Section 4 and Section 33 activity

We own mineral rights in Grady County, Section 4-3N-6W and Section 33-4N-6W. Being approached by several land men with offers all over the board. Can I get some information on what other owners are experiencing?

Welcome to the party ! We have 6 currently producing wells in 3N 5W with another in the drilling stage. My advise is to not jump at the first couple of offers. They most likely will increase in value. Use the search box at the top and look up any terms that you need info on.

This is a crazy process…we’ve gone from brokers to now land men who say they are working directly for Continental. Any companies we need to be aware of? We know cutting out the middle broker and dealing direct seems like the thing to do but is it?

Big secret, the landman agent not working directly for the operator probably does not have the authority to give you what you want. The operator tells them what to offer, generally not the most the operator would pay.

Why deal with someone who will turn you down even if his principle would agree to what you ask? I have gone from landman to VP of Land to the CEO. I suppose you could hash things out with the landman, then call the operator and tell them it's going to be 10% or 20% more or XYZ oil will get it. I have had operators tell me they will match XYZ oil's offer and I told them they would have to beat it substantially or XYZ oil is going to get it because the operator was being a cheapskate in the first place with their lowball offer which I negotiated to 30 times the bonus and 10% more royalty. You can frame it alot more politely than I just did but for me I see no reason to do anything but speak my mind. If you want to spend 4 months negotiating, in which they don't think you are really serious, that's fine. I think ten days or less is about the proper time frame.

D M Perlberg said:

This is a crazy process...we've gone from brokers to now land men who say they are working directly for Continental. Any companies we need to be aware of? We know cutting out the middle broker and dealing direct seems like the thing to do but is it?

Marathon has built a pad on 2-3N-6W and it appears they are getting ready to punch a hole there. Pooling Order attached. Summit and Jackfork both lease for Continental (maybe others I am not aware of). Current best offers I know of around your sections is $1,500/acre with a 3/16ths royalty.

1931-23N6WPoolingOrder.pdf (1.2 MB) 1932-OilandGasLeasesinGradyCounty.pdf (99.9 KB)

Mr. Perlberg,

Cutting out the middle broker does not always work out in your best interest. Some will offer more than the Operator's contract landmen are authorized to offer. And quicker knowing the process and what it will end up bringing. Most mineral owners do not have the patience to negotiate and work the offers and the oil companies know that. "Some" of the 3rd party guy will step to the plate and give better terms. But that may or may not take place early in the play.

You are in a great place with 2 major operators, CRI and Marathon developing horizontal plays towards you. If you have more than 100 net mineral acres under control, you have some very good options to realize much more income than a flat royalty. Figure out what is best for you and set some reasonable demands remembering that if you lease, it may be the last chance you get to do what is right for your needs. At the end of a few decades, the bonus amount will be insignificant when compared to the royalty or other participation.

At a minimum, don't sign a lease unless the choice operators name is on it and measurement and payment of royalty is concrete.

Gary,

That is a good point that I did not think about. A large acreage could influence who the end operator is and should be strongly considered.

With the current trend of “stealth leasing” I’ve seen many times where the operator is not named on the leases until after applications to the OCC have been made. Many times 75+% of the acreage is leased up at that point.

I’m interested in what other concerns would you have on a lease without the operators name on it? I have not yet leased to 3rd parties, but I’m likely to do so with acreage I have excluded from leases with the operators when drilling is imminent. (on acreage I ultimately decide not to participate in). I feel I can get a better lease terms at or near the pooling order than I will get from the order itself.

As a family, we do have 100 acres in sect 4 and 13 in sect 33…we kiddos are negotiating on behalf of our aging parents so don’t want to mess up!

Mr. Perlberg,

I would advise you to obtain professional guidance in this. However, one of the things you should do is get the family members in agreement and funnel the negotiations through one representative. That may not be possible. With some families it is like herding cats and there will be a fight before it is all over with.

I'd also advise you to consult an estate attorney that is familiar with oil and gas properties. There may be some things you can do to make things much easier in the future. 4-8 wells with 100 net mineral acres could change an estate value substantially from what it is today and should be considered.

Rick,

You are one thoughtful manager. On retained acreage, Consider farming out on a well by well basis with your operator or a JV partner they work with in the area to spread risk. Competitors love to get a piece of everything in their neighborhood in case something good happens. My other concerns are arbitrary transportation and enhancement costs allowed in leases. One lady called me recently with 45% transportation deduct. Operator was building a pipeline. All allowed under overlooked lease class in the hunt for a little bonus money.

GaryH

Rick Howell said:

Gary,

That is a good point that I did not think about. A large acreage could influence who the end operator is and should be strongly considered.

With the current trend of “stealth leasing” I’ve seen many times where the operator is not named on the leases until after applications to the OCC have been made. Many times 75+% of the acreage is leased up at that point.

I’m interested in what other concerns would you have on a lease without the operators name on it? I have not yet leased to 3rd parties, but I’m likely to do so with acreage I have excluded from leases with the operators when drilling is imminent. (on acreage I ultimately decide not to participate in). I feel I can get a better lease terms at or near the pooling order than I will get from the order itself.

Rick, how would one get a better deal from a middle broker? Do you not think that the company is going to oversee and kick it back if the deal is better than they first allowed ? Besides the contract landman is not going to offer more than their principle set out in the beginning that they want to pay, that would probably be a quick ride to the unemployment line for the landman.

I've lost count of the times I've heard, and heard people say the landman said he would have to kick the counter offer upstairs. I consider dealing with contract landmen just contributing to global warming from all the useless carbon dioxide.

I have had a company want to lease an interest of mine for three years, I tell them to send me their best offer when they are really serious. I guess you could say KOG has been making lease offers on the same parcel of mine since 2007 and they still aren't there yet, I have all the time there is, but I still won't let a broker or contract landman waste any of mine.

Rick Howell said:

Mr. Perlberg,

Cutting out the middle broker does not always work out in your best interest. Some will offer more than the Operator's contract landmen are authorized to offer. And quicker knowing the process and what it will end up bringing. Most mineral owners do not have the patience to negotiate and work the offers and the oil companies know that. "Some" of the 3rd party guy will step to the plate and give better terms. But that may or may not take place early in the play.

With no statutory protection on production and transportation, that is exactly why I am worried about letting it get pooled. My plan on the excess acreage that I have not leased, and decide not to participate is a 3rd party lease limited to a single well bore or a farmout. The more I look into a farmout, the more I like it.


Gary L. Hutchinson said:

Rick,

You are one thoughtful manager. On retained acreage, Consider farming out on a well by well basis with your operator or a JV partner they work with in the area to spread risk. Competitors love to get a piece of everything in their neighborhood in case something good happens. My other concerns are arbitrary transportation and enhancement costs allowed in leases. One lady called me recently with 45% transportation deduct. Operator was building a pipeline. All allowed under overlooked lease class in the hunt for a little bonus money.

GaryH

Rick Howell said:

Gary,

That is a good point that I did not think about. A large acreage could influence who the end operator is and should be strongly considered.

With the current trend of “stealth leasing” I’ve seen many times where the operator is not named on the leases until after applications to the OCC have been made. Many times 75+% of the acreage is leased up at that point.

I’m interested in what other concerns would you have on a lease without the operators name on it? I have not yet leased to 3rd parties, but I’m likely to do so with acreage I have excluded from leases with the operators when drilling is imminent. (on acreage I ultimately decide not to participate in). I feel I can get a better lease terms at or near the pooling order than I will get from the order itself.

I guess it depends on the acreage owned. But I can't imagine Harold Hamm talking to me to lease our 2-3 acres (or even our 20 and 50 acre tracts). ;) Even then the operators seem to employ a strategy of leasing in phases. In the opening phase they are grabbing as much as they can lease for as little as possible. Company badged landmen have very little contact with the average mineral owner. There is usually a primary contracted land company and they even sub. Getting through those 3 layers would be difficult at best.

The company authorities a level of price that is the max the contacted landmen can go. Of course the target is lower. In the second phase as they try to pick up more of the hold outs, the authorization is usually raised. And then a third phase and so on. When they can lease 30-50% of the acreage by sending out an offer and the owners accept it, you really can't blame them. It works.

I have seen 3rd party companies lease with a paid bonus and 1/4 RI that included a decent lease. Better than what a pooling offered. I have see 3rd parties offer more during a 1st phase than was negotiated up to in the 2nd phase. Because they had situation awareness of the surrounding areas they had a good idea at what it would pool for. Their primary goal was to participate or assign to a 4th party investor group. Some of these investment groups are being formed that may be too good to be real. The investors do not know the business enough and may be taken for a ride. Still the money is good and the leases are valid.

3rd parties are a contributing factor to rising bonus prices.

I'm not saying all 3rd party deals are good. Not by a long shot. But there are some deals out there and a person should consider all options when leasing.



r w kennedy said:

Rick, how would one get a better deal from a middle broker? Do you not think that the company is going to oversee and kick it back if the deal is better than they first allowed ? Besides the contract landman is not going to offer more than their principle set out in the beginning that they want to pay, that would probably be a quick ride to the unemployment line for the landman.

I've lost count of the times I've heard, and heard people say the landman said he would have to kick the counter offer upstairs. I consider dealing with contract landmen just contributing to global warming from all the useless carbon dioxide.

I have had a company want to lease an interest of mine for three years, I tell them to send me their best offer when they are really serious. I guess you could say KOG has been making lease offers on the same parcel of mine since 2007 and they still aren't there yet, I have all the time there is, but I still won't let a broker or contract landman waste any of mine.

Rick Howell said:

Mr. Perlberg,

Cutting out the middle broker does not always work out in your best interest. Some will offer more than the Operator's contract landmen are authorized to offer. And quicker knowing the process and what it will end up bringing. Most mineral owners do not have the patience to negotiate and work the offers and the oil companies know that. "Some" of the 3rd party guy will step to the plate and give better terms. But that may or may not take place early in the play.

Rick, maybe it's just my charming personality but Lynn Peterson of KOG wanted to meet with me in person after a couple of phone calls. All over a whopping 9.55 acres I hold. Of course there are other family members who generally follow my lead.

Just wanted to thank everyone for the information.

Good discussion. I think part of Rick's point got lost in translation though -- I believe he was saying 3rd parties wanting to lease, not on behalf of the operator but so that they can then participate in the well -- that those 3rd party landmen will sometimes have a better offer than the operator or their landmen may produce. Certainly having those 3rd parties in the mix has helped drive up bonus amounts.

If you lease to a 3rd party whose chief objective is participating in the well...can they (3rd party) make their participation terms so unpleasant for the chief operator (say ... CLR) that they drop that section from their radar screen and never drill? They just go to the next section that they might deem more friendly? I know that would be a big gamble for the 3rd to party to lease high then lose the possibility of the well.

Mr. Perlberg, you have the tail wagging the dog. The operator decides what kind and how much well he is going to drill in which formation and these 3rd parties can either participate, assign their interest to the operator for cash and an override or be force pooled.



John Tennison said:

Welcome to the party ! We have 6 currently producing wells in 3N 5W with another in the drilling stage. My advise is to not jump at the first couple of offers. They most likely will increase in value. Use the search box at the top and look up any terms that you need info on.