Oil & Gas Knowledge Provides Leverage

Oil and gas leasing 2021. Negotiating an oil and gas lease is not a simple and easy endeavor.  Many people think it’s just a matter of tossing some numbers back and forth over a week or two until you come to a deal.  That’s a recipe for disaster.  The truth is what may be a good deal for your neighbor, might not be a good deal for you.  How do you know?  It requires knowledge of current industry operations, each individual producer, the law, and, perhaps most importantly, knowledge of the individual property to be leased coupled with how the property factors into a producer’s development plans.  It’s a business transaction.  Knowledge gives you leverage, and leverage gives you the best deal possible.   

Now, negotiating an oil and gas lease is more involved and complicated than ever and will be in 2021.  Oil and gas leasing bonus rates are dropping.  Royalty rate offers are dropping.  Producers are less and less likely to offer true “gross” royalties without deductions.  This is true whether you’re in Ohio, West Virginia, or Pennsylvania.  It’s especially true in my “backyard” of Ohio, Marshall, Wetzel, Tyler, and Doddridge Counties in West Virginia. 

What’s the story?

In my opinion, it’s not a big secret why negotiating a good oil and gas lease is becoming more and more difficult.  First, natural gas prices remain extremely low.  The local sales price of natural gas has hovered between less than $0.50 and $2.00/MMBtu for all of 2020 with no signs of anything changing anytime soon.  For some perspective, producers were panicking when prices fell to $3.00-4.00/MMBtu in 2014.  Second, the COVID-19 pandemic has certainly not helped and has undeniably lessened demand for natural gas, leading to further price pressure.  Third, producers have, on the whole, consolidated holdings throughout Appalachia and competition has all but evaporated. 

Do you have property to lease in 2021?

All of these things, combined, are sure to guarantee that leasing in 2021 will continue to be as difficult, if not more difficult, than it was in 2020.  Without competition, I expect producers to continue to “name their price” and drive increasingly hard bargains.  I also expect producers to increasingly rely upon the Co-Tenancy Law and forced pooling for Utica acreage instead of negotiating with landowners. 

That doesn’t mean you’re out of options.  Again, you must have the knowledge to know what leverage you have in the negotiations.  For example, is your property integral to a development unit?  If so, the producer will “need” your property and can’t simply seek to name its price.  Of course, the producer won’t offer this knowledge and the answer won’t be black and white.  It’ll be up to you to gather the information to make an informed assessment.  Gathering that information isn’t quick and easy, but it’s worth the investment.  It provides you with knowledge, and knowledge is power in any negotiations.

GKT Oil and Gas Attorney

I’ve been representing landowners in oil and gas lease negotiations for the past 7 years.  That is how I approach each of my oil and gas leasing clients’ files.  I gather the information necessary to gain the knowledge necessary to negotiate the very best oil and gas lease for my client.  When I negotiate an oil and gas lease for my client, I make sure all of the T’s are crossed and the I’s are dotted.  The results speak for themselves. 

And, even when the knowledge I gather isn’t favorable to my client, there are still options.  For some, it might be a good idea to wait it out for sunnier times.  For others, it might be a good idea to consider a Marcellus only lease or Utica only lease and save the unleased formation for a later date.  Still others might consider a sale of some or all of their oil and gas interests. 

2021 is shaping up to be a complicated year to deal with unleased oil and gas minerals.  Make sure you have the knowledge to make the very best decision for yourself.  Go to GKT.com to chat with us about your oil and gas issue or give us a call at (304) 845-9750.  As always, we’d be happy to schedule a free, no-obligation consultation to learn more about your unique circumstances.