DCZ Posted February 21, 2008 Share Posted February 21, 2008 This board is such a deep well of random knowlege I thought I would ask - anyone here in the oil/gas exploration business? My family has some land and has been approached by a gas exploration contractor. They want to "lease" an option from us to look for natural gas on the land. They are offering what seems a pittance ($7k for a 5 year option). I am trying to educate myself on this whole process because I'm sure these people know their business well and I would rather not be the rube that gets shafted! Any advice? Any good web resources? Thanks! When I'm a big gas tycoon (as opposed to a big gas bag), Z's all around! Quote Link to comment Share on other sites More sharing options...
MJLamberson Posted February 21, 2008 Share Posted February 21, 2008 7k so they can pull gas from your land for 5 years??? it seams like they should give you more Quote Link to comment Share on other sites More sharing options...
datsun40146 Posted February 21, 2008 Share Posted February 21, 2008 flat out NO!!!! Don't sell your mineral rights, and once you sell them they are gone. Plus they can place that gas pump in your front yard if they want to and you can't stop them. Its not worth it IMO. They would have to find the motherload of deposits to be worth it in my eyes. and if its that big let your neiboors discover it and then drill. Quote Link to comment Share on other sites More sharing options...
DCZ Posted February 21, 2008 Author Share Posted February 21, 2008 7k so they can pull gas from your land for 5 years??? it seams like they should give you more flat out NO!!!! Don't sell your mineral rights, and once you sell them they are gone. Plus they can place that gas pump in your front yard if they want to and you can't stop them. Its not worth it IMO. They would have to find the motherload of deposits to be worth it in my eyes. and if its that big let your neiboors discover it and then drill. AFAIK they are offering the 7k just for the OPTION to EXPLORE. I'm trying to educate myself so I don't end up selling something I didn't want to sell, like the gas itself or mineral rights. Supposedly, if gas was found, then I would contract with someone else to let them pump it out. He said that the "industry standard" rate is in the neighborhood of 12% - 15%. (that is, the landowner gets 12 - 15 % of market value). Quote Link to comment Share on other sites More sharing options...
MJLamberson Posted February 21, 2008 Share Posted February 21, 2008 oh, so they are ONLY going to look for it, and your not committed to do ANYTHING after they find it... if thats the case thats an easy 7k Quote Link to comment Share on other sites More sharing options...
datsun40146 Posted February 21, 2008 Share Posted February 21, 2008 I stand by my advice I gave the 1st time, I am a mining engineer in training and have done a bit of permiting work. They may just be exploring but that would entail drilling holes all over your property for samples, and other tests. My advice is this, ask the company who else around you has signed on with them. If many around you have, let them doing the exploring. If they find anything there then I would let them explore. Not only would your property be worth more b/c if minerals were found close by it would raise the chances that your property would have minerals as well. and therefore increase how much you would be getting. Just wait it out. If they need what's under the land that badly, they will let you know. Quote Link to comment Share on other sites More sharing options...
woldson Posted February 22, 2008 Share Posted February 22, 2008 Buy up your mineral rights if you have not yet. I dont believe they just search at radom. Ask for them to leave the property as it was before. Quote Link to comment Share on other sites More sharing options...
dr_hunt Posted February 22, 2008 Share Posted February 22, 2008 They wouldn't be asking if the owner didn't already have the mineral rights. Their land man already researched that. Exploration and production are two separate things. Royalties of 5 to 7 percent are about the norm. Damage to the surface is typically a fixed sum per acre. You can make them restore and reseed although you will have a capped well there if they find nothing. If they hit shallow water you can have them P&A below the water zone and you could possibly use it as a water well. You'd have to see a sample contract first to see what all they are offering, then go from there. Quote Link to comment Share on other sites More sharing options...
woldson Posted February 22, 2008 Share Posted February 22, 2008 Wow DR Hunt, Dcv me thinks you got your answer. Talk about clear! Quote Link to comment Share on other sites More sharing options...
DCZ Posted February 22, 2008 Author Share Posted February 22, 2008 Thanks guys, that is some valuable insight. Dr. Hunt, what does "P&A below the water zone" mean? I got a chance to sit down last night and read the actual lease. Whew! looks like a minefield of potential "gotchas". For example (realize that this is all couched in a lot of legal and technical language that I don't yet fully understand): This is not just an option to explore, it would give them water (or any other mineral) rights as well as gas/oil. If they find anything it gives them the right to develop and sell it. The five year period can be doubled anytime they want by paying us another $7k. We cannot refuse. If they DO end up hitting gas, this lease can be extended as long as they want. I did not see any way of terminating the lease as long as they have a well "capable of production" (not necessarily producing and paying royalties). They don't have to sell any gas they find. They can sit on it forever and I would not be able to sell it to someone else. They have the right to store gas underground and pay ~1k per year for the privelege. They can "pool and unitize" our land with other lands. This seems like a real kicker because they can treat our land to their advantage based on conditions that exist elsewhere because they have "pooled" us with some other location. I don't understand all the ramifications but it seems like a hole big enough to drive a tanker through! As you can see, this looks like a long journey of learning for me. I didn't expect something like this to be straightforward, but right now I feel like Jack looking at a handful of beans. Quote Link to comment Share on other sites More sharing options...
Trevor Posted February 22, 2008 Share Posted February 22, 2008 what does "P&A below the water zone" mean? plugged and abandoned Quote Link to comment Share on other sites More sharing options...
woldson Posted February 22, 2008 Share Posted February 22, 2008 Ouch. For 7k hope you can atleast keep your house and a dog. Then again methane gas,,,,,,, they may need to tap that as well. Quote Link to comment Share on other sites More sharing options...
DCZ Posted February 22, 2008 Author Share Posted February 22, 2008 Ouch. For 7k hope you can atleast keep your house and a dog. Then again methane gas,,,,,,, they may need to tap that as well. Methane . . . let's just say I'm a walking natural resource! Quote Link to comment Share on other sites More sharing options...
JSM Posted February 22, 2008 Share Posted February 22, 2008 With a contract the way your describing, you end up having little to no rights it seems. To me it isn't worth 7K, if they don't extract anything there goes your 12-15 %. Next question is 12 -15 % of what, 100, 1000, 10000, 100000, 1000000? Id want some sort of figure in writing what they plan on paying you. Id find an attorney to explain it to you and enter some sort of out clause for you as well and as suggested find other land owners who are using the company to see how it is really going. Thanks guys, that is some valuable insight. Dr. Hunt, what does "P&A below the water zone" mean? I got a chance to sit down last night and read the actual lease. Whew! looks like a minefield of potential "gotchas". For example (realize that this is all couched in a lot of legal and technical language that I don't yet fully understand): This is not just an option to explore, it would give them water (or any other mineral) rights as well as gas/oil. If they find anything it gives them the right to develop and sell it. The five year period can be doubled anytime they want by paying us another $7k. We cannot refuse. If they DO end up hitting gas, this lease can be extended as long as they want. I did not see any way of terminating the lease as long as they have a well "capable of production" (not necessarily producing and paying royalties). They don't have to sell any gas they find. They can sit on it forever and I would not be able to sell it to someone else. They have the right to store gas underground and pay ~1k per year for the privelege. They can "pool and unitize" our land with other lands. This seems like a real kicker because they can treat our land to their advantage based on conditions that exist elsewhere because they have "pooled" us with some other location. I don't understand all the ramifications but it seems like a hole big enough to drive a tanker through! As you can see, this looks like a long journey of learning for me. I didn't expect something like this to be straightforward, but right now I feel like Jack looking at a handful of beans. Quote Link to comment Share on other sites More sharing options...
dr_hunt Posted February 22, 2008 Share Posted February 22, 2008 Pretty standard, gas is a hot commodity right now. If they find gas, which I'm sure that they will (they are too which is why they are talking to you) you will be banking a check every month. I could go into details but there is low pressure gas in all the old oil fields. It is your resource, you choose. You can also check on what mineral leases go for in your area and put it up for lease, they have auctions all the time. If they are offering 7 they will go more like 10 to 14K, pooling is just a way of them being able to assign the lease to someone else if they are just acquiring leases to sell rather than being a production company. Bottom line is that a well requires pipelines to a collection point too, so it's a piping system that will be in place, not just a well. Also someone has to come all the time and check the well too so you'll have company man around alot, which has alot of advantages IMO and some disadvantages depending on how isolated you are. As for being open ended, that is to be expected as they would invest a sizeable sum installing all of that. So, if you do decide to go for it, counter their offer, add in what you want and pray that they drill some holes. you could be getting a $1000 or more a month check, just for gas for the next 20 years or more!!! P&A is plug and abandon as previously stated, but would require perforations in the water zone to make it a producing water well, relatively simple IMO. I worked for Schlumberger for 4 years as a field engineer doing oil and gas completions, stimulations and frac's. I own patented mineral rights and property too here in NM so I've been around the block a time or two. Quote Link to comment Share on other sites More sharing options...
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