The family is negotiating a lease and the production company only wants to give us $1.00 shut in fees? Is this reasonable? Any suggestions on solving this situation would be appreciated.
My lease exhibit lists $10.00/each mineral acre/year.
I negotiated $25 and got it. Don't be afraid to negotiate what you want, and not too anxious to sign their first offer.
Here is my verbiage I substituted for theirs:
Notwithstanding anything herein to the contrary, shut-in royalty shall be paid at a sum equal to Twenty-Five Dollars ($25.00) per net acre instead of one-dollar ($1.00) as written in Paragraph 3, Sentence 16 herein.
I also added the following:
Such shut-in gas well royalties to be paid in an annual installment of the total amount due for the year, the first such annual payment tender to be made to Lessor within ninety (90) days after such well was shut-in, and succeeding payments to be made annually thereafter, on or before the day of the month upon which such well was shut-in. Lessee shall remain under the continuing obligation to (i) use all reasonable efforts to find a market for said gas and to commence or resume marketing same when a market is available, (ii) reasonably develop the lands then subject to this Lease and (iii) drill all such wells on the lands then subject to this Lease as may be reasonably necessary to protect same from drainage by wells on adjoining or adjacent lands.
I own all the surface and minerals rights. That may make a difference.
Good luck,
Pat
Thank you for very helpful answer. Being on the Forum is wonderful!
Ms. Pat Malone said:
I negotiated $25 and got it. Don't be afraid to negotiate what you want, and not too anxious to sign their first offer.
Here is my verbiage I substituted for theirs:
Notwithstanding anything herein to the contrary, shut-in royalty shall be paid at a sum equal to Twenty-Five Dollars ($25.00) per net acre instead of one-dollar ($1.00) as written in Paragraph 3, Sentence 16 herein.
I also added the following:
Such shut-in gas well royalties to be paid in an annual installment of the total amount due for the year, the first such annual payment tender to be made to Lessor within ninety (90) days after such well was shut-in, and succeeding payments to be made annually thereafter, on or before the day of the month upon which such well was shut-in. Lessee shall remain under the continuing obligation to (i) use all reasonable efforts to find a market for said gas and to commence or resume marketing same when a market is available, (ii) reasonably develop the lands then subject to this Lease and (iii) drill all such wells on the lands then subject to this Lease as may be reasonably necessary to protect same from drainage by wells on adjoining or adjacent lands.
I own all the surface and minerals rights. That may make a difference.
Good luck,
Pat
Pat:
The $25 sounds O.K.; but, isn't there a limit as to how long the well can be shut in, maybe no more than a total of two years, no matter if it is in one stretch or in multiple shorter times. I'm pulling this wording out of the air right now; but, the legalize can be modified to fit the need as long as there is some end point along with a decent dollar figure for the "shut in"!
Thanks, and yes there is no substitute for the information we can gather and share from these forums.
Ms. Pat Malone said:
I negotiated $25 and got it. Don't be afraid to negotiate what you want, and not too anxious to sign their first offer.
Here is my verbiage I substituted for theirs:
Notwithstanding anything herein to the contrary, shut-in royalty shall be paid at a sum equal to Twenty-Five Dollars ($25.00) per net acre instead of one-dollar ($1.00) as written in Paragraph 3, Sentence 16 herein.
I also added the following:
Such shut-in gas well royalties to be paid in an annual installment of the total amount due for the year, the first such annual payment tender to be made to Lessor within ninety (90) days after such well was shut-in, and succeeding payments to be made annually thereafter, on or before the day of the month upon which such well was shut-in. Lessee shall remain under the continuing obligation to (i) use all reasonable efforts to find a market for said gas and to commence or resume marketing same when a market is available, (ii) reasonably develop the lands then subject to this Lease and (iii) drill all such wells on the lands then subject to this Lease as may be reasonably necessary to protect same from drainage by wells on adjoining or adjacent lands.
I own all the surface and minerals rights. That may make a difference.
Good luck,
Pat
Dear Bigfoot, I intentionally left out that part of the Shut-In Clause because it didn't pertain to the $$ part. But, after reading your response, my afterthoughts said I should have included the full provision for clarification of how the whole provision, currently, reads. Yes, I did agree to 3 years. Maybe before all negotiations are finalized, I will amend that to two ... maybe! Negotiations with this lease have been ongoing since September, 2014. Each time I re-read it, I go through my forum notes and find more to negotiate and amend. Here is the part I left out:
After the expiration of the primary term, this lease shall not be maintained by the payment of shut-in gas royalties as provided for in Paragraph No. 3 hereof for any period of more than three (3) consecutive years immediately thereafter or for shorter terms at various intervals not to exceed three (3) years in aggregate. The right to maintain this lease for such period of time shall be a recurring right and may be exercised at any time and from time to time. Provided, however, if an oil or gas purchaser causes shut-in for any reason other than lack of market demand, or if shut-in is due to an act of God, force majeure, an act of war, an act of terrorism or any other reason beyond the reasonable control of Lessee, this limitation shall not apply. Also, this limitation shall not apply to any shut-in period of less than seventy-two (72) hours.
Thank you.
Pat
Bigfoot said:
Pat:
The $25 sounds O.K.; but, isn't there a limit as to how long the well can be shut in, maybe no more than a total of two years, no matter if it is in one stretch or in multiple shorter times. I'm pulling this wording out of the air right now; but, the legalize can be modified to fit the need as long as there is some end point along with a decent dollar figure for the "shut in"!
Thanks, and yes there is no substitute for the information we can gather and share from these forums.
Ms. Pat Malone said:I negotiated $25 and got it. Don't be afraid to negotiate what you want, and not too anxious to sign their first offer.
Here is my verbiage I substituted for theirs:
Notwithstanding anything herein to the contrary, shut-in royalty shall be paid at a sum equal to Twenty-Five Dollars ($25.00) per net acre instead of one-dollar ($1.00) as written in Paragraph 3, Sentence 16 herein.
I also added the following:
Such shut-in gas well royalties to be paid in an annual installment of the total amount due for the year, the first such annual payment tender to be made to Lessor within ninety (90) days after such well was shut-in, and succeeding payments to be made annually thereafter, on or before the day of the month upon which such well was shut-in. Lessee shall remain under the continuing obligation to (i) use all reasonable efforts to find a market for said gas and to commence or resume marketing same when a market is available, (ii) reasonably develop the lands then subject to this Lease and (iii) drill all such wells on the lands then subject to this Lease as may be reasonably necessary to protect same from drainage by wells on adjoining or adjacent lands.
I own all the surface and minerals rights. That may make a difference.
Good luck,
Pat
This is in the language above, but it is important to limit the shut in clause to gas wells, as these are the ones most commonly shut in due to low prices.
Wade:
Thanks for your input; but, help me. I realize the "shut in" usually refers to gas; but, I question why and I made it a point to include both oil as well as gas in my latest lease. I would appreciate some of your thoughts here.
Pat:
There is always some way to change or make a provision better or clearer; but, we can write, think and change all day long and if the oil company really wants to challenge or play games with the mineral owner, not much of anything can stop that.
Try this SHUT-IN LIMIT:
The right to maintain this lease by the payment of shut-in royalty is hereby limited as follows: If, at any time or times after the expiration of the primary term, all such wells are shut-in for a period of ninety (90) consecutive days, and during such times when there are no reworking operations on said land, then at or before the expiration of said ninety (90) day period, Lessee shall pay or tender, by check, as royalty, a sum equal to Twenty Five Dollars ($25.00) for each acre of land then covered by this lease. Lessee shall make like payments or tenders at or before the end of each anniversary of the expiration of said ninety (90) day period, if upon such anniversary this lease is being continued in force solely by reason of the provisions of this paragraph. Each such payment or tender shall be made to the parties who at the time of payment would be entitled to receive the royalties which would be paid under this lease as if the wells were producing, and may be deposited or paid directly to Lessor or their successors, which shall continue as the depositories, regardless of changes in the ownership of shut-in royalty. It is expressly agreed and provided that this lease cannot be held, maintained, nor extended under and by virtue of the shut-in oil/gas well provision of this lease for a longer term beyond the primary term than two (2) consecutive years immediately thereafter, or for shorter terms at various intervals not to exceed in the aggregate two (2) years in all.
Ms. Pat Malone said:
Dear Bigfoot, I intentionally left out that part of the Shut-In Clause because it didn't pertain to the $$ part. But, after reading your response, my afterthoughts said I should have included the full provision for clarification of how the whole provision, currently, reads. Yes, I did agree to 3 years. Maybe before all negotiations are finalized, I will amend that to two ... maybe! Negotiations with this lease have been ongoing since September, 2014. Each time I re-read it, I go through my forum notes and find more to negotiate and amend. Here is the part I left out:
After the expiration of the primary term, this lease shall not be maintained by the payment of shut-in gas royalties as provided for in Paragraph No. 3 hereof for any period of more than three (3) consecutive years immediately thereafter or for shorter terms at various intervals not to exceed three (3) years in aggregate. The right to maintain this lease for such period of time shall be a recurring right and may be exercised at any time and from time to time. Provided, however, if an oil or gas purchaser causes shut-in for any reason other than lack of market demand, or if shut-in is due to an act of God, force majeure, an act of war, an act of terrorism or any other reason beyond the reasonable control of Lessee, this limitation shall not apply. Also, this limitation shall not apply to any shut-in period of less than seventy-two (72) hours.
Thank you.
Pat
Bigfoot said:Pat:
The $25 sounds O.K.; but, isn't there a limit as to how long the well can be shut in, maybe no more than a total of two years, no matter if it is in one stretch or in multiple shorter times. I'm pulling this wording out of the air right now; but, the legalize can be modified to fit the need as long as there is some end point along with a decent dollar figure for the "shut in"!
Thanks, and yes there is no substitute for the information we can gather and share from these forums.
Ms. Pat Malone said:I negotiated $25 and got it. Don't be afraid to negotiate what you want, and not too anxious to sign their first offer.
Here is my verbiage I substituted for theirs:
Notwithstanding anything herein to the contrary, shut-in royalty shall be paid at a sum equal to Twenty-Five Dollars ($25.00) per net acre instead of one-dollar ($1.00) as written in Paragraph 3, Sentence 16 herein.
I also added the following:
Such shut-in gas well royalties to be paid in an annual installment of the total amount due for the year, the first such annual payment tender to be made to Lessor within ninety (90) days after such well was shut-in, and succeeding payments to be made annually thereafter, on or before the day of the month upon which such well was shut-in. Lessee shall remain under the continuing obligation to (i) use all reasonable efforts to find a market for said gas and to commence or resume marketing same when a market is available, (ii) reasonably develop the lands then subject to this Lease and (iii) drill all such wells on the lands then subject to this Lease as may be reasonably necessary to protect same from drainage by wells on adjoining or adjacent lands.
I own all the surface and minerals rights. That may make a difference.
Good luck,
Pat
Dear Bf,
Thank you. These two landmen (company and contractor) are having a time dealing with all my amendments, as everyone else around me has signed without "making waves."
We shall see what happens.
Pat
Pat:
Obviously this is a tough time to be having to deal with a lease; but, what ever the case or the time, no time is the time to give your minerals away. The scary part, is that so many people just sign what ever the oil company or their agent first presents to them. They hear the bonus money figure and then their eyes gloss over and they ask, "where do I sign", without even reading all the extremely important stuff or realizing what has been left out. IMHO, in most cases, it is better to go unsigned than to sign something we will be sorry for the rest of our life. It is much better to spend some money on an attorney than to just wing it and sign without doing our homework. I will also add that just getting an attorney, even a high priced one, without doing some detailed personal homework isn't always a good idea either. Anything good and worth having is worth some calories and if necessary some extra bucks up front and the information that can be gathered off these forums is priceless.
Ms. Pat Malone said:
Dear Bf,
Thank you. These two landmen (company and contractor) are having a time dealing with all my amendments, as everyone else around me has signed without "making waves."
We shall see what happens.
Pat
Reason why shut in provisions are generally limited to gas wells is because if a well is in a new area, there may be a delay in getting a pipeline out to the well. It may not be economic to install the pipeline until there are several producing wells or gas wells being drilled. Oil is not a such a problem as it can be trucked out along the same roads used to bring in the RI and equipment. Also, you may want to consider adding that if a gas well is shut-off and there is a producing gas well within 1000 feet of lease line, then you should be paid royalties as if your well was producing. If a such a close offset gas well is producing, then there is a pipeline and you need to be protected from drainage.
Thanks to everyone for your well-received contributions.
I just amended my Shut-In provision to two (2) years and am now protected from drainage, providing lease gets signed.
An added thought ... does anyone know if a Lessor has ever included a "no drill" provision in their lease?
Thank you.
Pat
Pat:
It depends on what your are referring to when saying "no drill" clause. If it is what I think you mean, and you have small acreage, then it is or at least was very possible to get a "no drill" or no surface work on the property. Horizontal drilling makes this much easier to get today than in the past. From past experience, I can definitely understand someone not wanting to have their property torn to hell; but, to some degree that is what it is all about and this is what negotiations is all about.
Ms. Pat Malone said:
Thanks to everyone for your well-received contributions.
I just amended my Shut-In provision to two (2) years and am now protected from drainage, providing lease gets signed.
An added thought ... does anyone know if a Lessor has ever included a "no drill" provision in their lease?
Thank you.
Pat
Bigfoot, The main reasons for limiting it to gas are listed above, plus oil is generally the more valuable commodity.
Thanks!
Wade Caldwell said:
Bigfoot,
The main reasons for limiting it to gas are listed above, plus oil is generally the more valuable commodity.
"Each time I re-read it, I go through my forum notes and find more to negotiate and amend. Here is the part I left out:"
Ms. Malone, If you don't mind me asking, are you using an oil and gas attorney? If you are not an attorney, lease crafting seems like it might be a minefield. I had questions when I read your amendment (see below). It appears you own what an oil company really wants and is unwilling to risk you being unsigned. Congrats on that.
"Provided, however, if an oil or gas purchaser causes shut-in for any reason other than lack of market demand, or if shut-in is due to an act of God, force majeure, an act of war, an act of terrorism or any other reason beyond the reasonable control of Lessee, this limitation shall not apply."
What if the purchaser--as a favor to the producer--decides not to buy/effects "shut-in" condition?
"Also, this limitation shall not apply to any shut-in period of less than seventy-two (72) hours."
Could a wily producer put a timer on well(s)and pump for one minute every seventy-one hours to work around your provisions?
Dear AJ, No I am not using an O&G attorney, although I have gotten some good advice and suggestions from them. Offer and acceptance is the name of the game, like in real estate, or until the papers are signed. I am currently awaiting to hear from the company re: my latest changes. And, if they do decide to accept these changes, I'll probably add one more clause and call it quits. What would that one more clause be, you ask? It will be a "no drill on my land" clause. Then, I won't have to anticipate what some "willy-nilly" producer might do. Right? :)
Thank you.
Pat
Unfortunately, Pat, I am concerned that without someone on your team conversant in o+g legalese, an expert, you may not know what is in that contract. I had immediate questions about your amendment. I do not know if you dismissed them or could not answer. Acting as you own attorney seems fraught with risk, but no matter how you proceed, I wish you well. AJ
Ms. Pat Malone said:
Dear AJ, No I am not using an O&G attorney, although I have gotten some good advice and suggestions from them. Offer and acceptance is the name of the game, like in real estate, or until the papers are signed. I am currently awaiting to hear from the company re: my latest changes. And, if they do decide to accept these changes, I'll probably add one more clause and call it quits. What would that one more clause be, you ask? It will be a "no drill on my land" clause. Then, I won't have to anticipate what some "willy-nilly" producer might do. Right? :)
Thank you.
Pat
Pat and A.J.:
A.J., I'm with you on this one.
I have spent many hours working on my personal lease which started way back in the early 80's and it has changed drastically since then, even though I spent many hours with my attorney back then. There was a big lull between 1990 and 2008; but, in 2008 the business basically jumped into high gear almost overnight which put me back to work. Over the last 5 or so years, the forum has helped a great deal to help all of us understand better; but, under no circumstances would I ever sign a lease without spending the money to pass it by or through a knowledgeable attorney that understands Oil and Gas. Too much at stake!