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Gas and oil leases

Started by farmerdoug, March 12, 2008, 11:22:46 PM

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farmerdoug

Does anyone have any current working with gas and oil leases?  I am asking as they want to lease here on the farm for drilling.  I am not sure what is normally offered but they no longer will let you use gas from the oil for Liability reasons.  I would like to hear from members that are currently leasing and or producing wells.

Thanks, Farmerdoug
Doug
Truck Farmer/Greenhouse grower
2001 LT40HDD42 Super with Command Control and AccuSet, 42 hp Kubota diesel
Fargo, MI

pineywoods

Farmerdoug, I have 5 gas wells on the farm here. They all have what's called  a "house gas" clause in the lease. Allows the hookup at the landowners expense of one house per well. It usually ain't the good deal it sounds like. I take the royalty payments and buy propane for heat. You need a high-pressure regulator (a good well may produce several hundred psi) followed by a low-pressure regulator to drop the pressure down to 3 or 4 psi. Plus maybe a bunch of pipe. Have to tie on right at the well, no tapping pipe lines. There are 2 nasty gotcha's. Gas well produce salt water which will corrode your regulators and gas appliances, separators are available but require frequent attention. The other-gas straight from the well has NO smell and is toxic. The stinky smell is added by the gas company.Leaks can be deadly.
Reliability is iffy at best. pressure can vary wildly depending on demand, here it sometimes drops down to a vaacum.
1995 Wood Mizer LT 40, Liquid cooled kawasaki,homebuilt hydraulics. Homebuilt solar dry kiln.  Woodmaster 718 planner, Kubota M4700 with homemade forks and winch, stihl  028, 029, Ms390
100k bd ft club.Charter member of The Grumpy old Men

SwampDonkey

I didn't realize salt was involved in gas wells. But, apparently it compartmentalizes the gas in the ground? Or do I have it wrong? I know nothing about it at all.

There is a diagram on here.

"No amount of belief makes something a fact." James Randi

1 Thessalonians 5:21

2020 Polaris Ranger 570 to forward firewood, Husqvarna 555 XT Pro, Stihl FS560 clearing saw and continuously thinning my ground, on the side. Grow them trees. (((o)))

Dieselrider

We have wells on our place and we are tied into one. I was not the original lessee as that was done prior to our buying the place. Around here (central PA) the average limit on usage for a residential usage is 200,000 cubic feet per year allotment. The average house would not use that amount in a year if the furnace efficiency is right for the size dwelling etc. Anything above that is purchased by you at wellhead price which is substantially less than retail price. You can set the lease up to say whatever you want as you are  signing a contract with the leasing company and both are agreeing to the terms. If you sign a lease without the terms you want in it you have no one to blame but yourself. Get an attorney you can work with who knows about these things to look over any contract before you sign it to cover your butt. And, have him/ her explain everything to you to your satisfaction. Make sure you know what you are agreeing to.
The standard term pays you a royalty of 1/8 of the wellhead price from the well plus you can use your allotment. If the gas company wants to put more than one well on your property I would push real hard to get an allotment on each well that you can use as You see fit. That way if you were to add a shop or something you could use gas to heat it and not be limited to the usage of just one dwelling per well.
We have basically had free heat here for the last ten years and once the well is no longer commercially viable we will be tied into it for the heat probably allot longer than I am here.
Some other considerations are the well locations on your property. The gas companies like to have the wells  where it is convenient for them to get to. Which is not always very convenient for the land owner. Keep in mind that once the wells are in place you are stuck with dealing with them for ever. So, make sure they are agreeing to place the wells in a convenient spot for you, not necessarily for them. Once they drill the well they wont be back other than to check on the well or to preform maintenance. One last thing, put something in the contract to have the well sites cleaned up to your desires when they are done. You could even require a bond for a specified amount much like you would require for a logging company to clean up landings and such. I am dealing with a porcupine problem now that is a result of the drilling company letting a large log and brush pile at a well site. The porcupines are using it as a den sit and tearing up my woods.
This may sound like you are asking for allot but, keep in mind you have to live a long time with the results and if they really want your gas they will agree to your terms and the respect that the gas and drilling companies show you and your property are only as good as the terms in the contract. Sorry this is so long, but I hope it helps. smile_banjoman
Always try to be the best, but never think you are the best.

farmerdoug

Thanks for the info so far.  Keep it coming.

They do not want to allow the personal use of gas because it is dirty, pressure varies and does not have the smell for safety.  I guess there has been some house blown up and lawsuits in the past.

They are offering 1/8 royalties paid at the wellhead minus certain costs.  For you guys that have wells, what do they charge you for costs if any?
Doug
Truck Farmer/Greenhouse grower
2001 LT40HDD42 Super with Command Control and AccuSet, 42 hp Kubota diesel
Fargo, MI

ely

just make sure who you are dealing with and like was said before be sure and get a reputable lawyer. is that an oxymoron? here in okla. we have had a few unscrupulous folks that actually have bought some peoples minerals when those people thought they were only leasing them.

there are some people out there that do not have your best interest at heart. i know it is hard to believe.

SwampDonkey

You guys have a different situation than most us in Canada. Up here the Feds own what's under the ground and if a claim is staked they have 10 years to work it or renew it. Something to that effect.
"No amount of belief makes something a fact." James Randi

1 Thessalonians 5:21

2020 Polaris Ranger 570 to forward firewood, Husqvarna 555 XT Pro, Stihl FS560 clearing saw and continuously thinning my ground, on the side. Grow them trees. (((o)))

Ron Scott

Also have the well site opening seeded with a favorable wildlife seed mixture to establish a wildlife opening on your property. Also insure that the well site access road is part of the lease arrangement and future maintenance as needed. If they gate the access, you will want a key to the gate. ;)
~Ron

Coon

Swamp,  that is not totally true.  Upon purchasing land I can buy the mineral rights if I want to if available.  Some land is sold with surface rights only because the government or oil companies have bought the mineral rights.  If the minerals rights are owned by either the government or oil company they can drill on your land at any point in time that they desire to.  They will then pay you for the land (long-term lease)needed for the well and access to the well site.  If you own your own mineral rights it is a whole other ball game.  The oil company then has to purchase either A) the land with mineral rights, or B) the mineral rights alone.  9 times out of 10 they will want to purchase the mineral rights only.
Norwood Lumbermate 2000 w/Kohler,
Husqvarna, Stihl and, Jonsereds Saws

Dieselrider

Quote from: farmerdoug on March 13, 2008, 08:30:01 AM
Thanks for the info so far.  Keep it coming.

They do not want to allow the personal use of gas because it is dirty, pressure varies and does not have the smell for safety.  I guess there has been some house blown up and lawsuits in the past.

They are offering 1/8 royalties paid at the wellhead minus certain costs.  For you guys that have wells, what do they charge you for costs if any?

That is for insurance I'm sure. Yes there are concerns about safety but, they can be taken care of. Even coal furnaces can explode in the right situation. Whatever you decide is up to you but, keep this in mind. The amount of money you get from this well or wells may or may not be very good (depends on the well- one can produce good and the next hardly at all) It only takes a few ounces of gas pressure to provide for a house and the savings on heating over a long haul could be your biggest asset to having a well on your ground.

If they are not going to allow you to tie on for the free gas I would get them to either agree to a larger percentage of the royalties or pay you for the gas you would normally been allowed to use at commercial retail price. For all the more money I get off our wells, if it were not for the free gas, I would rather they had never drilled here. JMHO. smiley_deadheader_ride_alligat
Always try to be the best, but never think you are the best.

Texas Ranger

In Texas, big oil and gas state, the landowner gets from a fifth to a quarter, the cost reductions are negotiated.  We refused a lease where they only offered a fifth, and $250 an acre, because they would not sign our contract environmental clauses.
The Ranger, home of Texas Forestry

Ironwood

I am with DieselRider on this one. We just signed a lease and his take on it for here in Pa. was right on. 1/8th and we negotiated a little higher cubic for two dwellings (shop actually). They needed a right of way to a main transmission line on the corner of our property, we could use the cubic and the money, but it is all pie in the sky until the checks start showing up.  ;)

           Ironwood
There is no scarcity of opportunity to make a living at what you love to do, there is only scarcity of resolve to make it happen.- Wayne Dyer

LeeB

SD, a large percentge of gas wells are salt water driven. Just as there are fresh water sands, mostly near the suface, there are also salt water sands. These sands were deposited in the past by rivers and sea beds long gone and covered over by later sediments that turned to rock on top of them causing a "trap" to form.  As organic materials in the sediments below the sands decomposed it became trapped by the impervious layer over it. As more rock built up over it the pressures increased due to the weight of the rock above, known as overburden. Too sleepy right now to give a cohearant discription of the process, besides, I'm just a dumb old oilfield hand that came up through the ranks. Maybe one of the educated type fellers can essplane it better.
'98 LT40HDD/Lombardini, Case 580L, Cat D4C, JD 3032 tractor, JD 5410 tractor, Husky 346, 372 and 562XP's. Stihl MS180 and MS361, 1998 and 2006 3/4 Ton 5.9 Cummins 4x4's, 1989 Dodge D100 w/ 318, and a 1966 Chevy C60 w/ dump bed.

Dieselrider

One more thing as to the gas safety issue. The system to get the gas from the well to your house has two regulators on the line. The first regulator usually right at the well cuts the pressure from the well pressure ( which can vary greatly) to about 10 pounds per square inch. This is required for the meter as most meters do not handle more than this pressure and the gas company definitely wants to keep track of your usage. The second regulator is placed outside the home or building and cuts the pressure down from the 10 pounds to about half a pound going into the structure. All furnaces will not work at pressures greater than this. That second regulator is key, and you need to be sure that you get one with a "low pressure shut off" (you can also get a "high pressure shut off" in the same regulator).
What it does is, if there is a leak or break in the line inside the house causing the pressure to drop the regulator closes and shuts the gas off from going inside. These are designed to prevent the gas build up inside a structure. They work very well. Also most modern appliances including furnaces, stoves, water heaters etc have safety features on them that will not allow the gas to turn on without the ignition source preheating to a certain temperature. This prevents the appliance from allowing any gas into the residence while not being burned at that point. The key to any safety points is maintenance. You need to have the system inspected periodically to guarantee it is working and have repairs done if there is a problem. In my opinion, gas is as safe as any other fuel source out there if handled properly. splitwood_smiley
Always try to be the best, but never think you are the best.

LOGDOG

Farmerdoug,

   We're in NW Louisiana. My oil and gas consultants told me not to settle for less than $350.00 an acre for leasing and 1/4 of the royalties. There are a lot of folks who signed on for 1/6 and 1/8 years ago. Big difference in the pay check. They want what you have down there. I wouldn't budge for less. They pay the ones that ask them to.  ;)

LOGDOG

Ironwood

Well, this all like a bit of poker playing where I am. There is lots of small acreages and they CAN and WILL just go over to your nieghbor and lease his place on THEIR terms. So, would you like to have SOMETHING or nothing? We had an additoinal issue of someday a compressor going in on the next ridge over (not that far away) and would we rather listen to that and get nothing in return or sign on potentially get some royalty and get to choose the placement on our property to at least control the noise a little. Like I said it is all poker playing, you cannot be forced to have a compressor on your acreage if you don't have a well.  It varies greatly from place to place, but this is the paradim here in SW Pa. Somethin is better than nothing.

                            Ironwood
There is no scarcity of opportunity to make a living at what you love to do, there is only scarcity of resolve to make it happen.- Wayne Dyer

Corley5

Gas wells have been creeping north and the nearest one is 4 miles south of us  8) 8)  Keep on coming  ;D :)  The one big point that everyone who has dealt with these leases in this area makes is to hire an attorney that's familiar with them.  The companies will try to get away with all they can. 
Burnt Gunpowder is the Smell Of Freedom

pineywoods

If you tie on to your own well, here's some advice learned the hard way. You need a clause in the lease agreement that specifies that pressure at the well will be maintained above atmospheric pressure. Compressor stations can and will pull a vacuum on the well in an effort to extract more gas during periods of high demand. There goes your gas supply. When pressure does come back up, you still have to go manually reset the safety cut-off on your pressure regulator. A vacuum causes any water in the well to flash to vapor, which will then condense in your regulators, lines and appliances.In my case this was the major reason for getting off the well and using the royalties to buy propane. All my leases are old, signed 2 generations ago. I have one lease that says it remains in effect as long as there is a producing well. Royalty in the single digits. Well stopped producing years ago, but during periods of low demand, gas is being pumped back into the well (don't show on the meter), then pulled back out through the meter when demand is up. Just enough to keep the lease in effect. Lease was signed by my grandad over 50 yr ago.
FWIW  I live right in the middle of one of the largest, oldest natural gas fields in the US.
1995 Wood Mizer LT 40, Liquid cooled kawasaki,homebuilt hydraulics. Homebuilt solar dry kiln.  Woodmaster 718 planner, Kubota M4700 with homemade forks and winch, stihl  028, 029, Ms390
100k bd ft club.Charter member of The Grumpy old Men

Stan snider

As far as "no smell" there is a method of putting a canister in the line that has a wick saturated in an odorant to let you know if you have a leak. probably that landman forgot about that, but he can sure remember the liability mumbo-jumbo!!! :)  When you are negotiating with them just remember that signing the lease they slide across the table to you with such a friendly smile will be the worst mistake you have made in years.They propose an offer and it is much more adjustable than they lead you to believe,particularly in a proven field and you have more leverage with larger acreage. Talk to neighbors and stick together.You have some good advice in the other posts.    The LACK of scruples in landmen is LEGENDARY,at least here in Oklahoma.  Most are only commissioned salesmen but the very best of that profession.  BE CAREFUL!  A lease can affect the next generation.  Stan

submarinesailor

Mercaptan or Methanethiol is the stuff that is put into the natural gas system at the Local Distribution Companies (LDC) at smells so bad.  As stated by several people here, methane gas (natural gas) is odorless gas, making it very dangerous by itself.  So localities around the country are forcing pipelines companies to insert Mercaptan into the new natural gas transportation pipelines that go thru their city limits.

Back in January 2001, when we had the first natural gas price spike, a line going thru New Mexico blew up, killing some people in the area and burned so HOT that it turned the sand around the blowout into glass.

Bruce

SwampDonkey

There has always been gas around the Bay of Fundy region and Sable Island, probably some on PEI to. I think anywhere where you have sedimentary bedrock, especially sandstone or mudstone, would be a good prospect. Nobody really tapped into it in this region because it's not a high population area and a long way to move it to major centres. In the last 10 years that has been changing. They are setting up LNG terminals down there. I doubt we'll see it up here where I live, especially since I know how that works. They charge the locals more than the export to subsidize the distribution. I say no to that. There is one outfit that says they have lost money from day one to local customers, they make up for it in volume sold on export.
"No amount of belief makes something a fact." James Randi

1 Thessalonians 5:21

2020 Polaris Ranger 570 to forward firewood, Husqvarna 555 XT Pro, Stihl FS560 clearing saw and continuously thinning my ground, on the side. Grow them trees. (((o)))

Handy Andy

  I leased my farm for 5 years for 7.50 per acre.  They can extend it for a couple more years for a little more.  I knew there was no oil here, as my dad used to lease the place for 1$.  He always dreamed of getting an oil well.  They only pay 1/8 share here. ANyway, the company drilled 3 dry holes in this area and the leases are for sale.  Guess we won't get any more money.  Anyway, when the guy came through and wanted to lease, I was low on cash and it came in real handy.  Jim
My name's Jim, I like wood.

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