to you with a true lease with the terms the majors will go for, explaining that although not as great a deal as they gave you originally, the major really IS going to drill immediately, it behooves you to sign, etc. Most people do.
Now... if the guy is a broker and won't tell you anything about his "client", be suspicious and very careful. Also remember that there is nothing stopping YOU from contacting the majors on your own behalf and offering your mineral rights. You can find all their info on their websites... as in who is the director of mineral acquisitions. That director will probably put you in contact with his official landman for your area, and then you are dealing with someone with the power of decision. Occidental Petroleum is the most active of the majors in Kern County. Why don't you contact them directly? I believe Byron Pugh is still the acquisition director, and he uses several different landmen in the Bakersfield area, including Bruce Enterprises (Steve can be a bit difficult at times, but if you dig your heels in, he will get things done to your approval). Oh, but if you end up talking to Steve Bruce, you might be wise not to mention my name... I am afraid I royally ticked him off in the last negotiations, because I won. I don't think he likes me very much! hahahahaha... his problem, of course, not mine! Byron Pugh, on the other hand, is a very sharp, personable and likeable man, but he doesn't actually do the contracts, he just orders them through the landmen that work for OXY, who then run things through OXY legal.
Chevron is also very big in that area; their mineral rights acquisition department is also on their website.
The fact that someone is after the rights means there is a reason for their interest. Look at it as an adventure, and get the most you can... but from a major. They are the only ones who can not only afford to drill, but can also get the permits. Drilling permits are very difficult to get in California.
Again, this broker may very well be representing Chevron or Occidental or another major, but in my personal experience, every REAL landman has disclosed the major for whom he is working. If they don't disclose, I don't talk to them. Life is too short to deal with wildcatters or hotdoggers in this business.
Enjoy the adventure!
Nancy
Dear Ms. Hedges,
Are you certain of your facts? In many states, the obligations and conditions of lease can be interpreted as consideration. Consideration need not be in the form of money.
Also, I think you got confused when you said that they will pay big royalty...up to one tenth. Is that really what you meant to say?
Nancy Hedges said:
Hi Richard, I have located your property... which you can do too, by going to http://www.earthpoint.us/Townships.aspx You plug in the Section, Tract and Range numbers, and click on Fly on Google Earth and it will take you there. It is actually not far from mine.
On companies holding leases and not filing: that is done only by the brokers who are collecting leases on spec without investing a dime in the deal. The majors who actually want to drill file the leases immediately because they cannot file an "intent to drill" unless they have a legal right to the minerals. I avidly avoid anyone that has the slightest scent of a wheeler and dealer . If the landman purports to be representing a major, you have every right to ask which one. Also, I have never signed a lease that did not have a check literally attached to it for the first year's lease rent and the signing bonus. Remember, under CA law, if there is no "consideration" (money), the contract is not valid. The wheelers and dealers will "negotiate" major royalties... often up to one tenth, which is ludicrous because no major will pay it, huge signing bonuses and great lease rents, have you sign a lease with no money (which renders the contract invalid and GOOD LUCK taking them to court on it), then they peddle your mineral rights using the "lease" somewhat like a real estate broker uses an exclusive listing. Once they get a deal, they come back to you with a true lease with the terms the majors will go for, explaining that although not as great a deal as they gave you originally, the major really IS going to drill immediately, it behooves you to sign, etc. Most people do.
Now... if the guy is a broker and won't tell you anything about his "client", be suspicious and very careful. Also remember that there is nothing stopping YOU from contacting the majors on your own behalf and offering your mineral rights. You can find all their info on their websites... as in who is the director of mineral acquisitions. That director will probably put you in contact with his official landman for your area, and then you are dealing with someone with the power of decision. Occidental Petroleum is the most active of the majors in Kern County. Why don't you contact them directly? I believe Byron Pugh is still the acquisition director, and he uses several different landmen in the Bakersfield area, including Bruce Enterprises (Steve can be a bit difficult at times, but if you dig your heels in, he will get things done to your approval). Oh, but if you end up talking to Steve Bruce, you might be wise not to mention my name... I am afraid I royally ticked him off in the last negotiations, because I won. I don't think he likes me very much! hahahahaha... his problem, of course, not mine! Byron Pugh, on the other hand, is a very sharp, personable and likeable man, but he doesn't actually do the contracts, he just orders them through the landmen that work for OXY, who then run things through OXY legal.
Chevron is also very big in that area; their mineral rights acquisition department is also on their website.
The fact that someone is after the rights means there is a reason for their interest. Look at it as an adventure, and get the most you can... but from a major. They are the only ones who can not only afford to drill, but can also get the permits. Drilling permits are very difficult to get in California.
Again, this broker may very well be representing Chevron or Occidental or another major, but in my personal experience, every REAL landman has disclosed the major for whom he is working. If they don't disclose, I don't talk to them. Life is too short to deal with wildcatters or hotdoggers in this business.
Enjoy the adventure!
Nancy
Yes, in CA and in 36 other states contract "consideration" is in the form of money... and I certainly did not say that they would PAY 10 percent... What I said was that the wheelers and dealers will promise to ""negotiate" major royalties... often up to one tenth, which is ludicrous because no major will pay it". I speak from experience, having been approached by three such "brokers" over the last 35 years. I don't waste their time nor do I allow them to waste mine. There are too many valid, experienced and honest landmen out there (that anyone can contract to obtain good lease for an honest fee), to waste time with people who just want to tie up your land with a contract not even registered while they usurp your rights (for free) to their own advantage and not yours.
But hey, that is just me.
Nancy
I live in Tx where 27% is not unheard of and I have turned down leases for 20% royalty in ND. 10% sounds extremely low to me, Ms. Hedges. I hope the acreage bonus is huge and the 10% is cost free.
I was always taught that consideration was something of value. So in California, you cannot transfer property by Deed to your children with the only consideration being love and affection? Interesting fact to know. Thanks.
I still cannot believe that in California 10% is considered big royalty. What is small? 2%
Nancy Hedges said:
Yes, in CA and in 36 other states contract "consideration" is in the form of money... and I certainly did not say that they would PAY 10 percent... What I said was that the wheelers and dealers will promise to ""negotiate" major royalties... often up to one tenth, which is ludicrous because no major will pay it". I speak from experience, having been approached by three such "brokers" over the last 35 years. I don't waste their time nor do I allow them to waste mine. There are too many valid, experienced and honest landmen out there (that anyone can contract to obtain good lease for an honest fee), to waste time with people who just want to tie up your land with a contract not even registered while they usurp your rights (for free) to their own advantage and not yours.
But hey, that is just me.
Nancy
Ah, you are talking about a deed, not a contract. A DEED OF GIFT can be given to your kids with love and affection, of course! But pray tell, have you ever felt enough love and affection to grant your mineral rights in a DEED of Gift to an oil company? I mean, I have been fond of a few oil companies over the years, but love and affection?!? Contracts/leases are one thing, deeds are another. And oil companies are advantageous in CA (and probably are all over… if they can get away with it), I have had them offer as little as 5%, but have never signed anything lower than one twentieth. Of course, the percentage doesn’t matter in the least if the wells aren’t producing… I know, I know… that is the common complaint of lessors all over. <sigh>
Buddy Cotten said:
I was always taught that consideration was something of value. So in California, you cannot transfer property by Deed to your children with the only consideration being love and affection? Interesting fact to know. Thanks.
I still cannot believe that in California 10% is considered big royalty. What is small? 2%
Buddy Cotten
Acreage bonuses can be very nice, and of course all royalties are cost free, at least in my experience in the last 35 years. I have been offered as little as 5%, but never signed anything under one twentieth, cost free. So in some states oil companies pay higher royalties, but with shared costs? That sounds like a nightmare of accounting and auditing!
r w kennedy said:
I live in Tx where 27% is not unheard of and I have turned down leases for 20% royalty in ND. 10% sounds extremely low to me, Ms. Hedges. I hope the acreage bonus is huge and the 10% is cost free.
A deed is a contract. Has all the elements of contract. What do you think an oil and gas lease is? A conveyance in fee simple determinable of your mineral rights with the lessor reserving a royalty and having the possibility of reverter.
But if you are firm on never signing for less than a 1/20th, you got over on me. I guess you did really mean to say those promoters were going to promise you a tenth - and probably never deliver.
Our only accounting nightmare is what to do with all the money on a good well with 27 1/2 % royalty and no pooling.