2008-13-9 NETGLO Public Meeting Presentation

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2008-13-9 NETGLO Public Meeting Presentation Powered By Docstoc
					         NETGLO
North East Tarrant Gas Leasing Organization
    Public Meeting September 13, 2008
         Website: http://netglo.org
       E-Mail: netglo08@yahoo.com
               Agenda
•   Who’s NETGLO & Where Are We Going
•   Gas Drilling Basics
•   Lease Consideration
•   Financial Terms and Royalties
•   Tips for Neighborhoods
            Who Is NETGLO ?
• NETGLO is North East Tarrant Gas Leasing
  Organization
• Subdivisions/Neighborhoods represented:
Brandon Wood           Buckner Lane             Century Oaks
Chase Oaks             Coventry Estates         Crestwood Estates
Estates of Oak Run     Evergreen Estates        Fair Oaks Estates
Forest Glenn           Forest Glenn – East      Forest Glenn – North
Highland Creek         Highland Meadows         Highland Oaks
Kingswood              Lakes Of Highland Oaks I Lakes Of Highland Oak III
Londonderry            Marie de lu Luce         Ridgewood
Sarah Brooks Estates   Shady Oaks I             Shady Oaks II
Smithfield Acres       Western Oaks             Willis Cove
    Where is NETGLO Going?
• Continuing to grow the membership
• Continuing to solicit LOI’s (extremely important for negotiations)
• Assist HOA’s and home owners with LOI’s
• Respond to inquiries from HOA’s and individual home owners
• Research and publish FAQ’s
• Research / compare executed contracts and determine items of
  importance
• Contact gas / oil companies to create awareness
• Formulate negotiating positions
• Secure legal counsel for negotiations

• OUR GOAL: Secure a lease agreement for all homeowners that
  has as high of a signing bonus as possible and a high royalty
  percentage while balancing contractual terms and conditions
  concerning quality of life, safety and the environment.
            The Barnett Shale
• A layer about 600 feet thick which was deposited 300-
  320 million years ago when this area of the work was
  part of an ocean. Small organisms were imbedded in
  the mud and were trapped as the mud hardened rock.
  The organic material decomposed and produced
  methane (natural gas). It has been there for these
  hundreds of million so years waiting for engineers to
  develop a technology to extract economically.
   – 1980 Discovered as potentially economic resource
   – 1995 Significant research made to make resource economic
     through stimulations and testing of horizontal wells.
   – 2002 Horizontal drilling & fracturing becomes mainstream for
     development.
       Gas Drilling Issues
• Bonus
• Royalty
• Drill Site Location
• Surface Usage
• Transportation Costs
• Post Production Expenses
• Pooling/Perpetual Drilling
• Mortgage, Insurance,
Property Taxes
       Facts To Consider
• Process can take several months
• Difficult to get accurate
  information from landmen
• A lease is a legally binding
  document
• The fine print is there for a reason
• The terms are important as well
  as the up front bonus and royalty
        Landman or Broker
• Not the operator of the well
• Paid if leases are signed
• Not used to leasing “urban” areas
• Think they have a right to drill
• Known to use high pressure tactics
• Often confuse the issues
• Often promise more than they are able to
deliver
    “Hurry or you will be left out”
               Definitions
• 1 mcf= 1 thousand standard cubic feet
• 1 mmcf= 1 million standard cubic feet
• 1 bcf= 1 billion standard cubic feet
• 1 tcf= 1 trillion standard cubic feet
• Standard cubic foot = The volume of one cubic
  foot of gas at 60°F and 14.7 psia.
• Engineers estimate there are 30 tcf of natural
  gas in the Barnett Shale
• Shale covers an area of over 5000 square miles,
  including Northeast Tarrant County.
             Drilling Terms
• Drill site - A 4 to 10 acre area for drilling
  wells. Ultimately surface equipment is
  normally located at the site.
• Lateral - horizontal drilling up to +/-7000
  feet from the drill site.
• 8 to 12 wells with single laterals may be
  drilled from a drill site.
Top View of Horizontal Wells
Drilling Flow Process
Gas Well Surface Site
Water Storage Tank @ 100 Yards
Compressors
COMPRESSOR STATION
          Relevant Facts
• Drilling may not start for 2-3 years after
  leasing
• Drilling Time – 20 to 30 days per well
• Fracture Stimulation Time – 4 to 10 days
  per lateral.
• Flowback Time – Approximately 21 days
• Gas Production – Over 20 years
                Flowback
• Over 100,000 Barrels of Fresh Water
  Pumped During Stimulation Process
• Initial water is nearly fresh and as load is
  recovered water becomes more saline.
• FlowbackTime – Approximately 21 Days
• During Flowback water trucks will haul
  water from the drill site every 15 to 30
  minutes 24/7
                        Water
• Fresh water zones are isolated from wellbore by cement
  and three strings of pipe. Producing gas zones are over
  a mile below the fresh water intervals. Risk of
  contamination is low.

• All produced water is trucked off of location and is
  disposed of in a commercially permitted salt water
  disposal well.

• Water injected into disposal wells is placed into brackish
  or saline zones well below fresh water intervals.
Lease Considerations
    Standard Contract
                      Contract Provisions           NETGLO’s Ideal Contract
•   Does not limit them to the Barnett Shale.   •   Limits drilling & extraction to the Barnett
•   Gives them 100% mineral rights.                 Shale. Limits their mineral rights to oil & gas
•   Contains contradictory language allowing        or hydrocarbons only.
    surface use rights.                         •   Clearly states NO SURFACE USE
•   Requires you to warranty your deed.         •   Limits any mortgage company costs to the
•   Does not protect you against mortgage           mineral owner.
    company costs..                             •   Defines aggressive terms for shut-in wells.
•   Does not protect you against long- term,    •   Requires that the gas company assumes
    non paying, shut in wells.                      risk and warranty the deed.
•   Does not limit their truck traffic from     •   Limits truck traffic from residential streets.
    residential streets.                        •   Defines production as producing gas to
•   Does not define production as producing         encourage quick and effective drilling as
    gas.                                            opposed to decades of drilling.
•   Does not discuss odorizing the gas.         •   Asks that the gas company odorizes the
                                                    gas for our safety.
                                                •   ...AND MORE
                                                •   Most favored nations status
                                                •   Continuous production
                                                •   Pricing
                                                •   Insurance coverage
                                                •   Force Majeure
                                                •   Subordination Protection
                                                •   Water Testing
                                                •   Damages Covered
                                                •   No drilling within 1000 feet of homes
                                                •   Noise restriction to 5 db above ambient
                                                •   No eminent domain use (drill site or gas
                                                    lines)
                 Drill Site Specifications
    Standard Contract                                NETGLO’s Ideal Contract
•   Does not discuss or define security,         •   Requires stable, aesthetically pleasing
    purchase of additional drill sites               and secure fencing to be built
    further into our neighborhoods once              satisfactorily maintained by the gas
    the contract is signed and the first drill       company.
    site is built.                               •   Limits additional drill sites from the
•   Does not prevent construction                    interior boundaries of most if not all
    equipment for entering neighborhoods.            neighborhood associations.
    fencing, aesthetics, or maintenance of       •   Requires additional light and sound
    the drill site.                                  abatement.
•   Relies only on Rail Road Commission          •   Requires that the site be powered by
    and City regulations for sound and               electric or natural gas equipment to
    light abatement.                                 protect our air from diesel fumes.
•   Allows them to use standard diesel           •   Requires compressor stations and
    generators and compressors to drill              equipment to be housed in solid
    and power their sites construction.              standing structures.
•   Does not require that they house
    compressor stations and equipment in
    solid, standing structures to reduce
    fumes, sound, and unsightly
    equipment.
                               TERMS
•   Primary Term Primary Term
•   Optional Term Optional Term

•   The “Term” refers to the length of time in which the gas company is
    contractually allowed to drill ‘produce’ within.
•   If the gas company does not begin production within this period of time, the
    contract is nullified.
•   The gas companies typically provides a primary term bonus and negotiates
    an optional term with an additional optional term bonus to allow themselves
    additional time within which to drill.
•   The gas companies typically negotiate a three year primary term and a two
    year optional term with a total term time of five years in which they must drill
    and begin production or else lose the contracts on the leased properties and
    then either renegotiate or abandon the area.
•   Neighborhoods, Coalitions, and even individual property owners with larger
    parcels of land, have been able to negotiate contracts without optional
    terms and with only two year or even occasionally (18) eighteen month
    primary terms.
  Financial
Considerations
               Financial Terms
• Bonus – Cash paid to mineral owner for signing a lease. The
  amounts have increased over the last few years from $500.00 per
  lot to $25,000.00 plus per acre and usually based on surface
  acreage.

• Royalty – A percentage of gross sales of gas produces. Most recent
  offers are averaging 25% proportionately reduced your percentage
  of acreage with in the unit.

• Subordination Agreement – Many mortgage companies require this
  agreement to allow you to receive your royalty payments without
  using them to pay your mortgage or call your note due.

• Taxes – There are tax implications on the income arrived from
  lease.
                       Royalty
• According to the 2008 Tarrant County Barnett Shale Well
  Revenue Estimate For Neighborhoods, by Gene Powell,
  in the Powell Barnett Shale Newsletter, the average gas
  well, at a 25% royalty, for a .22 acre lot, in a one well-65
  acre drilling unit, figured at $6.00 per MCF/MBtu could
  pay $2,582 for the first year ($215 month) and $15,591
  over 30 years without re-fracturing the well to increase
  production.

• The same well at a price of $10 MCF/MBtu over 30
  years could pay $4,304 for the first year (about $358
  month) and $25,985 for the life of 30 years without re-
  fracturing the well to increase production.
            Estimate of Royalty
• Monthly payments rendered to a mineral owner for their share in the
  profit from the natural gas.
• The standard royalty in our County at this time is 25%, though some
  Associations and Coalitions have been successful in negotiating a
  higher royalty percentage.
• The gas company prefers to pay this based on the lowest possible
  value which is often referred to as “wellhead price” or “market price”
• The lease may allow them to deduct a percentage of some of their
  operating costs from your royalty. These costs can include
  transportation, fuel, and market enhancement and can equate to as
  much as 15%.
• The mineral owner will have to pay both a Severance and Federal
  Income Tax on their royalty and likely will also be taxed on the value
  in the ground via property taxes.
   Tips For
Neighborhoods
                           Summary
•   An average urban lot can expect to receive somewhere between $100-$250
    per month in royalties based on published production rates, drilling unit
    sizes, well proliferation, etc.
•   In the state of Texas mineral rights take precedence over surface rights.
    Make sure surface use restrictions are “iron-clad” to insure your property is
    not disturbed.
•   Restrictions need to be in the lease. Ordinances may not be punitive
    enough to insure compliance.
•   Ordinances and regulations can be modified through legislative change.
•   NETGLO will not support a lease that does not address the quality of life in
    our neighborhoods.
•   Groups that stick together have successfully obtained leases that protect
    their neighborhood.
•   Groups that stick together have negotiated terms that are far more
    financially advantageous (higher bonus and royalty as well as lower
    deductions and favorable terms.)
       NETGLO Top 10 List
1. Stay Unified & Negotiate as a Group
2. Be Patient - Offers have only gotten better
3. Do not be pressured or intimidated to sign a
    lease
4. Research & Information is Important
5. Understand the Facts
6. Compare Offers/Leases
7. Consider Safety & Quality of Life Issues
8. Have Legal Representation
9. Communicate via Website, Meetings/Forums,
    Email, Flyers
10. Everyone must have a voice…always.
               Disclaimers
• To lease, or not to lease, is an individual’s
  decision
• The information being presented should in
  no way be considered legal advice
• NETGLO is a volunteer organization
• NETGLO or any representative of
  NETGLO, is not receiving compensation
  for it/their services.
WE ARE NOT SIGNING YET

   “PATIENCE PAYS”

				
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