Most of land is leased around me, do I have a solid hand to play?

I am not familiar with the oil leasing tactics enough though my dad used to be in oil. I have been doing a lot of searching to verify my mineral rights and looks like most all of the land around me has been secured at one time or another and one large company has just leased over about 100 properties all around me.

I have been contacted regarding a lease and was curious if I would have much of a play if everything around me was leased except mine? Not being familiar with how this works, it was my understanding that if a driller wants to drill an area, they HAVE TO have an agreement on all affected properties that would contribute to the "resource pool" or unit?

The area I am referencing is about 2-4 sections which may or may not be much of an issue for an oil company.

Bob S:

First, I would do a little research and make sure that you are properly on record at the County Clerk's office in the county where your minerals are located. If the area where your minerals are located involves 2-4 sections (a section is 640 acres), this would be a sizeable area and should garner the attention of any lessee. You didn't specify where these minerals are located but several factors could be in the picture. Has seismic work been conducted on your mineral acreage? Where is the nearest producing well to your acreage and what type of production does the well have? Most likely, if leasing is currently being conducted in your immediate area, you will be contacted, especially if developement begins to occur and several good wells are drilled.

Thanks for the reply. I am in SW Swdgwick County where they are actively securing land for the Mississippian and intentions are to totally perf that play over the next 15yrs all the way through my area. I did a vast amount of research in my area last night. I know my recent purchase contract for my land indicated 100% minteral with property but need to ensure that. I was able to find that 2 owners before me did lease the land in 1980 and was released a yar later. No other activity on record on leasing or sales of minerals so hopefully that is good.

I know there is 2-4 sections secured but not really sure if all that would be considered a single unit though. Is this something the Lessor would/should share? The unit or pool is and the language in the lease are things I want to pay attention to because they seem to have as much or more effect than the royalty share.

Bob, I gather from your 2 postings that you are in Kansas and own 40 acres. If your acreage is in one of the sections that is leasing you do have some leverage depending on how serious they are about drilling in the near future. In many cases a Landman will lead you to believe that drilling starts as soon as you sign your lease when in reality they are in the prelims and it could be many months into the future. The lease bonus will most likely increase as drilling gets closer. I don't know what online resources are avaliable in Kansas but you need to find out if an operator has actually started the process or if it's just speculation at this point. The main advantage to signing early is you have secured a bonus whether they drill or not. The closer to drilling the higher the bonus will probably be but holding out can be risky too.

From what I gather, I am prettly close to either right smack in the middle of two plays or in the middle of where they will overlap. Per the landman and my research, nothing has ever been drilled within 3-5 miles of my area. That could be good or bad but it has been my experience that drillers will "follow the play" until it reduces in production and draw the line there. I know nothing has been drilled in 20-30 yrs anywhere close. However, about 10 miles from me, they ARE setting up right now. However, the landman, who has either been very forth coming or full of BS, has indicated they are chasing another play and I am JUST on the dividing line (out) but they want to secure my property to be safe. I know my entire section minus myself and another 40 have been secured but are all "out" of the target region.


I have already expressed my dislike for their 3yr with 2yr option and he seemed like they might be able to work something out. I think they are playing pretty aggressive right now but I still want real drilling data at this point. I am also curious about seismic testing and if the new evolutions of today might change the game? Are the lines that were drawn many years ago pretty accurate for today?

Bob, My area of interest is strictly Oklahoma so I am speaking from that perspective. Over the last two years I have seen the Woodford Shale play evolve on almost a daily basis. Even though our area of the play has rapidly become "proven" the operators are stilling pushing the edges and according to some of the locals, seismic crews are still a common sight. Technology has definitely created a whole new ball game.

I was kind of wondering. Since there are no wells on record in the immediate area, I am stuck wondering how firm the lines really are or if it is possible that two plays actually overlap where I am. There has not been any seismic testing in my immediate area so I have to wonder if I hold out a bit and see where this might go.

Also, I was curious since I know of a rig setting up 3 miles from me, is there any way to get any drill data from that? IE, are they required to produce a well record for public record like water wells? The determination of that well will likely be a game changer in my area.

Bob, I think the information avaliable is going to depend on the state. In Oklahoma it is pretty easy to follow the progress of a well through permitting and the start (spud) of the well but then the operators get a little secretive with the information. Are you a member of any of the Kansas forums? I noticed the Sedgewick forum is a lonely place but I saw some of the others have a few more members. At the top of this page go to groups, county and scroll down to Kansas. Maybe some of those folks can give you some information more specific to your state.

Good Luck!

Hi, Bob.

From your information I am guessing you are somewhere between Viola and Goddard (the 10 mile rig ref, and 3 mile rig ref)? I am probably part of that 100+ properties you referenced; our brokers are http://topdollarenergyauctions.com/custom/results.php ; they show the package in Sedgwick County totaling about 63,000 acres. I feel they did a very good job of marketing the package, and held several local meetings on what would be most beneficial in the leases for the landowner. We ended up with a 3 yr, 2 yr option lease; they weren't able to wriggle out of the option clause but other items such as Pugh clause, and royalty proceeds out of gross before expenses did get included.

Two good sources of information are the Kansas Commerce Commission, which regulates the mineral industry in Kansas, http://kcc.ks.gov/conservation/index.htm , and the Kansas Geological Society, which also collects and provides drilling and production information, http://www.kgs.ku.edu/index.html . On these sites you can, among other things, do a search for drilling permits (Intent To Drill), http://kcc.ks.gov/conservation/intents/index.cgi , and also search for well information http://www.kgs.ku.edu/Magellan/Qualified/index.html .

You mention a rig 10 miles from you; is that the Pauly 3002 6-1H, 3 miles east of Viola, being drilled by Shell?. They are also going to drill (Intent To Drill issued by KCC) 9 miles north of there (4 miles south of Goddard). I noticed on SandRidge's map on page 6 of the 8/06/12 investor presentation (found at http://investors.sandridgeenergy.com/phoenix.zhtml?c=196066&p=irol-presentations ) that Shell's Pauly 3002 6-1H is just on the edge of SandRidge's area of interest; I haven't quite figured out why they have that jog in their map.

In regards to the pooling issue, here is what I found in the state statutes:

Statute 55-1317: Unitization without KCC order, when.(a) As used in this section, terms have the meanings provided byK.S.A. 55-1302, and amendments thereto.

(b) Subject to the provisions of subsection (c), if all mineral and royalty owners and not less than 90% of the working interest owners approve, in writing, a contract for the unit operation of a pool or part thereof, such unit operations shall become effective without application to or order by the state corporation commission.

(c) Before a contract for the unit operation of a pool or part thereof shall become effective pursuant to subsection (b), the person or persons wishing to provide for the unit operation shall file a copy of the contract with the state corporation commission and shall notify all working interest owners of the intention to conduct the unit operation. Such notice shall be in the manner provided by law for notice of an application requesting an order for the unit operation of a pool or part thereof. The notice shall inform the working interest owner of the right to institute proceedings within 30 days after receipt of the notice to have the matter determined by the state corporation commission. Any working interest owner, within 30 days after receipt of the notice, may institute proceedings before the state corporation commission to determine the matter in accordance with the provisions of K.S.A. 55-1301et seq., and amendments thereto. If no such proceedings are instituted, the contract shall become effective upon expiration of the 30-day period.

(d) This section shall be part of and supplemental to the provisions of article 13 of chapter 55 of the Kansas Statutes Annotated, and amendments thereto.

History: L. 2004, ch. 115, § 3; July 1.

I read that as saying all mineral owners in the proposed pooled or unitized area have to approve, but the KCC could possibly overturn it. I don't think this happens very often. The Pauly well was unitized as 662 acres (oversized section, http://www.kgs.ku.edu/PRS/Documents2/2012_07_01_KCC/K_070312_PAULY_3002_6_1H.pdf), but the yet to be drilled MEANS 2802 17-1H shows unitized at 305 acres ( they excluded 2 tracts of 14.3 acres, http://www.kgs.ku.edu/PRS/Documents2/2012_08_01_KCC/K_080112_MEANS_2802_17_1H.pdf ).

My area is like yours; holes were punched years ago but nothing came of it. I have been looking at some of the newer dry wells in different parts of Kansas where KGS has shown drill stem tests on their site, and some of them did have shows of oil during the test. (40 foot of oil cut mud, 20 foot of oil, etc). To me that says that they felt that if the production wouldn't cover production costs PLUS drilling costs, they weren't going to produce. Of course, once you start getting $100 oil things change quite a bit. So some of those old dry holes probably did show oil, and of course, that is why we have Shell and SandRidge and Chesapeake wanting to do horizontal. I just drove by the Pauly drillsite, and they already have production tanks in and painted, before the rig has gone and the well is fractured!!!. I would say they be pretty positive :-).

If someone is offering you a 3 yr 2 yr option lease, at $325 or $350 bonus, with 3/16 royalty, I would take it. If you would like, send me your email and I can send you a redacted (yes!!! just like Justice Dept in Fast & Furious :-D ) copy of our lease, which appears to have as much landowner goodness as possible.

This has probably been too lengthy and may have rambled, but I wanted to try to provide as much knowledge as I have. Good luck!!

Thanks a bunch for the reply. I do have the lease in hand and was just about to email him and tell him to try again because I would have to just rewrite the whole thing. Here are a few things that will not fly.

- They reserve the right to retract any or part of the contract at any time. So we write a 3yr and they can decide they only want the W half later and just pay that or just cancel the contract completely.

_ 2yr lease option. I am hoping because I am one of the last in, I can get this removed. I was going to leave it in BUT add that "lessor must agree in writing to any extension beyond the 3yr term"


- Basing production on NET and clearly state that they may use minerals onsite for production. NOPE. Whatever comes out of the ground is counted...

- No minimum production rate. I am not sure how to approach that but I am not about to let activity persist on my property for 50yrs to get 30 bucks/month.

Anthony, I tried to leave you a message. Let me know if you get it or if not, bounce one over to me.

Thanks

Bob, I just sent a message to your inbox with my email address.

Thanks!

bob S said:

Anthony, I tried to leave you a message. Let me know if you get it or if not, bounce one over to me.

Thanks

Bob, looks like the only place I can upload files is here, so below is copy (redacted) of oil lease.

Also, in regards to wether the dry holes drilled in the past in this area were really dry holes, on the KGS link http://www.kgs.ku.edu/Magellan/Qualified/index.html , you can click on the link to the library database. If they show they have DST (drill stem test) paper copies, you can order copy for nominal fee. The digital info, unless published, can only be accessed with only a not so small annual subscription :-( .

The DSTs will show how much, if any, oil or gas that might have been there. It won't say if the formation was porous enough to flow enough to pay for pumping costs, let alone drilling costs. Here is a youtube link to Jaguar Oil, which has several vidoes on wells they drilled, very informative...

http://www.youtube.com/user/JaguarOil?feature=watch

Somewhere around 7 minutes into Drilling the #3 Drouhard - Part III ( http://www.youtube.com/watch?v=d5_DxfY_eoo&list=UUWCEpaPG_iwoDf... ) after drill stem test and wire logging, he states that the oil is there, but the formation is too tight. This was not Mississippi, but could be similar in a lot of the vertical dry holes in our area.

Anthony, I got your email and replied if you want to send anything to my direct email. Let me know if you did not get it.

hmm, attachment didn't take...trying again...also, document loads sideways...place I got it scanned didn't load it properly :-(

2778-redactedXC560C8A4A31425.pdf (859 KB)

Anthony, thanks for the info!!! Im also one of the guys in the area with 94 acres under contract. That second well is about 4 miles west of me. Can you keep us posted on results?

My Dad went to a Kioga meeting the other night, and the Shell rep was saying that their average well was somewhere around 300 barrels a day. That would be nice.

Bob I tried pretty hard for 2 1/2 months to haggle with them. Basically if you hold out and they find oil in our area you could get more. If they dont do well you may get nothing. Your call. I thought they were fair for not knowing.

Anthony Palsmeier, Jr said:

Hi, Bob.

From your information I am guessing you are somewhere between Viola and Goddard (the 10 mile rig ref, and 3 mile rig ref)? I am probably part of that 100+ properties you referenced; our brokers are http://topdollarenergyauctions.com/custom/results.php ; they show the package in Sedgwick County totaling about 63,000 acres. I feel they did a very good job of marketing the package, and held several local meetings on what would be most beneficial in the leases for the landowner. We ended up with a 3 yr, 2 yr option lease; they weren't able to wriggle out of the option clause but other items such as Pugh clause, and royalty proceeds out of gross before expenses did get included.

Two good sources of information are the Kansas Commerce Commission, which regulates the mineral industry in Kansas, http://kcc.ks.gov/conservation/index.htm , and the Kansas Geological Society, which also collects and provides drilling and production information, http://www.kgs.ku.edu/index.html . On these sites you can, among other things, do a search for drilling permits (Intent To Drill), http://kcc.ks.gov/conservation/intents/index.cgi , and also search for well information http://www.kgs.ku.edu/Magellan/Qualified/index.html .

You mention a rig 10 miles from you; is that the Pauly 3002 6-1H, 3 miles east of Viola, being drilled by Shell?. They are also going to drill (Intent To Drill issued by KCC) 9 miles north of there (4 miles south of Goddard). I noticed on SandRidge's map on page 6 of the 8/06/12 investor presentation (found at http://investors.sandridgeenergy.com/phoenix.zhtml?c=196066&p=i... ) that Shell's Pauly 3002 6-1H is just on the edge of SandRidge's area of interest; I haven't quite figured out why they have that jog in their map.

In regards to the pooling issue, here is what I found in the state statutes:

Statute 55-1317: Unitization without KCC order, when.(a) As used in this section, terms have the meanings provided byK.S.A. 55-1302, and amendments thereto.

(b) Subject to the provisions of subsection (c), if all mineral and royalty owners and not less than 90% of the working interest owners approve, in writing, a contract for the unit operation of a pool or part thereof, such unit operations shall become effective without application to or order by the state corporation commission.

(c) Before a contract for the unit operation of a pool or part thereof shall become effective pursuant to subsection (b), the person or persons wishing to provide for the unit operation shall file a copy of the contract with the state corporation commission and shall notify all working interest owners of the intention to conduct the unit operation. Such notice shall be in the manner provided by law for notice of an application requesting an order for the unit operation of a pool or part thereof. The notice shall inform the working interest owner of the right to institute proceedings within 30 days after receipt of the notice to have the matter determined by the state corporation commission. Any working interest owner, within 30 days after receipt of the notice, may institute proceedings before the state corporation commission to determine the matter in accordance with the provisions of K.S.A. 55-1301et seq., and amendments thereto. If no such proceedings are instituted, the contract shall become effective upon expiration of the 30-day period.

(d) This section shall be part of and supplemental to the provisions of article 13 of chapter 55 of the Kansas Statutes Annotated, and amendments thereto.

History: L. 2004, ch. 115, § 3; July 1.

I read that as saying all mineral owners in the proposed pooled or unitized area have to approve, but the KCC could possibly overturn it. I don't think this happens very often. The Pauly well was unitized as 662 acres (oversized section, http://www.kgs.ku.edu/PRS/Documents2/2012_07_01_KCC/K_070312_PAULY_...), but the yet to be drilled MEANS 2802 17-1H shows unitized at 305 acres ( they excluded 2 tracts of 14.3 acres, http://www.kgs.ku.edu/PRS/Documents2/2012_08_01_KCC/K_080112_MEANS_... ).

My area is like yours; holes were punched years ago but nothing came of it. I have been looking at some of the newer dry wells in different parts of Kansas where KGS has shown drill stem tests on their site, and some of them did have shows of oil during the test. (40 foot of oil cut mud, 20 foot of oil, etc). To me that says that they felt that if the production wouldn't cover production costs PLUS drilling costs, they weren't going to produce. Of course, once you start getting $100 oil things change quite a bit. So some of those old dry holes probably did show oil, and of course, that is why we have Shell and SandRidge and Chesapeake wanting to do horizontal. I just drove by the Pauly drillsite, and they already have production tanks in and painted, before the rig has gone and the well is fractured!!!. I would say they be pretty positive :-).

If someone is offering you a 3 yr 2 yr option lease, at $325 or $350 bonus, with 3/16 royalty, I would take it. If you would like, send me your email and I can send you a redacted (yes!!! just like Justice Dept in Fast & Furious :-D ) copy of our lease, which appears to have as much landowner goodness as possible.

This has probably been too lengthy and may have rambled, but I wanted to try to provide as much knowledge as I have. Good luck!!

From SandRidge investor presentation I've read (hmm. maybe i can upload it..lets see...page 11 has the map) it appears they plan to put at least one well on every section of their leased land. I just hope initial results are good enough that we all get a well on the section we are in. Of course, that would possibly mean oil wouldn't be $90 to $100 anymore.....grrrrrrrrr

2777-LW081312InvestorpresentationEnercomFinal.pdf (2.22 MB)

If someone is offering you a 3 yr 2 yr option lease, at $325 or $350 bonus, with 3/16 royalty, I would take it.

I don't care for "options".... I would rather sign a straight 5 yr lease at a higher bonus. I have no problem with a 3/16th UNLESS they are going to hose you for post-production expenses. In the Fayetteville shale, the new wells have maybe 10% post-production expenses. But as the pressure falls and water produciton increases, you are paying more and more of the compressor expense, the cost of hauling water , so-called "marketing" (which the operator charges you for selling your gas to HIS subsidary company) etc. etc... treatment and marketing. I can show you check stubs were individual months some wells actually COST you money (i.e - a treatment is charged against a small check that exceeds the check.) these are buried up with other well production records however, so the companies are careful to not bill you HA... Mature wells are running 30 - 40% post production expenses BEFORE taxes. Your 3/16th interest just went to 10% barely...

NO POST-PRODUCTION expenses.... the royalty is the net 3/16th at the wellhead and ALL expenses, marketing, transportation, treatment, etc. are the operators expense, not yours.

Thank you. I have decided not to sign the lease at this time due to their non-negotiable 2yr extension. I don't want any more than a 3yr because it might well be that these wells end up paying the land owner $50/mo and my land is about to be used for buildings and long term crops. I have noted that I would leave the 2yr extension on WITH my written approval but that is not working.

I guess I really want to make sure it is worth it for me in the end. I think there has already been some deception on their part regarding where their "buy area" is. The county records are conflicting with what I am being told. It leads me to wonder what else they are lying about.

The contract I signed from Shell was 3/16 no-cost on the oil. The gas part was after expenses, not the oil.

T L Shields said:

If someone is offering you a 3 yr 2 yr option lease, at $325 or $350 bonus, with 3/16 royalty, I would take it.

I don't care for "options".... I would rather sign a straight 5 yr lease at a higher bonus. I have no problem with a 3/16th UNLESS they are going to hose you for post-production expenses. In the Fayetteville shale, the new wells have maybe 10% post-production expenses. But as the pressure falls and water produciton increases, you are paying more and more of the compressor expense, the cost of hauling water , so-called "marketing" (which the operator charges you for selling your gas to HIS subsidary company) etc. etc... treatment and marketing. I can show you check stubs were individual months some wells actually COST you money (i.e - a treatment is charged against a small check that exceeds the check.) these are buried up with other well production records however, so the companies are careful to not bill you HA... Mature wells are running 30 - 40% post production expenses BEFORE taxes. Your 3/16th interest just went to 10% barely...

NO POST-PRODUCTION expenses.... the royalty is the net 3/16th at the wellhead and ALL expenses, marketing, transportation, treatment, etc. are the operators expense, not yours.