Landowners Link Arms for Leases
Traditionally in the oil patch there’s a letter in the mail or a landman knocking on your door if you have land and/or mineral rights a company wants to lease for drilling.
That’s so yesterday.
Today, there’s an apparent new trend in the works that’s having a substantial impact on the entire leasing process in some areas.
The new MO among landowners in some of the hot shale plays is to band together so they have leverage to negotiate as a group with companies regarding lease bonuses and future royalty payments.
They’re putting up Web sites for group research and discussions, organizing neighborhood coalitions, offering their acreage together as contiguous blocks rather than scattered individual properties and more.
In some instances, the landowners are holding bidding auctions for drilling rights.
This is a far cry from the past when an individual landowner might opt to hold out for a better deal than what was being offered only to see the operator walk away and go elsewhere.
The good news for the companies is they can benefit from these coalitions as well.
They provide relatively quick access to larger plots of land, enabling the companies to bypass the time-consuming – and often painstaking – task of negotiating with individual owners. The companies also can benefit from eager-to-lease owners convincing their unwilling neighbors to sign up.
Making a Deal
A play such as the Barnett Shale in Texas, where there’s significant drilling in residential subdivisions as well as right in the middle of downtown Forth Worth, is a natural for these kinds of neighborhood organizations.
Dan Delph, who is active in one of the several Fort Worth area groups focused on mineral lease negotiations, noted neighborhood volunteers actually go door-to-door to try to convince reluctant homeowners to join in the cause and sign up with the group.
Delph is a member of the 360 Northwest Coalition, which includes more than 3,450 residential and commercial properties on 800 contiguous acres located in Euless and Grapevine at the northwest corner of Highway 360 along the west border of DFW International Airport.
The initial offers the owners were receiving for their property prior to banding together entailed $3,000 bonus per acre and 20 percent royalty.
“Today the offer on the street is $18,500 and 25 percent,” Delph said. “The fact they’re offering such high amounts compared to what they initially offered is validation of our efforts.
“We want to improve both the economics and the legal terms of the leases.”
The group, which has legal representation, has not yet entered the negotiating stage where it will go after terms even more favorable than the current “street offer,” according to Delph.
The clout of these coalitions is obvious when viewing some of the deals already struck.
Not far from the focus area of Delph’s group, members of the Southeast Arlington Property Owners (SEAPO) coalition of 7,600 households recently negotiated a deal with Chesapeake for $22,000 per acre lease bonus and 25 percent royalty. The SEAPO members earlier had been receiving offers of $5,000 per acre for their mineral rights.
Chesapeake coughed up a total $44 million for the 2,000 contiguous acres included in the deal, according to Jim Colley who helped to organize SEAPO.
“These were acres that mattered (to the company),” Colley said, “and we put the deal together in three weeks.”
The fact these were not experienced oil and gas folks makes this accomplishment that much more impressive.
“In February, I didn’t even know what a gas lease was,” Colley noted.
Following the SEAPO agreement, the North Central Group landowners’ coalition nearby procured lease bonuses of $27,000 per acre and 26 percent royalty.
While lease terms of this magnitude may sound a bit other-worldly to the uninitiated, these properties are smack-dab in the heart of the prolific Barnett play.
Landowners in the emerging Marcellus shale play in the Northeast also are banding together.
In Pennsylvania, where the Marcellus play has its main focus, Lakewood-based Web developer Ron Stamets set up a Web site December 15 to provide a forum for landowners.
The site is tallying about 100,000 hits a day.
“I started it because in October, a drilling company landman from Chesapeake showed up at our door offering to pay me a $500 an acre bonus,” Stamets said. “About a year ago someone else came through the area and was offering people $25 and sometimes $100.
“When they were willing to plop $500 on the table, I thought ‘wait a minute, they know something I don’t know,’” Stamets noted. “So I started doing research.
“Then I put a quick Web site up so the neighbors could do research and share information,” he said. “Most often on the Web site, it’s people from West Virginia, Pennsylvania and New York state because that’s where the feeding frenzy is right now.”
Stamets said he’s been accused of putting up a Web site to scalp bonuses.
“That was never the intention of the Web site,” he said. “It’s to let people know what the bonuses are in the area where there’s leasing and also to help people to develop landowners groups that are built on contiguous blocks of land.
“The whole thrust of the site is educating landowners that they have a valuable asset,” Stamets said, “but that it has limits as to what the value may be in particular areas.”
It is noteworthy that the site is not exclusive to landowners. Landmen also participate in the user forums.
“We have landmen who have helped people with information on what to expect,” Stamets said, “as well as what not to expect.”