Is it unethical or unjust to ask for increased royalty and bonus in return for a pooling amendment?
Nope. How precisely would you expect the lessee to act if they had something you need? Buddy Cotten boiled it down pretty well when he said that an oil and gas deal is the highest expression of capitalism. A pooling amendment would be an oil and gas deal.
Thanks for the answer. I figured as much but seems oil companies are very reluctant to see it the same way.
Your negotiation success will depend on a certain number of things. First and last is a cost benefit to the company, irrespective of who does the negotiation Here, judgement rules from the landowner standpoint. That defines the paragon of business morality.
Example 1: This is happening in real time in Lavaca County, Texas. A well is planned -- not on the schedule necessarily, but planned. The offsetting landowner owns a full interest in about 100 acres. He wants, as bonus, treble what others have been paid. A full interest in the configuration of his tract is not a valuable asset. You would have to see a lease map to fully understand what I am talking about.
Here is the problem. He will not be pooled, because there is no pooling transaction (generally a lease) in place. Mr. Landowner has two options, lease to someone or drill the well himself. Sadly, either option other than leasing to the drilling company is not an option, unless you hate money. 100 acres is just not enough in the world of horizontal drilling. He will have no way to protect his acreage from drainage. Remember, there is no equitable pooling in Texas.
Our Mr. Landowner thinks that he is in a superior position. He is not.
Our Mr. Landowner needs a process check because the he has not realized that the real money is in the ground and not in the bonus.
Example 2: Also, real time - ongoing. Landowner has an undivided mineral interest in a about 800 acres. Their mineral interest is a non-executive mineral interest. The company wanted my client to ratify the lease as a condition of bonus payment. We did not and that was non-negotiable. The client was paid, and paid properly -- with no lease ratification.
The field guy also computed the net acres incorrectly. He was able to miss 1/3 of the interest by math mistakes. I sent a nice letter for their files that when we (my client) was paid, then we would be a position to discuss lease ratification. My plan is to agree to lease ratification with new language for us on how the royalties are to be computed. I feel pretty sure that my letter is buried in a file somewhere. We will wait patiently until they need us to ratify for pooling. We are in position in this situation.
Most landowners only know what the company wants them to know. In any negotiation you want to be in position, otherwise you cannot control the outcome. Business intelligence will be needed to be matrixed out in order to quantify exactly what is in your true best interests. You sort of know this already, because you are making the good first steps to get some advice. Properties do not manage themselves. You will do the right thing to protect your assets.
Best
Buddy Cotten
r w kennedy said:Nope. How precisely would you expect the lessee to act if they had something you need? Buddy Cotten boiled it down pretty well when he said that an oil and gas deal is the highest expression of capitalism. A pooling amendment would be an oil and gas deal.
Buddy Cotten said:
Your negotiation success will depend on a certain number of things. First and last is a cost benefit to the company, irrespective of who does the negotiation Here, judgement rules from the landowner standpoint. That defines the paragon of business morality.
Example 1: This is happening in real time in Lavaca County, Texas. A well is planned -- not on the schedule necessarily, but planned. The offsetting landowner owns a full interest in about 100 acres. He wants, as bonus, treble what others have been paid. A full interest in the configuration of his tract is not a valuable asset. You would have to see a lease map to fully understand what I am talking about.
Here is the problem. He will not be pooled, because there is no pooling transaction (generally a lease) in place. Mr. Landowner has two options, lease to someone or drill the well himself. Sadly, either option other than leasing to the drilling company is not an option, unless you hate money. 100 acres is just not enough in the world of horizontal drilling. He will have no way to protect his acreage from drainage. Remember, there is no equitable pooling in Texas.
Our Mr. Landowner thinks that he is in a superior position. He is not.
Our Mr. Landowner needs a process check because the he has not realized that the real money is in the ground and not in the bonus.
Example 2: Also, real time - ongoing. Landowner has an undivided mineral interest in a about 800 acres. Their mineral interest is a non-executive mineral interest. The company wanted my client to ratify the lease as a condition of bonus payment. We did not and that was non-negotiable. The client was paid, and paid properly -- with no lease ratification.
The field guy also computed the net acres incorrectly. He was able to miss 1/3 of the interest by math mistakes. I sent a nice letter for their files that when we (my client) was paid, then we would be a position to discuss lease ratification. My plan is to agree to lease ratification with new language for us on how the royalties are to be computed. I feel pretty sure that my letter is buried in a file somewhere. We will wait patiently until they need us to ratify for pooling. We are in position in this situation.
Most landowners only know what the company wants them to know. In any negotiation you want to be in position, otherwise you cannot control the outcome. Business intelligence will be needed to be matrixed out in order to quantify exactly what is in your true best interests. You sort of know this already, because you are making the good first steps to get some advice. Properties do not manage themselves. You will do the right thing to protect your assets.
Best
r w kennedy said:Nope. How precisely would you expect the lessee to act if they had something you need? Buddy Cotten boiled it down pretty well when he said that an oil and gas deal is the highest expression of capitalism. A pooling amendment would be an oil and gas deal.
Thank you Mr. Cotten
Can they drain me if I am only 2400’ wide and 1.5 miles long?
I believe I am in good position however company is strongly against any royalty increase and threatened to short drill lateral 5000’ instead of 9000’ as planned on units in order to cut me out. This means they would need to short drill 10 planned bores for a total of 40,000’ loss in production on one side of me. I’m not sure what they can do from the opposite side. Really looks like they would move since I only have 1/9 th of 320 acres undivided. My interest lies in 320 acres 2400’ wide they would cross and 1.5 miles long east to west. I think they only have about 5000’ south of me they can trade for but who knows companies deal with each other everyday.
Again thank you! These negotiations are hard and help is greatly appreciated.
It should all be a cost benefit situation. However, some companies will have the corporate philosophy to not cave in. I know of several that put themselves in that category.
Buddy
Thanks again.
Without knowing any more than you have revealed, if the company has already said that they were going to drain you, and if they are your lessee, then they have created problems for themselves already. Also, if the configuration of your tract is 'just so' then they likely can drain you. HOWEVER, if you are already under lease to them, they have an obligation to protect you from drainage. So, they drop (terminate) your lease and drill.
However, there may be other solutions that have not yet been contemplated. Remember that pigs get fat and hogs get slaughtered.
Buddy
I didn’t mention to begin with but it is HBP. Seems I probably made rookie mistake by going too strong. Seems company is not interested in discussing however apparently it was going to be a joint deal and the other company has contacted me. The other company has a lot invested and working on trading my lessee for the area I’m involved in so the can pursue getting a deal with me. Thing went totally different than I expected. Thought I would put out high number and they would come back. Boy was I wrong. Do companies trade like this and is it common?
If you asked for what you wanted, I don't think you did the wrong thing. If you told them you wanted $25 rather than $1 would you have really been happy with $25?
If they finally came back and decided they would meet my price after having rejected, they would find it had doubled or simply a flat no. As Buddy said, they may have a corporate philosophy to not cave in, that does not mean that my philosophy is any less stringent. It sounds like they don't want to come to an agreement beyond your unconditional surrender which if you give it they can send you to the wall wothout a blindfold because you said they could.
I believe they will not terminate your lease with the existing production. I would just not talk to them for a year or two. You should also never talk to them on the phone, make them put everything in writing. Their drainage threat would have never made it on paper unless someone went insane so it must almost certainly have been a phone call. If by some miracle the drainage threat was on paper, it needs to be put in a safe deposit box against loss, no matter how much I wanted to frame it and put it on the wall, because it might be very valuable in court one day.
Joseph Wiggins said:
I didn't mention to begin with but it is HBP. Seems I probably made rookie mistake by going too strong. Seems company is not interested in discussing however apparently it was going to be a joint deal and the other company has contacted me. The other company has a lot invested and working on trading my lessee for the area I'm involved in so the can pursue getting a deal with me.
Thing went totally different than I expected. Thought I would put out high number and they would come back. Boy was I wrong. Do companies trade like this and is it common?
They didn’t say they would drain me. Only said they would possibly cut me out of unit and short drill and the shorter bores would be economical just not as economical as the long ones.
Ok, scratch the drainage, I must have picked that up from Buddy considering the possibliities. If I understand correctly, your property crosses the [T] of these wellbores and their being able to significantly drain you becomes small.
There is economical and economical. If you drill a 10 million dollar well and it produces 10 million AND $100 after the cost of money, it's economical, the fact that it tied up that much money for 5 to 7 years or more is not a factor in the absolute sense of whether it is economical or not.
I still say not to talk to them on the phone.
Joseph, you have never said precisely what you asked for? This thread is somewhat incomplete without that datum. I mean if you just asked to move from 3/16 to 1/5, that would be one thing. If you wanted to move to 27.5% that would be another as the lessee feels he "pool sharked" or "card sharped" it fair and square and who are you to get smart later on and want to renegotiate just because the lessee needs something from you? You should of course give it for free, who do you think you are anyway? How dare you learn the value of what you have and refuse to give more of it for free?
I would still answer "Fine then" drill those not as economical wells.
What were you asking for anyway? If you told it may be that you hear peals of laughter at the operator for cutting his nose off to spite his face over a small royalty inctease to get a project as you describe moving forward.
Joseph Wiggins said:
They didn't say they would drain me. Only said they would possibly cut me out of unit and short drill and the shorter bores would be economical just not as economical as the long ones.
Just wanted to thank everyone again and let you know that in early May the oil company did come through with the bonus I requested. Since then they have drilled one well, started the second, have permitted the third and the fourth unit is evident. Seems I did have position however the game of holding out is not for faint at heart, they waited until pad was built letting me think I might be cut out and then came through just a few days before rig moved in. Amazing how they negotiate. This was my first negotiation and boy was I surprised at how hard it was. I wouldn’t suggest anyone hold that long unless absolutely sure of their position. Thanks again for helping me understand my position.
i have a related question...the original lease ran from oct 2012 to oct 2015....the company drilled a well that was unsuccessful during that lease. they now wish to amend the lease to drill in another area....am I entitled to a payment per mineral acre as in the first lease or am i simply looking at a royalty percentage?