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Discussion Starter #1
I recently received a letter from Shell about signing a gas lease for 3 acres of property we own in Tioga County, PA. They are offering a signing bonus of $300.00 per acre and 12.5 percent royalties for a 5 year lease. I talked to the Shell representative and told him I thought that offer was low. He refused to budge and said that was what they are offering. I told him I'd think it over and left it at that.

Has anybody dealt with Shell concerning a gas lease recently? Is their offer a lowball offer or is it fair? Any insight offered would be appreciated.
 

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Thats extremely low, should be around 3000 per acre, and 18 percent.
 

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Discussion Starter #3
Thanks for the info. I'm wondering, how much bargaining power do I have with only 3 acres? Also, Shell said the drilling unit is 1280 acres. I don't know if that has any bearing on things.
 

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If Im not mistaken, I thought a drilling pool was a square mile (640 acres). One thing to consider, is that in all likely hood wont put a drill rig on your land, they exact it along with another well. From what I know 1 well is good for 40 acres.
 

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Discussion Starter #5
I thought a unit was 640 acres also but they are saying 1280 acres.
 

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A drilling unit can be anything they want. They will get bigger as the technology improves (longer laterials). $3,000+/- is pretty standard with 18% or 15% at the well head (no deductions).

You probabaly have very little bargaining power. Unless a laterial goes directing under your property they don't NEED your lease. They will be taking your gas but you will still technically own it. What they are trying to avoid is you selling to some 3rd party broker once production starts.

Asked to see the permitting maps to see how close a lateral is to you.
 

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Discussion Starter #7
Thanks, DDX.

Do they have to show permitting maps to me? Suppose a lateral is close but not directly under my land?

What happens if I sell to a third party broker?
 

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For 3 acres asking for $3000 and 18% is a dream unless they need you for some reason. We have 10 acres and just got offered (and signed) for $2500 and 16.5%. They started out at $500 and 12.5% which is standard.I told them to pound salt and he called me back with an offer of $750 and 15%= I told him to try again, and about a month later he called with the offer I signed for. I asked him why the change of heart and he said "we were now a targeted area". Out lease just expired a couple of months ago and it was the same exact money and only 15%. I feel pretty good about it because we got then for $25000 and they didn't do anything and now they gave us the same plus they have a well site targeted and we should get a little royalty money this time too. I am right on the Tioga/Bradford county line. They are really low balling you because typical start out offer is $500 and 12.5%. Ours is through talisman but they are all just alike. I would hold out. Tell them $3000 and work down from there. Usually first thing they will do is up your royalty to try and get you to bite.
 

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DC..I strongly suggest you speak to an attorney Much more to leasing than bonus and royalty amount... A lawyer familiar with leasing in your locale should know what the going rates are and what is happening in the vicinity....


FYI 12.5% is the very least amount they can legally offer...They cannot go lower than that in this state.
 

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dc 21 said:
Thanks, DDX.

Do they have to show permitting maps to me? Suppose a lateral is close but not directly under my land?

What happens if I sell to a third party broker?
Once they submit a well permit application to the DEP they have to show you. That's public info then. They don't have to before but usually will if it helps in negotiations.

A 3rd party broker will lease from you for more than they are offering (but usually still under market value) and try to "sell" your lease back to them at a profit. Its usually a group of investors with there own landman.
 

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A higher royalty percent is worth more in the long run, then a high signing bonus with a lower royalty %!
You need to find out what the neighbors have signed for recently to find out he going rate in your area. It differs from county to county,
 

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Discussion Starter #12
Thanks for the responses guys. I really appreciate it. If anybody else has any input feel free to post.
 

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What Timberdoodle said.
Also, with just 3 acres, you should be able to get a no surface disturbance addendum added to lease.
 

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Discussion Starter #14
Thanks, buzz.

Does anyone have recommendations for lawyers, with shale experience, in the Wellsboro area?
 

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I've used Owlett & Lewis out of Wellsboro...Tom Owlett handled my closing when I bought up here but I haven't had any contact since then.. 1985?? You might contact them and inquire or ask for a recommendation for an attorney in the area, if no one else has any recommendationns

I used an attorney out of Troy for my lease but wasn't too enthralled with him
 

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On 3 acres you are likely to spend more on legal fees than you get in lease payment. Some of the protections needed by larger landowners are relevant to a 3 acre parcel. If you have a house on it setback requirements wouldn't leave much room for surface development.
As far as offers varying by county, they actually vary within a single township. With 3 acres they can easily work around you. That said, I do know of other similar size parcels that signed for 2K/16%. I also know of parcels exceeding 100 acres that were only offered 1.5k/16%. Only get specific information for your area will allow you to determine if $300/12.5% is fair.
Good luck
 

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You are crazy not to take an offer from a gas company like shell. If they decide to drill wells. Your talking about millions of dollars in gas that will be produced.until they get put into production. But its all worth it in the end.
 
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