It was not until 2006-2013 that the largest single leasing effort, led by the most well funded companies bought every acre available on some of the largest trend pays in North America.
Now is the time to do some math. The industry has not been able to protect all leases by placing them in production (or continuing operations). Those leases will come up for renewal this year and the next. It is a great opportunity for landowners/mineral owners to up the ante, both in terms of bonus and royalty, but more importantly the lease form itself. These leases rolling off the cliff will occur over the next several years, depending on where your property is located.
Lease forms have two (or three) terms. The initial primary term. Let us say 3 years. Many, if not the great majority, have an unilateral option on whether to extend the primary term for another period. Let's call this the option term -- generally 2 years or so. Then depending on your lease form, to maintain the lease past that option term, either operations (as defined by law or by contract) or actual production extends the lease into its secondary term.
For example, in the Marcellus Shale, big leasing come late 2007 and early 2008. They are coming due. In the Eagleford, the leasing began in the most desirable areas came about in 2009.
Now, leases that were signed in the land rush that followed and have the typical five-year (total) primary term are beginning to expire - and will, over the next 2-3 years. A tumbling down the slope of leases that will need to be either drilled or renewed, or leased by another. This creates a huge incentive for the mineral owner who is in that fortunate position.
Refer to my blog piece here for my prediction of the beginning of the end for dry shale gas plays.
Natural gas that has little liquids associated with it has little value for being extended. Oil and Gas plays, like politics, are extremely locale in nature. The economics for risk on future natural gas prices make it too uncertain to have some assurance that the venture would be economic. When the dry gas plays took off, natural gas reached a high that year of arund $12.00 per MMBTU.
Remember the option bonus, or option term that I talked about earlier? Well, read your lease. You may want out to market your own minerals, but the right to exercise the option is unilateral in favor of the oil company. And, the courts will not protect you from what turns out to be a bad deal for the landowner.
As the interest in oil and gas increases (like the 2008-2009 boom) the quality of landwork goes down. The two are inextricably linked in a reverse position. So, read your lease again and find out if the operator/lessee has fully complied with its terms. Many mistakes were made -- on both sides.
This all provides 20/20 hindsight for those who have an opportunity to commercialize their mineral asset in the near future.
I cannot emphasize enough to get qualified representation on negotiation of a new lease or briefing an old lease to see where your rights begin and end. If you have reason to believe the lease has ended, you must take steps to have the expired leases released (forfeited) of record. This prevents any cloud on your title that would be a barrier to leasing in the future.
If you have years and years of leasing experience and are entirely confident in your actions, feel free to lease without any assistance. It's like comparing an inexperienced sailor with an old salt. When the weather is clear, there is not much difference. If the weather is bad, you want the best sailor piloting your boat through troubled seas that you can find. if you are an inexperienced sailor, your boat will sink. There are a graveyard of sunken ships on this website alone. Go read the horror stories.
Get someone in your corner to help with the negotiation and the detail. READ THE LEASE. If you don't know what something means, find out. It's just that important.
Mr. Cotten is a landman and editor of The Morning Report, a free news service.