Surface lease question

[cowman]

cowman, I guarantee you that the average lease in this area pays $450.00 an acre. The leases on my property are all at $450.00 and some of them have been paying that amount for over ten years.

[grassfarmer]

Cowman I said "...management intensive grazing PROFITABILITY far outyielding the potential as grain land."
This is different from the output potential of the land. Without considering the input costs of both systems to achieve a measure of profitability it is a worthless excercise (kind of like growing grain on marginal land in west central Alberta.)

[SW1-32-5-4]

The negotiations that I do this spring are all $700 an acre in the Special areas-- cultivated & deeded. I work for the landowner.

[silverback]

Are you saying the value for loss of use of production - per acre has been $450 ????? That seems unbelievable. (Not that I will say you are lying. lol)

What area is that in?? How was that calculated?? What type of well site?? (not that it should matter) That would jump our coalbed wells over $3000 per year!! If that is true we are getting shafted east of Airdrie

Thanks

[cowman]

I was just talking about the production portion of the rent, not the nuisance factor or adverse effect portion? If you factor in those then the lease rent should be in that $800-$1000/acre area? A normal 3 to 4 acre lease should be bringing in a rent of about $3,000/yr.?
grassfarmer: I realize the net profitability is different than the overall production capability, but the oil companies pay on overall production and do not factor in net profitability at all?
I have never seen any lease where the production portion of it pays more for pasture, over grain or hay land? In fact the oil company might pay the highest rate on export timothy land!
Still $350/acre is pretty decent rent for grainland and $200/acre is pretty darned good for pasture land? The problem is when in fact the pastureland is as good as the cropland! Then it might be very good economics to rip it up before they drill...or at least point out to them that, that is your intention if they insist on paying you for pasture!

[cowman]

One more thing everyone should be aware of(especially in coalbed wells) is although the area of the lease is what you are payed on, the company in reality wants to place a caveat on a larger portion of your land than the actual lease? With NO compensation for that area! So a 3.75 acre well site will result in a caveat on 7.5 acres.
I recently went through this with a coalbed company, where I insisted I should be paid something for the extra land they wanted to put the caveat on. We couldn't come to an agreement and the well never went ahead. They'll be back after they pick off the easy guys but I'll have my lawyer handy!
No way is it fair that a company can put a caveat on a greater portion of land than what the lease is without any compensation! You can't do anything with that land as long as they have a caveat on it...so you should always be careful about what you sign!

[raymondb]

Another arguement or tool to use is ROI(return on investment) Most oil companies use a ROI of 20% on their projects so farmers should use this same number as they deal with the oil company. If your land is selling for around $1000.00/acre , you should expect $200/acre right off the top. Then you can add in the nuisance factors such as working around the lease,noise,ugliness,your time spent on bookwork etc every year, etc etc.

[grassfarmer]

Cowman I could make the case for some of my intensive pasture thus: My direct marketed beef sells for $1800 for 1200lb cattle = $1.50 liveweight. These cattle gain 2.5lbs a day on my pasture so the value of their daily gain is $3.75. If we average 100 AUDs per acre we have a gross return of $375/ acre. So I want a higher rate of compensation too. High returns are possible under a grass/ beef system if we are prepared to do things differently.

[farmers_son]

Grassfarmer: Numbers will only take you so far in seeing your rents increased. You have accounted for $1500 per year loss of use on a four acre site but what about the adverse effect? You will not be able to demonstrate the same level of costs for adverse effect, which is among other things is the cost of farming around the well site, on pasture as on cultivated land.

I have negotiated lots of rental reviews for myself and others but I have never brought out the calculator. Instead take the view that if the company can pay $3500 for a well 3 miles down the road then why are they only paying you, for example, $2500 a year. Forget the acres, a well is a well. Three acres versus four acres, there is really no difference. Assuming the land is similar even though the cropping regimes are different, why would you be expected to take less than the other guy? The company can’t pick up their well and leave, they need you to be a happy camper as they going to have their well on your place for the next 5 years. Do your homework, find out what is being paid in your area, find out what the SRB pays, don’t take less. If there are special circumstances in your case like the well is close to your home or otherwise causes more than the normal nuisance take that into consideration.

They are not really paying you for adverse effect or loss of use. They are paying a token amount of money to buy a favourable relationship with the landowner of the property surrounding the well. If you are not happy, then they are not happy either. The SRB is there just to keep rentals within reason, otherwise don’t take less than what you feel is fair. The only place I see the calculator being used to determine annual rent is if you have a special circumstance that entitles you to significantly higher rent than others surrounding you e.g. a non agricultural use.

If the landowner is unhappy the cost to the company can easily run into the tens of thousands of dollars. You are being paid to keep you happy, not for the loss of your pasture. Once you have grasped that concept, it becomes a lot easier to get fair rent.

[grassfarmer]

Fair enough farmers_son, Cowman and I got sidetracked a little on our grain versus grass topic rather than negotiating lease rates.
I'm interested by Silverback's comment about lower values in his area - this lease of mine has a loss of use component of $250/ acre which is far below what some of you are quoting. Still the rental is just under $3000 on a 5.15 acre site, negotiated in 1996. This is still $400 less than the review board decision you posted earlier in this thread.
One other comment about this site - several friends with oil experience have seen it and reckon in is too close to the river bank to be legal. The survey plan shows the nearest corner of the lease being 40 metres from the river with another corner virtually on the bank of a fair size backwash of the river that contains stagnant water year round.