Category Archives: Bonus Amounts

Why is my Bonus Check Smaller than It Was Supposed to Be?

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We’ve gotten several phone calls and emails from clients over the years about the size of the bonus check that the oil and gas company sent them.  It’s always the same story: the landman made promises of big money, and the big money never came.  As you can imagine, this makes people angry.  It feels very bait-and-switchy.
Side Note: This happens often enough that the companies should train their landmen to warn people that it could happen.
To understand why this happens you’ll need some background.
When a company first decides it is interested in developing any given tract of land it will request a title search on that tract.  That title search will be done by a landman, not a lawyer.
The landman will tell the company who they think owns the mineral rights, and the company will then buy leases from those people.
Once the company gets a signed lease back from those people, it will usually have some time (90 days, for example) to check the title work the first landman did.  More than once we’ve seen the company change its mind about how much our clients own based off this second title search.  Usually it’s for the worse.
Later, usually much later (sometimes never, but we’re hopeful), the company will drill a well and produce natural gas.  Once they do, they owe royalties.  But before they go paying royalties, the company will ask a lawyer to provide them with certified title.  The lawyer will go out and do all the same work the first two landmen did, but sometimes with different results.  We’ve seen the company change its mind about how much our clients own based off this certified title.  Again, usually it’s for the worse.
When the company changes its mind, it has the right to pay only for what you own, not for what it promised to pay.  Why?

There’s a little-noticed clause in almost every lease called the Lesser Interest clause.  It says that if you own less than the entire tract, the company will pay you accordingly.  There is usually also an Order for Pay or an Order of Payment that the company has you sign at the same time you sign the lease, and it includes similar language.

So when the company discovers that you own less than they originally said you did they pay you accordingly.
The opposite is actually true, too.  If the company discovers that you own more than they originally said you did they pay you accordingly.  We’ve seen clients get more than they expected.  Oddly, that happens far less often than getting less.
Now, it’s quite possible that the landman/lawyer got it wrong.  It wouldn’t be the first time and won’t be the last that a human being makes a mistake.  The trouble is that it will often take quite a bit of time and effort to prove the landman/lawyer wrong, or in other words it will take quite a bit of money.
If you want to do something about it, you should start by getting a copy of the run sheet that the landman/lawyer made.  Most companies will provide it to you if you’re persistent and nice.  It’s a list of all the documents the landman/lawyer used to determine ownership.  It might not make any sense at all to you, but we can help with that part.
If the company won’t provide you with the run sheet, you will at least be able to get a copy of the document that changed your ownership.  Sometimes the change in ownership will be based on an interpretation of a vague clause in that document.  If so, we might be able to help you change the company’s interpretation of that clause.
As always, good luck!

Marcellus and Utica Producers are Still Making Money

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With gas and oil prices down, it’s been a lot harder to make money in the oil patch.  The one good thing about this situation is that producers have had to figure out how to cut costs.  Producers have convinced suppliers to lower their prices, drillers have figured out new tecDollar Signhniques, leasing has slowed down, lease prices have dropped, and people have been fired.

Most of the cost cutting measures end up in people getting fired.  We hate to see people get fired.  We’ve been there ourselves more than once.

The only good thing about it is that companies are now profitable at a much lower price point than they were a year ago.  They’re still in business, still employing people, and still paying out royalties.

Mark Passwaters over at snl.com (not the comedy show) thinks that most producers are capable of turning a comfortable profit with oil at $75/bbl.

While that is interesting in general for West Virginia mineral and royalty owners, the most interesting part of the article says that Utica and Marcellus producers are doing just fine at $3.00/MCF gas.

Why is that?  The success mantra for developers in the Marcellus has been “keep costs low”.  I’ve heard that from more than one small developer, and it’s true for the mid-majors like Antero and Southwestern, too.  They’ve been on the cutting edge of science in the shales from the beginnin

Shocking! West Virginia Lease Prices are Stable in a Downturned Market…

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American flag flying in the wind

In November of 2014, Saudi Arabia announced that it would not cut production of oil.  This surprised everyone, as the price of oil had fallen quite a bit at that point, and Saudi Arabia’s usual move when oil prices had fallen in the past had been to cut production.  The result — oil prices fell even further.

There was a lot of speculation as to why Saudi Arabia wasn’t cutting prices.  Most people thought that it was a move to hurt Russia, Iran, and Venezuela.  Some people thought it was a move to kill fracking in the US.

More and more, people have decided that while hurting Russia, Iran, and Venezuela was a nice bonus, the real target was US fracking.

While fracking has suffered, it hasn’t died.  This article over at biznews.com explains why.  The short story — US frackers figured out how to cut costs.  A lot.  The article says that costs of various drilling services have fallen by 20 percent to 50 percent, and that some oil plays now have a break even point below $40/bbl.

That’s what entrepreneurs and CEOs do when they operate in a free market.  The Saudis didn’t count on that, and I don’t think anybody outside the US really believed it could be done.  We did it.

The fascinating thing for West Virginia oil and gas royalty and mineral rights owners is that bonus amounts and royalty amounts really haven’t changed much since November of 2014.  Royalty amounts haven’t dropped at all.  Bonus amounts have dropped some.  For instance, you can still get a lease for $2,500 per acre in Doddridge and Harrison counties, but you will have a harder time getting that for a lease in Ritchie County which was commanding even more than that at one point.  In Tyler County you can still get $4,000 per acre, and in Wetzel and Marshall counties you can get anywhere between $2,500 and $4,000 per acre.

Some counties have no development at all now, but it’s more because the formations under those counties are not expected to produce as much gas as other counties.  Those counties will be exploited (word choice purposefully made) in later months or years when gas has been fully exploited elsewhere.

The one real change that we’ve seen in West Virginia is that, while the price of an acre hasn’t dropped much, the sheer number of lease offers has.  Instead, we’re talking with more people who have been given offers to buy their mineral rights.  While we’re glad to help facilitate those sales in the right circumstances, we still recommend that people hold on to their mineral rights if they are in a position to do so.  Those mineral rights will be more valuable when the lease buyer comes knocking than when the mineral buyer comes calling.

We still think that in a few years the infrastructure for gas delivery will improve, the demand for gas will go up, and the price of gas will go up.  At that point leasing will pick up again.

For those of you thinking about whether to lease or sell, give us a call and we’ll help you decide what’s best for you.  In the meantime, celebrate the exceptionalism of the American free market over the 4th of July weekend.

And be safe.

Magnum Hunter Sells Tyler County, WV Leases

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Dollar SignNow this is news.  Magnum Hunter will close tomorrow on a deal to sell 5,210 acres of leases in Tyler County.  Magnum says the leases are in “non-core undeveloped and unproven” parts of the county.  The sale should net Magnum $40.8 million dollars.  That’s $7,831.09 per acre, by our calculator.  For non-core, undeveloped, and unproven leases.  Oh, and the Chairman of the Board, Gary C. Evans, also pointed out that a large portion of the acreage had expirations on the horizon.  So Magnum sold leases that are expiring soon and in questionable parts of Tyler County for almost $8,000 an acre.

Just speculating, but the only company that could possibly drill on soon-to-expire leases in Tyler County is Antero Resources.  They have the rigs in place and the most infrastructure of anyone up there right now.  We could be wrong about that, of course.  JayBee, Statoil, EQT, and Noble are all working hard in that neck of the woods, too.

But that’s beside the point.  We’d like to point out that the sale was for almost $8,000 per acre for, shall we say, sub-prime leases.  West Virginians continue to sell themselves short regarding what they’ll take for lease bonuses.  Ask for more than you think you can get.  Always ask for more than you think you can get.  You might be pleasantly surprised at what happens.

Efficiency Leads to Profits, and Should Lead to Higher Bonuses and Royalties

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DocumentWell now, this is an interesting take on things.  It appears that oil and gas companies that are working in the shale formations are actually doing pretty well still, in spite of the decrease in energy prices.  This article from Bloomberg says that improvements in efficiency have probably made up for the decreases in prices.

The most interesting number that the article quotes, at least for my clients, is that Antero has costs of less $18/bbl of oil produced from Appalachia.  That’s pretty impressive.  It also means that they can afford to pay a bit more in bonus and royalty amounts.

When you’re negotiating your lease, make sure to ask for more than you think you can get.  In most cases, you will be pleasantly surprised.

Royalty and Bonus Amounts in West Virginia, 2015

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Statoil is going to drill under the Ohio River.  It’s paying really good money to the State of West Virginia to do so.  The bonus equals $8,732 per acre, and the royalty is going to be 20%.  There is no indication as to whether that is gross or net, but 20% is still really good for West Virginia.  As usual, I encourage every mineral owner out there to negotiate for a higher bonus and higher royalty.  You’re not getting paid what you should be getting paid.

Check here for the write-up over at Marcellus Drilling News.