P A R T N E R W I T H D P C
The process of drilling a well begins with a lease agreement between the producing company and one or more landowners* who will make up a drilling unit. The unit can vary in size from one to forty or more acres depending on the depth of the proposed well.
As the prospective lessor, a landowner who is approached for a mineral rights lease must be aware of all the conditions of the lease that allows the producer to drill on his land. It is important to realize that once a lease is signed, a partnership is formed that may last for many years if oil and gas is found in paying quantities. Therefore, the landowner must have a certain level of confidence in the company that will drill and produce the well on his land. He must know that there will be an initial period of disruption to his property during the drilling, but a wisely executed lease agreement will protect him and the property during the life of the well.
Most leases are standard in form however Dorfman Production has entered items in the agreement which favor the lessor. Some of the main components of a lease are:
- Delay rental - An annual payment made to the lessor usually on a per acre basis prior to a well being drilled to delay them from renting the rights to another operator.
- Pooling or unitization – Leasing land from multiple owners to create a lease that is large enough to drill a well.
- Free gas - An annual allocation of gas to the lessor for domestic heating purposes. This is commonly 200,000 cubic feet or more per year and goes to the person upon whose land the well is located. This amount of gas is more than you can burn in your domestic dwelling. The average home across the entire Columbia Gas system consumes only 131,000 cubic feet per year.
- Primary or initial term - The length of the lease in years, typically 2 years or more. The longer the term, the less likely a well will be drilled shortly after signing a lease.
- Royalty - The amount of production received by the lessor is one-eighth (12.5%) of the sales of oil and gas from the well. If there is more than one landowner in the drilling unit, the royalty is shared according to the amount of land each lessor has in the unit.
- Secondary term - The length of the lease after a well is drilled; this is usually as long as the well produces in commercial quantity.
- Termination - End of the lease due to expiration of the primary term or when commercial production ceases and the well is plugged.
The prospective lessor should consider the following before signing a lease agreement:
- If the lessee is an independent landman, ask what he intends to do with your lease. Independent lease people will assign your lease to a producing company that you will have no contact with until the lease has been assigned.
- If the lessee is a production company, check the references of the producing company. Do they have producing wells in your area? What is the company’s violation/enforcement history with the Division of Mineral Resources Management?
- Request references from landowners for whose property the company has drilled on. Check them out. These references can give a good idea of what to expect from the company’s practices and operations.
- Discuss the term of the lease. Ask when the company intends to drill.
- Discuss where the well, storage tanks, access roads and pipelines will be placed. Some well locations may be site specific for geologic reasons, but the other items should be subject to landowner approval. Pipelines should be buried below plow depth where practical.
After close examination of a Lease presented by Dorfman Production Company you will find that these items have been addressed and are in the Lessor’s favor. Dorfman Production is proud to supply landowner references from anyone we have drilled with and in most cases you will find them to be an acquaintance of yours, a good friend or a friend of a friend. Our staff in Ohio lives in the neighborhood where they work and are eager to talk about our business.
*The term landowner refers to the owner of the mineral rights. In Ohio these people are usually one and the same. However, on occasion the mineral rights are separate from the surface.
I N T E R E S T I N G F A C T S
- Dorfman Production Company has been owned by the same principles since inception, the Dorfman family. For more about the history of our company please visit the About DPC page.
- DPC was ranked the 39th over all producer in the State of Ohio for Oil and Gas production in 2005. At the time DPC operated 281 wells in Ohio. At current we operate 305 wells and plan to drill 18 in the near future.
- DPC was ranked the 10th producer of Oil in the State of Ohio bringing in 82,266 barrels in 2005.
- DPC was ranked in the top 30 of producers of Gas in the State of Ohio bringing in 522,028 mcf in 2005
P I C T U R E S