By: Clif Little, OSU Extension
Individual Landowners working together in groups with a common purpose to secure more favorable lease terms and/or signing bonus and royalty have been forming throughout the shale regions of the United States for some time. The premise of the associations is that, many individuals representing a potentially large mass of oil and gas related resource gain leverage in the negotiation process. Landowner groups vary greatly in their structure and cost. While all members may benefit from such associations, it may be the individuals with small, oddly located parcels that benefit the most. The groups can be committee led with voting rights of members, attorney led groups, relator led, neighbor groups and a variety of other arrangements. Before joining any group there are several points for property owners to consider.
First conduct a thorough research of your property title and determine if you own your minerals. This can be done with the assistance of an attorney and possibly with the assistance of a title abstract company. There have been several individuals who have joined landowner groups thinking they own their mineral interest only to discover after a deal was struck and upon title research, they do not. When this happens it can appear that the landowner group is misrepresenting what they have to lease which ultimately cost all members.
Once you have a professional opinion of clear title, attend landowner group meetings and learn about the organization before joining. Some of the factors to consider are; what is the cost? Groups usually take from 1-7% of the signing bonus and some take a percentage of the royalty. How long is your obligation? Once you commit to the group how many years must you remain and how do you get out? How do you renew membership? Can you negotiate with companies the association has been meeting with and if so is there a cost? How does the group inform members? Some landowner groups meet regularly, some by email. Do you trust the leadership of the group? Is an attorney involved in lease development and review? Does the group have a successful track record of signing with companies? Can you review the final lease before signing and opt out? Landowner associations generally share with their group the lease they will attempt to negotiate. However, the lease is negotiable and will most likely be changed before finalized. Just because a landowner association has a good lease doesn’t mean it would be a good group to join.
Landowner groups may specify a minimum amount of acreage you must own mineral title to before you can join. This acreage requirement can range from 1 acre to 50 acres or more. If considering joining a large landowner group, can your acreage be cherry picked out or is it an all-or-none group? Leasing companies have areas they believe will yield better than others in terms of production and may want to pull out individual landowners or lease at a different value/terms depending on your location.
How large is the landowner group allowed to grow? Group acreage size ranges from hundreds of acres to tens of thousands of acres. Just remember, the larger the group, the fewer companies will have the resources to pay the signing bonus, meaning less competition for the groups acreage. How does the association deal with growth?
Many associations have web sites which post their lease and by-laws. When oil and gas leasing starts in your area, so will the development of landowner groups. Attend these association meetings; learn about leasing and the group structure. Make no rash decisions about joining. In general, well organized landowner groups have managed to provide property owners with better lease terms in general. It is not essential to join a landowner group to get a good lease. Negotiating a lease on your own can be a slow and exhausting process which may take months or years to complete. For some, landowner groups have removed this burden. Finally, be sure and consult with your attorney before signing onto a landowner association group.