Eric Johnson

Eric Johnson
Written by
about Drilling and Producing + Leases
on October 28, 2013

Notes from the Utica – October 2013

We have been quite busy since our last update.  Most -if not all- of the most valuable lands have already been leased, and energy companies have essentially staked out their positions.  An incredible 169 wells are currently producing from the Utica shale in eastern Ohio.  Chesapeake Energy is far and away the biggest producer in the region, as they operate 114 of these 169 wells.  The lion’s share of these producing wells are in Carroll county.  Carroll saw such a boom due to its underlying geology, but also because it had never seen significant oil and gas development.  As a result, energy companies like Chesapeake did not need to navigate around already existing wells and older leases: it had a relatively blank canvas with which to operate.…


Eric Johnson
Written by
about Leases + Royalties
on September 20, 2013

Landowner Royalty Calculations

One of the questions we’ve been getting a lot of recently is: “how are my oil and gas royalties calculated?”  There are actually a few different ways to answer this question.  The first angle has to do with how a royalty is calculated as part of a drilling unit.  Let’s say that you own 50 acres in a 100 acre drilling unit.  Your lease probably says you are to earn 1/8 (or 12.5%) of all oil and gas produced from the premises.  The premises in this instance is the 100 acre drilling unit, of which you only own 1/2 (50 acres = 1/2 of 100 acres). …


Eric Johnson
Written by
about Leases + Ownership and Transfers
on August 14, 2013

Mortgage Subordinations

Drillers typically ask the landowner’s bank to subordinate their interest in the land (the mortgage) to the driller’s interest (the oil and gas lease).  The driller, of course, was concerned that they would lose their interest in the land if the bank foreclosed on the property.  If the bank’s interest was subordinated to the driller’s, however, the driller would retain their interest even in the event of foreclosure.  In the past, banks granted subordinations without hesitation.  Lately, however, banks are approaching mortgage subordinations much more carefully.  The general concern involves the enormous amounts of money involved in recent Utica shale drilling. …


Eric Johnson
Written by
about Leases
on August 12, 2013

Arbitration Considerations

Oil and gas leases very frequently contain a provision about how disputes will be resolved.  Newer leases almost always contain an arbitration clause.

Just what is arbitration and how does it differ from court proceedings?  Generally speaking, both court proceedings and arbitration proceedings are adversarial processes in which a third party (or parties, in the case of a jury trial) is asked to settle a dispute.   In both court and arbitration, an award of some kind will be issued to the prevailing party.  Courts issue final judgments against parties that usually require them to take some action (i.e. pay damages).  These judgments carry the full weight of the law and must be followed by the parties. …


Eric Johnson
Written by
about Drilling and Producing
on December 10, 2012

Notes from the Utica – December 2012

Since my last update in July, I have perceived a trend of a southward movement of the Utica play. There
is presently a good deal of leasing activity in Belmont, Harrison, Noble and Guernsey Counties. Word
is that some of the best wells to date have been drilled in that area. Certainly, Carroll County and
Columbiana Counties are seeing large numbers of wells drilled, but leasing there is not as active as it
once was; companies are primarily focused on filling in planned drilling units and not much interested in
taking random leases. The basic attitude seems to be – ‘don’t call us, we’ll call you if we need you.’ In
areas where there is a single company with a dominant lease position, lease prices are actually trending
downward as there is little competition for leasing.…


Eric Johnson
Written by
about Leases + Ownership and Transfers
on December 2, 2012

Title Defects

Before a landowner will be paid a signing bonus for executing an oil and gas lease, the Lessee needs to make sure that the person who signed the lease is the person who owns the oil and gas underneath the subject property.   To know for sure, the energy company has to spend a good amount of time doing research at the local courthouse.   There, they search through old deed books and try to determine if any prior owner to the land had reserved the oil and gas rights.  If another person reserved the oil and gas rights, then that party is, by law, the only person entitled to enter into the oil and gas lease. …


Eric Johnson
Written by
about Leases
on November 15, 2012

Arbitration Clauses in Leases

Before the recent interest in eastern Ohio’s utica shale, gas leases were written a little differently.  One big difference between the leases of old and the new leases has to do with how the Lessor (the landowner) and Lessee (the energy company) settle disputes.  Where old leases didn’t quite restrict the methods by which the parties could settle their disputes, new leases can include some pretty strict language that make landowners follow specific procedures for addressing their concerns.

Arbitration clauses have become common in oil and gas leases here in Ohio.  The leases that include such language usually require the landowner to have their concerns addressed by a neutral arbitrator rather than a judge or jury.…


Eric Johnson
Written by
about Drilling and Producing + Leases
on August 13, 2012

“Held by Production”

Landowners who are “held by production” (HBP) by an operating well are actually still stuck under an old oil and gas lease. Generally speaking, as long as you are receiving a royalty that lease is still in effect. Many factors determine whether or not you are able to get out of an old lease. Sometimes it’s possible, but more often than not, it is not possible.

While that lease is in effect on your property, it’s up to the company that owns the lease to decide what to do with it. They can drill a Utica well themselves, or they can sell that Utica portion of the lease to a major company and let them drill.…