Production lease modification


#1

VI received a call from an Antero landman last week as the contact person for my mom and three aunts on an existing lease in the Clay District in Ritchie county. This is a lease from 1907 on 90 acres on Beason Run. The shares have been split many times. My mom plus her three sisters shares only equal about one acre but I am in contact with over 50% of the 90 acre owners and we are in agreement. Antero aquired the lease for the Marcellus drilling from EQT in a massive lease swap. EQT will continue to pay on the vertical well. Antero is only offering to modify the current lease for pooling. The 110 year old lease pays 1/8 for oil and a flat $300 a year for gas (my moms share is $1.97 a year). I have asked Antero for a 15% royalty for gas in the modification. The landman says the answer will be no because it is a production lease and we are stuck with it. I know that one group of cousins signed on their 12.8 acres but they aren’t sharing. I’m waiting to hear back from Antero. I have two questions. 1) is anyone getting a modification in royalties on a century old lease? And 2) what happens if we all refuse to sign? This also involves additional minerals owned by cousins through out the area.


#2

Hi Beth, Since you have contact with many of the owners, I recommend contacting an oil and gas attorney in the area. There is a law firm in Harrisville, the county seat that does a good job: Windom Law Firm 1-304-643-4440 They may or may not be able to negotiate an increased royalty but with the flat rate lease an issue, this is a topic they are familiar with. If everybody pitches in, the attorney fee should be very reasonable and could make a big difference to your group. If you refuse to sign, the new legislation might force the pooling. I am not sure but the Windom lawyers would know that also. Some important changes in the laws this past session and I am not sure. My sister and I also have some interest in the Beeson Run area but our modifications are already signed. No increase in our royalty %.


#3

You should be able to get a signing bonus on the modification of that lease. We got a decent signing check on a modification with Antero. Nancy Mosley, would these folks get the minimum 12.5 % on the modification since Antero would be the payee on any new wells drilled. The old lease holder is allowing with these folks to drill new wells. I do not know what the % is on our modification but, it seems to be more % than what was being paid for the old vertical well on that lease. Just a thought??


#4

My understanding is that it is a kind of a gray area with modifications. If we are forced into the pool under the new statutes, our share would most likely be set aside at the best royalty rate given on other modifications in the pool. I told the landman that to force us into pooling Antero would have to prove that they made a fair and equitable offer. We are eager to sign a lease but not for a windfall to Antero. We are not greedy, we just want fairness. If we are forced into the pool under the terms of a century old lease we have exactly what we already have, less than $2, lol. Yes, an attorney will probably be the answer. Our minerals are on Little Beason and Buzzard Runs. (Wilson’s and Hogue’s). Indexing for inflation, that $300 is at least $8,000 in today’s dollars. Compounded at 5% (an average reasonable rate of return over a 110yrs) $300 would be worth $68,000 today… just some things running through my head.


#5

He said they would pay $100-$200 as a signing bonus because they already had the lease. I told him I didn’t even want to discuss that until we settled the royalties.


#6

Lol Beth. They do not have the lease. They are asking for permission to modify the exhisting lease. They should pay a decent amount for your signature. Without it they have to do more work to get what they want. In the end they will get what they want. They just want to get it as easy as possible.


#7

I have heard of a recent lease modification in that area that included a royalty of over 15% and a bonus of over $500 NMA. This is not likely to happen without all of you sticking together (the ones not yet signed) and probably with the help of an attorney who knows what the companies can/will do. But it shows what has happened recently. Wish I had been able to do better a few years ago with my modification. Times change, and the company’s needs change. And people learn from others’ experiences.


#8

I found the agreement between EQT and Antero. It is an acreage trade agreement dated June 13, 2014. All rights for the Marcellus formation on the leases, all express and implied rights in the leases that are necessary or convenient… In Doddridge county, Antero bought existing leases in whole from Exco and executed new leases for horizontal drilling…my mom has 1/7th of 1/8th on 51gross acres, grant district, Big Flint Run. We got 15% and $400.


#9

DT for a flat rate lease,which this sounds like, there is a WV law from the 1980s stating that any new well drilled on a flat rate lease acreage must be a 1/8 royalty well (12.5%). So that is the minimum. Of course it is possible to negotiate something better. I am unsure about the deductions question on flat rate leases. Somehow related to the recent lawsuit but I think it was appealed and I c can’t remember the outcome, if any. With the WV Supreme court justices being impeached and resigning, that could result in a different decision if the case were retried. (maybe).


#10

Thank you all for the information. I just received an email that they will offer the standard 12.5 on oil and gas. I know there are several other “demands” I need to request like: no post production cost deductions, indemnification, and what do you call it that sets the five year renewal if they haven’t drilled? Any other suggestions? I guess I know more as soon…


#11

Beth,

The new co-tenancy legislation passed in WV (sometimes referred to as “force-pooling”) is still a hurdle for companies to proceed under. Since this is a new law, there practical effects of what it will look like in application are TBD. Generally speaking, they need 75% of owners in one tract to agree to proceed with development. It sounds like you may speak for more than enough to have leverage. Additionally, the pending litigation with EQT regarding flat-rate leases would likely give you additional leverage, too. If you do not have a pooling clause in your lease and they are attempting to get you to amend it to include one, they cannot proceed with their proposed development plan without going through the difficult process of forcing you to do something through the new co-tenancy statute, which would be time-consuming and costly. If they were to go through that lengthy process that would have an uncertain outcome, you would likely be left in a better position than you are in right now, regardless.

That said, I would continue to press, let them know that giving you an additional 2.5% royalty on your lease is not only equitable but will end up saving them more time (and likely more money) than a protracted co-tenancy application. Also, if you can locate the permitted locations, if any, around your acreage, you may be able to figure out how many planned laterals may be planned that would go through your acreage, thereby letting them know that you know how many more hydrocarbons they’ll be able to produce if they pool your acreage.

If it were me, I would do additional research and let them know that by bullying you now it’ll cost them more in the long run either through the co-tenancy action or by having to alter their development plan.

Thanks,

Nick Hunley, Attorney


#12

Thank you Nick Hunley for chiming in with info in dealing with this subject.


#13

75% is much better than the pooling laws here in Mississippi, which are 33%-- if one third of owners sign on, the other 2/3rds are “pooled” regardless.

We own rights on shallow wells that produced from 1899-2010 in Clay District. The royalties paid out were about $80 per year until 2005, when all royalty payments ceased. (I conjecture that somebody got rich off of our oil over the years.) Our problem is nobody knows which oil companies held the lease and produced from those wells. So, we must contract with a local attorney or abstracter to research the history of ownership and royalty payments.


#14

BTW: One question we’ll have for any professional will be about “conveyance” rights. Clearly, the lease and production since 1899 has changed hands many times, since the first lease was signed with “Mr. Murphy” back then. When mineral rights are “conveyed” from one exploration company to another, does the law require some notification to the minerals owner? And, does the “conveyee” company have to pay the “conveyor” company to acquire those rights? And, if so, does the minerals owner get a piece of that “conveying fee”?

I conjecture that County records would show which companies had these rights through time. I’m hoping there would also be a record of production quantities and perhaps even of royalties paid. I wonder if such records would have been kept back to 1899, or if not, when the County would have started keeping such records?

It’s a good thing I’m an experienced researcher. I love to dig in old musty records archives.


#15

Hi dmmsj, Here is a link to the Ritchie county online records You have to select Ritchie as the county. If you want to see documents from 1985 to the present, select Indexed Search. For the older records, select Archive Browser. They started keeping records from the 1840s think. If you can find your way around this kind of document searching, go for it! If you need some guidance, I can help. I have been in the Ritchie County Courthouse deeds room several times, including pre-computer. Their index is arranged differently to some of the other counties. The grantor-grantee are together, and deeds and leases (and other documents) are also together. Some counties have separate grantor and grantee indexes for deeds and also for leases. Leases were recorded in the deed books until sometime in the 1890s, but bu 1899 there was a separate set of lease books. Hope it makes sense.


#16

I agree with Nancy. You should be able to get through most documents yourself. I started by going in to the courthouse and pulling indexes then the books. You can do an index search on line for book and page then if no image is available go to archives. I would also suggest you search the tax records online and make sure you still have your minerals. Ours are under our great grandmother and great grandfather names. One cousin pays the ggmother taxes and I pay the ggfather taxes. We are making good progress on the Ritchie lease modification.


#17

Thanks-- that’s very useful information. If I do go there to research (road trip!), I will follow my usual practice and take the office staff a box of pastries before pestering them with questions. In a land dispute case here a few years ago, the lawyer for the other side waved two documents around in front of the judge and declared “My abstracter found all the relevant documents that proves my client owns this land!” I (through our attorney) then submitted the TWENTY two documents I found in the courthouse-- including the 20 his “expert abstracter” had missed. (And, we won.)

The whole tax thing is going to be another ball game. As far as I can determine, nobody ever paid any taxes on the small yearly royalty check, so we might be classified as tax dodgers.


#18

Had problems as well. John McGhee is a magnificent attorney with Kay Casto and Chaney, Charleston, WV. He is the Henry Kissinger of attorneys, should you need legal services.


#19

That (pastries) is a great way to keep people happy! I am assuming that you (your family) are not current owners of the surface. If you can trace this back to where the minerals were severed, and you are in the assessor’s office, you can see on the land books how the transfer was handled. Sometimes they forgot to add the OGM owner to the tax records, and the surface owner just paid for everything. You can check the tax records here Ritchie county tax records
I think they go back to 2006. Before that you have to go in person or hire someone.


#20

Thanks for the atty. referral. LH. Yes, I’ve combed the online records; oldest is 1997. So, clearly it’s an archival search in the person.

I’ve also been in touch with an association of owners at http://www.wvroa.com/.