Surface lease question

[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.

[grassfarmer]

sixteen years ago we received $13,500 right of entry and first year surface rental for a 7 acre lease site, including lease road which was fenced with new four strand fence and steel gates on both sides of the lease road to access land on the other side as well as steel gates and a texas gate at the entry off the county road.

Annual rent is $3500.

[silverback]

They started paying $250 per acre as production loss per year, then they also tack on inconvienience and things like that. Most cbm wells were first worth about 2400 per year, on a 3.5 acre site that works out to about $685 per acre. I assume that is what was meant by $700 per acre rental?

[cowman]

Actually farmers son is right. The company has pretty well a set price for a lease and they'll juggle the numbers however you like...but the bottom line is it comes out the same! You really aren't going to get much more than your neighbor does.
The most important thing is to know what the neighbor is getting? And also the next guy down the road?
So how do you do that? Farmers are about the dumbest guys around when it comes to sharing information...don't like to let the neighbors know their finances, sort of thing!
Well a good way of finding out prices is join your local surface rights group, if you have one. The $50 membership is well worth the information you will recieve? Get out to the meetings and learn the latest news. And help others by sharing your information! What goes around, comes around.

[cowman]

Many municipalities have surface leases on municipally owned land, and those leases are public information. In our municipality for years the individual negotiating the leases had no expertise in doing so, and the lease rent was a mere pittance of what it should have been. A committee was formed to negotiate new leases and re-negotiate the older ones, then the information was made available for county residents to use in their own negotiations. The oil companies didn't like it much but they had to pay the piper !