Natural Gas Leasing - The emotional roller coaster rideAuthor: Ron Stamets
There are few issues that can generate greater emotional, gut-level reactions than money and one's personal property. The issues surrounding energy exploration and production embody both. What is even more unfortunate is that there are entities who will assure that the experience of leasing for energy production becomes an exercise in personal self control. Just by watching the experiences of many of our forum members over the past few years proves the point that leasing land for energy exploration and production is far more than signing the boilerplate lease the landman drops off and collecting your money. It is not for the faint hearted. Designed To Keep You Off Balance
The landman's goal is to acquire your mineral rights at the lowest possible price and aquire for the company as much control over your mineral estate as possible. Understand right up front that the land man is NOT your friend. He/she is a professional (hopefully so) who has been trained to psychologically gain control of the negotiations for your mineral estate. Some unscrupulous acquisition companies train their personnel to use tactics that create a fear of a loss of opportunity if you don't instantly agree to their terms. Here are just a few that we have encountered in the Marcellus Shale play.
"All your neighbors have signed and if you don't sign, when we drill there your gas will get sucked out and you won't get a penny."
All of these are designed to keep the landowner off balance and in fear of losing out on an opportunity. Landowners who take the initiative to become better informed about leasing activity in their areas and in other areas that have a longer history of oil and natural gas production soon discover that they are negotiating from a position of strength and will not cave in to the tactics to instill fear of "losing out". In the same areas that companies were only paying $25 bonuses and 12.5% royalties on 10 year leases only 3 years ago, savvy landowners are now negotiating $6000+ per acre, 20% royalties on 5 year leases. In the Haynesville Shale and Barnett Shale, we have seen bonuses over $20,000 an acre and 25% royalties on 3 year leases. Your Lease May Not Be A Lease
So... Your lease papers are all signed and notarized and the deal is done, right? Maybe not. Did any money transfer to you? Was the signature of the company representative on the paperwork? No? Many don't realize this, but often, the company you signed with actually considers what you signed, "An offer to lease". No money transferred to you? No company signature on the paperwork you signed? It may not yet be a bonifide lease and do not be too surprised to find that a few months after you signed that lease, it is returned by the company and you are offered less than you signed for. We have seen that happen over the past year where at least one company has used this tactic to prevent a landowner from leasing to a competitor until the bidding war is over. Personally, if I were to lease my property again, I would require a payment of at least $1 at the time of signing and I would give the company representative a receipt for the $1. Not foolproof, but where I live, it would negate the claim that the lease was an "offer to lease" from me.
"Don't Count Chickens Till They Hatch"
All forms of snafus can occur after the lease is signed.It may discovered that your mineral and gas estate was severed in the 1800's and you don't own it.
Your oil, gas and minerals may have been leased and never released to be leased to another company.
Environmental opposition may place hurdles on exploration, or excessive delays or costs, causing the $ offers to disappear or dive for a season.
The price of the natural gas may drop to the point where the cost of exploration and production exceeds the profit return.
All sorts of rumors and speculation surround these natural gas plays. Some leases will provide great benefits to providing energy for our country and financial benefits to the landowners, but keeping a cool head and not succumbing to fear over every little bump in the road is crucial to finishing the course. Always keep in mind that a successful lease is the icing on the cake and not the purpose you bought your land (Unless you bought it solely for speculation).
Always Know - You Are In The Driver's Seat
It is easy to blame the company for "taking advantage of me", but I would submit for your consideration that as the steward of your land, it is YOUR RESPONSIBILITY to manage your land by becoming informed about how it may be affected by your decisions. A natural gas lease is a business agreement that places your land at least in part, in a partnership relationship with a $multi-billion industry for decades, or even longer. As we have said from day one. Before you sign ANYTHING make sure you understand EVERYTHING. It will make the ride go far more smoothly.