I am an absentee landlord in T5R96W and I have been approached by a company named Diversified Energy with a lease offer with unimpressive terms. We have signed nothing. I have been giving myself a crash course on the process ever since. This forum is God Send. Anybody ever hear of Diversified? The offer has a paltry $10/ac on the front end, 12.5% royalties after expenses and a unitization clause. My sense as a neophyte is that I can do better. Anybody else in my area been approached recently? I can see from the forum that discussion activity really fell off over the last year. I am going to spend some time on the COOGC website (is that correct acronym?). If anybody would toss me the URL I would be grateful.
You are very wise to do your research on this! Looks like they are fishing for cheap leases. Someone here can help you, I'm sure. Trust your instinct!
I have had offers as high as $450/acre for a 3/5 year with 17% royalty. This is in Routt county where things aren't happening yet.
Jason,
You can't expect to find a lease without a unitization or pooling clause, unless you own 100% of the minerals in a whole lot of acreage. Your land will be combined with other lands because a well drains a lot of acreage and all mineral owners in that drainage area have a right to be paid for their share of the minerals that are extracted.
Some areas of Moffat County are just wildcat areas, where the risks are large and so are the costs of exploration. If you are in such an area, be happy that someone is willing to take the risk, and possibly spend millions of dollars, with no guarantee of success, and that you have a chance of receiving a nice royalty, if they are successful. Royalties from a good Moffat County well can be paid for decades.
Ken G
Ken G.
I appreaciate your response, and I understand the greater good that is served by unitization and pooling. Let me ask you this. There is an old well on my family land in the Danforth Hills formation. It never produced anything. However, less than a mile away on neighboring property there is another well in the smae formation that has been producing significantly for years, and is still producing. How come we were not pooled and compensated?
Jason
Ken G. said:
Jason,
You can't expect to find a lease without a unitization or pooling clause, unless you own 100% of the minerals in a whole lot of acreage. Your land will be combined with other lands because a well drains a lot of acreage and all mineral owners in that drainage area have a right to be paid for their share of the minerals that are extracted.
Some areas of Moffat County are just wildcat areas, where the risks are large and so are the costs of exploration. If you are in such an area, be happy that someone is willing to take the risk, and possibly spend millions of dollars, with no guarantee of success, and that you have a chance of receiving a nice royalty, if they are successful. Royalties from a good Moffat County well can be paid for decades.
Ken G
Jason,
A well is permitted for a certain size drilling unit, which contains a certain number of acres. The well is presumed to drain that acreage, but it is not presumed to drain lands a mile away. That determination is approved by the COGCC as part of the permitting process. Every mineral owner in the drilling unit is entitled to receive their share of the oil and gas value extracted from the unit, after expenses are paid. That's why the interests would be pooled, either by agreement, or involuntarily if there were some mineral owners who would not sign leases. If you had leased your minerals for a certain number of mineral acres in the unit, you should have been paid your royalty, based on your share of the minerals acreage - for example (but oversimplified), if your mineral acreage was 1/10 of the total acreage in the drilling unit, you would be entitled to 1/10 of the value received for the oil and gas extracted and sold, times your royalty percentage.
If you had the money to drill and chose to drill a well on your own land, and the drilling unit was 100% owned by you, then you could keep 100% of the value for the oil and gas extracted, but you would also have to bear all the expenses, and all the risk. A vertical well in the area can will easily cost several hundred thousands of dollars, and up to a million or more, to drill and complete. A horizontal well will cost several million dollars.
Oil and gas exploration is not for the faint of heart, or for those without deep pockets.
I suspect your land was not in the drilling unit for the successful well you described. Many or most of the drilling units for vertical wells in Moffat County were only 40 acres in size.
Ken G
Jason Doll said:
Ken G.
I appreaciate your response, and I understand the greater good that is served by unitization and pooling. Let me ask you this. There is an old well on my family land in the Danforth Hills formation. It never produced anything. However, less than a mile away on neighboring property there is another well in the smae formation that has been producing significantly for years, and is still producing. How come we were not pooled and compensated?
Jason
Ken G. said:Jason,
You can't expect to find a lease without a unitization or pooling clause, unless you own 100% of the minerals in a whole lot of acreage. Your land will be combined with other lands because a well drains a lot of acreage and all mineral owners in that drainage area have a right to be paid for their share of the minerals that are extracted.
Some areas of Moffat County are just wildcat areas, where the risks are large and so are the costs of exploration. If you are in such an area, be happy that someone is willing to take the risk, and possibly spend millions of dollars, with no guarantee of success, and that you have a chance of receiving a nice royalty, if they are successful. Royalties from a good Moffat County well can be paid for decades.
Ken G
Ken G,
Thanks for the schooling. Every time I learn a little, I find there is more I need to learn about this business.
Jason
Ken G. said:
Jason,
A well is permitted for a certain size drilling unit, which contains a certain number of acres. The well is presumed to drain that acreage, but it is not presumed to drain lands a mile away. That determination is approved by the COGCC as part of the permitting process. Every mineral owner in the drilling unit is entitled to receive their share of the oil and gas value extracted from the unit, after expenses are paid. That's why the interests would be pooled, either by agreement, or involuntarily if there were some mineral owners who would not sign leases. If you had leased your minerals for a certain number of mineral acres in the unit, you should have been paid your royalty, based on your share of the minerals acreage - for example (but oversimplified), if your mineral acreage was 1/10 of the total acreage in the drilling unit, you would be entitled to 1/10 of the value received for the oil and gas extracted and sold, times your royalty percentage.
If you had the money to drill and chose to drill a well on your own land, and the drilling unit was 100% owned by you, then you could keep 100% of the value for the oil and gas extracted, but you would also have to bear all the expenses, and all the risk. A vertical well in the area can will easily cost several hundred thousands of dollars, and up to a million or more, to drill and complete. A horizontal well will cost several million dollars.
Oil and gas exploration is not for the faint of heart, or for those without deep pockets.
I suspect your land was not in the drilling unit for the successful well you described. Many or most of the drilling units for vertical wells in Moffat County were only 40 acres in size.
Ken G
Jason Doll said:Ken G.
I appreaciate your response, and I understand the greater good that is served by unitization and pooling. Let me ask you this. There is an old well on my family land in the Danforth Hills formation. It never produced anything. However, less than a mile away on neighboring property there is another well in the smae formation that has been producing significantly for years, and is still producing. How come we were not pooled and compensated?
Jason
Ken G. said:Jason,
You can't expect to find a lease without a unitization or pooling clause, unless you own 100% of the minerals in a whole lot of acreage. Your land will be combined with other lands because a well drains a lot of acreage and all mineral owners in that drainage area have a right to be paid for their share of the minerals that are extracted.
Some areas of Moffat County are just wildcat areas, where the risks are large and so are the costs of exploration. If you are in such an area, be happy that someone is willing to take the risk, and possibly spend millions of dollars, with no guarantee of success, and that you have a chance of receiving a nice royalty, if they are successful. Royalties from a good Moffat County well can be paid for decades.
Ken G
We have been approached numerous times with offers of up to 750 an acre and haven't been able to make a deal with any one because in the 50's Sun Oil drilled two tiny gas wells that produce nearly nothing yet because of this production all the hundreds of acres they own and do not use we cannot control as it is all held by the fact that these little wells spout out just enough gas to keep the lease alive. WE could make a fortune yet our hands our tied. As a novice yourself, like me, I think you have an easier go of it. I would call other companies tell them you are reciveing offers and realize that I have learned that the acres there should go for about 300 bucks each and the royalty terms very, ours are usually one eighth and also the last one we were not charged expenses and utilization clause. What did you end up doing? Thanks, DF AGEE AGEE GULCH (google earth it, Moffat County Colo.
My experience with "Diversified" is that their way of doing business is to blanket areas of interest with predatory low ball offers in hopes of finding people with little experience in the leasing process - they actually sent a paltry check along with their "offer" for my Moffat minerals, which I refused. Later, I was contacted by a different landman from a different company, who sent a contract for review, and was able to negotiate a very favorable lease with excellent terms - but it took six months. My sister-in-law and I asked for and received a very good signing bonus (insisted on a check - don't even consider accepting a bank draft - and immediately cashed the bonus check.) As things typically go in this business, the leasing has been bumpy for unexpected reasons. And the worm turns.... When the company contacted us originally, we (myself and 3 siblings) knew nothing of the existence of the Moffat County minerals. We found out later that my father had purchased th Moffat mineral rights decades before when there had been speculation in the area as a uranium field. The landman told us that this interest was deeded to my mother prior to her death.
After six months of vigorous negotiation, and the bonus cash in the bank, and a signed lease, I got a "very apologetic" call from the landman that some further investigation discovered that the Moffat interest was actually deeded to my mother AND her five siblings (all of which are deceased), with my mother (deceased) as Trustee. Some sloppy work by the landman. So instead of owning a 4th of the interest, I actually only own a 4th (me and my 3 siblings) of a 6th . I notified my cousins and suggested they get together and hire an oil and gas attorney, share costs and move ahead - any one of them could easily afford to do so. They are miffed that I won't just show them my lease. I explained to them that the terms of the lease I negotiated are confidential, and that I don't have the time or inclination to guide them through this process. They are scattered all over the country, and at 70 years of age, I don't intend to spend the next year rehashing everything. In the meantime, interest in this area has been waning somewhat, and environmental issues including potential water contamination from fracking, location near national park areas etc. could possibly be delayed past my lifespan. I may eventually just sell the Moffat interests so as not to burden my children and their children with this unresolved holding, which may or may not prove out. Welcome to the Oil and Gas nightmare!
Ms. Bicknese, that is an excellent portrait with words of how many lease deals go. You have my admiration.
Ms. Bicknese,
Researching mineral ownership records to determine the current mineral owners is often a challenging and time-consuming matter. It can often take an experienced landman up to 2 weeks, or more, working full time on one tract of land (which could easily be as small as a couple of hundred acres, or even less), to determine who appear to be the last known mineral owners of record (which means, as shown in the property records of the county). And, as in your case, the last known owner of record may be deceased, so the landman will then need to search other records to see if he can identify, and locate, the heirs of the deceased owners. There may also be missing documents in the recorded property records, or conflicting documents, or documents with ambiguous language. All such issues need to be resolved before an oil and gas company can negotiate with mineral owners and surface owners, lease the minerals, pay the lease signing bonus money, and permit and drill a well. In Moffat County, even vertical wells will often cost $1,000,000 or more to complete, and horizontal wells can cost several million dollars each. Some wells will be dry holes, others may produce but never pay back the original investment.
This may seem like a difficult process to you, but the alternatives to this process, such as having the state or federal government own the mineral rights, or intervene in your business dealings, appear a lot less attractive to me. Even getting the government involved in your relations with the landmen and oil and gas companies, which some might recommend, will lead to the destruction of your profit opportunity. Get some help from someone you can trust, maybe family, maybe a trusted friend with experience in property transactions, and you shouldn't have to pay anyone a lot of money for their help. But let's keep mineral ownership in private hands, and protect that as a precious property right.
From your description of what you have dealt with, it sounds like your mineral ownership is complicated because your mineral rights are severed from the surface ownership, because you own only a fractional interest, and because the severed minerals your Dad acquired were assigned to a trust, and because you inherited an interest in that trust.
Either you, or one of your relatives, could try to buy out the other relatives, to "consolidate" the interests in one person, or the group of you could form a family limited partnership, or some other entity, assign each person's mineral interests to the entity, and the entity could negotiate one lease and distribute any revenues to all members. There are lots of ways to deal with the complexities. But you are still fortunate to own mineral rights. Most people in the world will never have that opportunity. And most people in this country will never have the opportunity that you have due to the investment by your father. So you might just want to look on the bright side - you own something of value and you, or your heirs may well profit from it.
That is, unless the enemies of private property and free enterprise shut down oil and gas development, on the pretext of frack scares or some other environmental bugaboo, or seize your minerals, or tax the value away from you or your heirs - which are all real possibilities.
Ken G
r w kennedy said:
Ms. Bicknese, that is an excellent portrait with words of how many lease deals go. You have my admiration.
Thank you, RW! I have to keep my spirits up, or I would be tearing out my thinning hair!
One thing that continues to mind-boggle me is that although the price at the pump, and the cost of heating my house continued to rise, and production was down at a number of my gas and oil wells, my county taxes in multiple counties went UP! But then again, when I filed a complaint about an arbitrary revaluation UP on my aging home at a time when houses in this neighborhood were going for 80 percent of their value the prior year, my city and county taxes went UP by 18%. I went to City Hall with all documentation and they agreed to lower the valuation...... so they increased the levy by 12%. Our excessively large City/County Building usually has ten employees leaning on the counters for every 2 people seeking service. The city and county just keep hiring and keep giving raises, and then figure out what to charge homeowners based on what they want instead of what they need. There seems to be no relationship between income - up or down - and what to steel yourself from county taxes.
Ken G, I think the government may have you concerned, and rightly so with anything government does. The situation Ms. Bicknese would on the face of it appear that a landman may or may not have just skimmed over the deed. I have no way to know. What I do know is that I have been effected by poor landman work several times. That a landman wrote a memo to the TO person that had no basis in fact whatsoever so that even 4 years after production neither my brother or I were being paid. The operator said I had no interest , that my brother had interest in 1 well and that he might have interest in another well. Since the operator has been made a party to my lawsuit, I am confirmed in 4 wells, and with the exact chain of title my brother is still confirmed in one well and they still think there is a possibility that he may have ownership in another well, after 5 years, because of a landmans memo with no basis in fact. My brother's and my interests are identical. I and my brother have had landmen participate in fraud against us. I am frequently unhappy with landmen to the point that I would almost welcome the federal government taking all minerals because that would put an end to the abuses perpetrated by landmen, because there would be no landmen. That is saying alot for a rabid property rights supporter such as I. Ken G, I do not know you from Adam, but I can count on the fingers of one closed fist the number of times I have heard a landman speak out against anything another landman has done and until I do, I cut landmen little slack. I recently caught the VP of Land for an operator making false statements to a federal agency. It never ends. Most mineral owners don't have the time I do to keep watch. I won't even address the misinformation, untruths and terror tactics that are commonly used, that are related here all the time. I think there would be so much more except that, the number has been thrown out that 85% of mineral owners execute the first lease they see. If the mineral owner gives absolutely everything the lessee wants with no questions asked it seems to me that there should be little opportunity for any abuse, and yet so much exists. I had a man recently contact me and he executed a pitiful lease, $75 per acre bonus and after receiving the lease the landman having his lease in hand, called him back to say that they still wanted his lease but would only pay $50 bonus, when they had his lease in hand and so could not lose the acres, they wanted to beat the price down. I told him to demand your lease back or payment of the original amount and that any further communication be done by mail. There is just no end to it. I hear the there are a few bad apples in every profession line all the time. When I made my living as a diesel mechanic i had to do an out of the frame overhaul on a relatively new Cat diesel engine because another mechanic all the way acroos the country used the wrong part and I offered to testify in court if the man sued them, traveling on my own expense. When I made my living as a construction plumber building schools , sports stadiums, hotels and prisons, I couldn't count the number of plumbers, including master plumbers that I ran off jobs because it's a matter of public health and I wouldn't sign off on work that was not up to code. I guess I am just a dying breed but hopefully I will be able to call it like I see it for another 30 years or so. As I said above Ken G, I don't know you and you could well be one of the good guys. There are some landmen that i would place my faith and trust in, I just have not met many that fit in that category and have become familliar with so many who do not. I hope you don't take this personally, but I don't think landmen need defending. I have heard more attorneys say more against other attorneys than landmen against landmen, and you can believe me that attorneys present a united front in almost all occasions. Have a great evening.
Ms. Bicknese, you have my sympathy and full agreement. It seems that everyone has a cousin or brother-in-law who needs a steady job with benefits, retirement and it has come to the point that more are in the cart than are pulling the wagon. I think we can fix it still, and I believe that puts me in a minority because nobody will stand up if they believe that it is a lost cause. I get weary sometimes but that is no good reason to quit. If I'm outnumbered and surrounded, that just means I need to work harder.
Mary Bicknese said:
Thank you, RW! I have to keep my spirits up, or I would be tearing out my thinning hair!
One thing that continues to mind-boggle me is that although the price at the pump, and the cost of heating my house continued to rise, and production was down at a number of my gas and oil wells, my county taxes in multiple counties went UP! But then again, when I filed a complaint about an arbitrary revaluation UP on my aging home at a time when houses in this neighborhood were going for 80 percent of their value the prior year, my city and county taxes went UP by 18%. I went to City Hall with all documentation and they agreed to lower the valuation...... so they increased the levy by 12%. Our excessively large City/County Building usually has ten employees leaning on the counters for every 2 people seeking service. The city and county just keep hiring and keep giving raises, and then figure out what to charge homeowners based on what they want instead of what they need. There seems to be no relationship between income - up or down - and what to steel yourself from county taxes.
Thank you for all the replies, I really do appreciate it.
In response to the question of the landman's mishandling of the Moffat County lease. My sister in law (my older brother is deceased) and I, who negotiated the lease with the company. While we both were new to the oil and gas leasing, both of our jobs were primarily "contract negotiating" - 80% of my job was negotiating research contracts with pharmaceutical companies, 14 years for a major university, another 15 years for a large research hospital. My sister-in-law who is now semi-retired, continues her work negotiating contracts with with the federal government for elderly care plans. So we while we knew very little about contracts vis a vis the world of oil and gas, we spent days of hours on the phone "self-educating" on the business - in other words, like Icarus, we flew to close to the sun. That being said, we both signed very favorable contracts for the Moffat lease. Where we took a wrong turn was accepting that the landman had the right information. But clearly he did "skim" the documents which deeded the property to the "Trust" that was in my mother's name, presumed that the beneficiaries were her four children, found the names of her four children by examining the probate records. He didn't do enough discovery to unearth the salient details - that the Moffat County minerals were designated for my mother herself and her 5 siblings. I didn't mention that the landman's company forfeited the sizable signing bonus with sincere apologies. I will consider your advice about forming a corporation among the cousins, but I suspect that there will be one holdout, so I have my doubts that it can be accompished. There were also irregularities in the handling of my mother's estate by her attorney - some of mothers leases were found in a cardboard box in the attorney's office, and he had not listed them in the inventory of the estate when it was probated. He also shipped off the cash in her estate to his brother's investment firm, and that part of the estate was diminished by 35% while his brother was handling it.
The surface rights. My great great grandfather was an early pioneer who brought his 9 children in a wagon from New York to western Kansas by way of a side trip to Wisconsin. His 10th child was born in the wagon in Council Grove, Kansas on the way to Stafford County, KS. My great grandfather and grandfather acquired a great deal of real estate in western and central Kansas over the years when it was suitable only for dry land wheat farming. When oil was initially discovered in the area, there was little income as oil and gas were cheap. That was followed by a long period when the wells were "burped", and I don't remember the details of that period except that mother told me that sometimes the checks were less than a dollar a month. The big boom for them didn't begin until the 50's. Unfortunately, my father didn't "teach us the business" when we were growing up. The only thing I remember was that he repeatedly told us NEVER to sell the land. My mother remarried in her late sixties after my father died. Without our knowledge, her second husband, a highly respected retired general, sold off all the land and comimingled mothers money with his own. He died shortly after that and we had no idea he had sold the land until his death. A few years later, I received a surprise check from a lawyer's office for approximately $45,000 in settlement of a class action lawsuit agains BP - the case has been filed 17 years previous - the legal fees were approved by the court at over 50%. When the boom started in the '80s and gas prices soared, my monthly income from my share of the wells was typically around $4500; That has diminished by 60%. This entire process has been disheartening and painfull, and has taken up so many hours of my life that I would have much preferred spending with my grandchildren. Since the land itself is gone, I'm not sure I want to hang on to the minerals either. I think I will leave it up to my children to decide while I'm living. This seems such an unpleasnt business, and to have a professional take over at this point would cost me more than the income from my leases. It would be a good thing to educate your future heirs about this business. Write it down. Show them where the files are. Teach them about county taxes. Tell them how much work it is to handle yourself, and how much it costs to have someone do that for you.
I am sure my father is turning over in his grave.
r w kennedy said:
Ken G, I think the government may have you concerned, and rightly so with anything government does. The situation Ms. Bicknese would on the face of it appear that a landman may or may not have just skimmed over the deed. I have no way to know. What I do know is that I have been effected by poor landman work several times. That a landman wrote a memo to the TO person that had no basis in fact whatsoever so that even 4 years after production neither my brother or I were being paid. The operator said I had no interest , that my brother had interest in 1 well and that he might have interest in another well. Since the operator has been made a party to my lawsuit, I am confirmed in 4 wells, and with the exact chain of title my brother is still confirmed in one well and they still think there is a possibility that he may have ownership in another well, after 5 years, because of a landmans memo with no basis in fact. My brother's and my interests are identical. I and my brother have had landmen participate in fraud against us. I am frequently unhappy with landmen to the point that I would almost welcome the federal government taking all minerals because that would put an end to the abuses perpetrated by landmen, because there would be no landmen. That is saying alot for a rabid property rights supporter such as I. Ken G, I do not know you from Adam, but I can count on the fingers of one closed fist the number of times I have heard a landman speak out against anything another landman has done and until I do, I cut landmen little slack. I recently caught the VP of Land for an operator making false statements to a federal agency. It never ends. Most mineral owners don't have the time I do to keep watch. I won't even address the misinformation, untruths and terror tactics that are commonly used, that are related here all the time. I think there would be so much more except that, the number has been thrown out that 85% of mineral owners execute the first lease they see. If the mineral owner gives absolutely everything the lessee wants with no questions asked it seems to me that there should be little opportunity for any abuse, and yet so much exists. I had a man recently contact me and he executed a pitiful lease, $75 per acre bonus and after receiving the lease the landman having his lease in hand, called him back to say that they still wanted his lease but would only pay $50 bonus, when they had his lease in hand and so could not lose the acres, they wanted to beat the price down. I told him to demand your lease back or payment of the original amount and that any further communication be done by mail. There is just no end to it. I hear the there are a few bad apples in every profession line all the time. When I made my living as a diesel mechanic i had to do an out of the frame overhaul on a relatively new Cat diesel engine because another mechanic all the way acroos the country used the wrong part and I offered to testify in court if the man sued them, traveling on my own expense. When I made my living as a construction plumber building schools , sports stadiums, hotels and prisons, I couldn't count the number of plumbers, including master plumbers that I ran off jobs because it's a matter of public health and I wouldn't sign off on work that was not up to code. I guess I am just a dying breed but hopefully I will be able to call it like I see it for another 30 years or so. As I said above Ken G, I don't know you and you could well be one of the good guys. There are some landmen that i would place my faith and trust in, I just have not met many that fit in that category and have become familliar with so many who do not. I hope you don't take this personally, but I don't think landmen need defending. I have heard more attorneys say more against other attorneys than landmen against landmen, and you can believe me that attorneys present a united front in almost all occasions. Have a great evening.
I am still in a quandry and have reached my limitations rather quickly with all these rascals. Each blames the other for not drilling. Ugh. DF Agee
An update on my landman travesty with Quicksilver for a property in Colorado described above a ways. Chapter Three! As I mentioned above, Quicksilver allowed my sister-in-law and I to retain our signing bonus and apologized for their error in representing this as a property that was held at the time of her death, when rather it was a trust, and my deceased mother was the trustee. Shoddy work by my father’s attorney after his death - and even worse after my mother’s death. My mother was both a beneficiary of the trust and the Trustee, and there was no direction for naming a Trustee to succeed her. I don’t know how in the heck this was probated! Maybe it wasn’t. Now two years later, in spite of all this, another Quicksilver landman contacted me about leasing the same interest in Moffat County, so I very cautiously pursued. After more research into this, Quicksilver contacted me and said that due to geological reports, the decided to pursue again. I explained the situation to him, and said that I would pass the information on to my heirs, one of which will be my Executor. I was again contacted by another Quicksilver landman who seemed to know nothing at all about any of the previous dead end process. Cut to the chase, in our conversation, he asked me “Who is XXXXXX?” I told him that she is the only child of one of my mother’s siblings. He told me that she had signed a lease in 2012 with Quicksilver, apparently for the entire holding!!! I asked him who at Quicksilver I should contact to cure this. He responded only that "we work as independent contractors for the company, so I don’t know what to tell you. In the meantime, the rest of the potential beneficiaries of the trust are rising like a cloud of hungry locusts! I can’t find any contact information for Quicksilver resources who could clarify this error, and frankly, I don’t think that I they care! They probably think that it would be expensive and perhaps unproductive to pursue this. It looks like we will have to travel to Colorado to search this out ourselves. The landman probably got his commission and sounded utterly disinterested in reviewing this. He said he would take a look at it sometime, but things were hot in that area, and he had lots of other commitments before he could find time to review this. If anyone with experience knows what the next step should be, let me know. I’m incredulous.