North East Tarrant Gas Leasing Organization
Public Meeting September 13, 2008
• 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
• 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
• 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
Gas Drilling Issues
• Drill Site Location
• Surface Usage
• Transportation Costs
• Post Production Expenses
• Pooling/Perpetual Drilling
• Mortgage, Insurance,
Facts To Consider
• Process can take several months
• Difficult to get accurate
information from landmen
• A lease is a legally binding
• 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
“Hurry or you will be left out”
• 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.
• 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
• Drilling may not start for 2-3 years after
• Drilling Time – 20 to 30 days per well
• Fracture Stimulation Time – 4 to 10 days
• Flowback Time – Approximately 21 days
• Gas Production – Over 20 years
• 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
• 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
• Water injected into disposal wells is placed into brackish
or saline zones well below fresh water intervals.
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
• 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
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
• 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
• 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
• 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
• 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
• 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.
• 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
• 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
• Groups that stick together have successfully obtained leases that protect
• 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
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,
10. Everyone must have a voice…always.
• To lease, or not to lease, is an individual’s
• 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