Frequently Asked Questions:
General Information
Drilling Process
MOI
Lease
Mineral Rights
Negotiation Process
Signing and Payments

General Information:
What is natural gas? Natural gas is colorless, shapeless, and odorless in its pure form. Natural gas is combustible, and when burned it gives off a great deal of energy. Unlike other fossil fuels, however, natural gas is clean burning and emits lower levels of potentially harmful byproducts into the air. We require energy constantly, to heat our homes, cook our food, and generate our electricity. It is this need for energy that has elevated natural gas to such a level of importance in our society, and in our lives. Because natural gas is plentiful in the U.S., using natural gas over oil may help reduce our dependence on foreign energy sources. (source: Department of Energy)

Is it like the gas I use in my car or barbecue propane tank? No. While those products are commonly grouped in with other fossil fuels and sources of energy, there are many characteristics of natural gas that make it unique. Read more at naturalgas.org.

What is the Barnett Shale? The Barnett Shale is a large natural gas reserve encompassing more than 5,000 square miles and covering at least 17 counties in North Texas. Many experts believe the Barnett Shale may be the largest onshore natural gas field in the United States, containing more than an estimated 26 trillion cubic feet of natural gas.

Why has drilling started recently in the Barnett Shale? The development of new technologies that enabled drilling companies to more efficiently fracture the rock in order to release the gas, in combination with the introduction of horizontal drilling in 2002, has lead to greater investments and interest in the Barnett Shale. Read more at the Barnett Shale Energy Education Council (BSEEC.)

Do we know where a drill site might be located? Right now it is not certain where the drill site will be located. The gas company must obtain a permit from the Texas Railroad Commission to drill a well. As the process moves forward, the gas company will file the necessary permits, and they may also advise landowners of their intended site.

How could drilling impact our quality of life? Drilling ordinances set forth minimum distances from residences and other structures, which limits the impact to quality of life.

Who is liable if any home is damaged due to this process? If you can prove that the damage is due to the drilling process, the gas company would likely be held liable for such damages as would anyone else who caused damage to your property.

What about the environment? This is a complex issue that should be decided by each homeowner. For more information, below are two opposing sources for you to read and consider. Each of these has several references and links within them for additional resources.
Barnett Shale Energy Education Council - Environment
Fort Worth Citizens Against Neighborhood Drilling Ordinance

MOI:
What is an MOI? The Memorandum of Intent (MOI) is a non-binding declaration that does not obligate you to sign a lease. The purpose for the MOI is to demonstrate the highest percentage possible of neighbors willing to negotiate together in order to command the best terms from exploration companies.

Am I requred to sign the MOI? No.

What happens if I don't sign an MOI and the Northeast Arlington Organization (NEAO) gets a lease offer that I want to be a part of? If your property lies within the boundaries of the NEAO, you will qualify for the full negotiated lease deal provided you have not signed a lease with any other company. However, keep in mind that our negotiations will be more successful with the greatest majority of homeowners aligned when we begin negotiations.

Lease Questions:
What is the meaning of bonus, royalty, primary term and Pugh clauses? Bonus payment is the amount of money received at the time you sign the lease. Typically it is based on a per acre or per lot figure. This is a one time payment. Royalty is the amount of production that the homeowner receives from a well. It is usually stated as a percentage figure or a fraction. (i.e. a ¼ royalty or a 25% royalty) This payment is paid regularly, usually on a monthly basis. Primary term is the length of the lease. The lease terminates at the end of the primary term unless one of several conditions exist. If the land is included within a producing unit, the lease will typically be extended for however long production occurs from the unit. Pugh clause is a clause which operates to return to the mineral owner any lands which are not included in a producing unit at the end of the primary term. Pugh clauses can be both horizontal and vertical.

What is the average royalty amount per month, how long does it last and what expenses are incurred by the homeowner? Royalty payments are determined by the amount of production, the amount of land included within a producing unit, the amount of the royalty, and the amount of land that an individual landowner has included in the producing unit. Production varies from well to well depending upon a number of different factors. Wells also decline in production over time due to a variety of factors as well. Because of all of these variables, it is not possible to state an average royalty payment.

However, if you assume that a Barnett Shale gas well contains 640 acres and initially produces 2,000,000 cubic feet of gas per day and gas is sold at $8.00 per thousand cubic feet, then the production from that well should create a revenue stream of $16,000.00 per day. If a landowner has a .5 acre lot included in the 640 acre unit and his lease provides for a 25% royalty interest, the land owner will receive 25% of 1/1280 of the $16,000.00 which is $3.125 per day. This would mean a royalty payment of approximately $94.00 per month. If gas prices rise or fall, so would the amount of these payments. Also, as production from the well increases or decreases so would the amount of these payments.

How does a lease impact our mortgage, insurance, property taxes? This lease may need to be approved by your mortgage company. You should check with it first to determine if this is the case and whether its consent is required to lease. Insurance is not likely to be affected by the leasing of your property. Property taxes may vary from city to city, so you should inquire with the city of Arlington to determine whether there will be a tax consequence if you lease your property.

What is the personal tax consequence of accepting any offer? The income you receive from mineral production is typically taxed as revenue by the IRS. You should inquire about your specific tax consequences with an appropriately qualified professional.

What is the transferability or assignability of the lease? Whoever you lease your property to will typically have the right to transfer or assign its rights under a lease to someone else or to another company without your permission.

What happens if I sell my house while in the lease term? There is nothing to prevent you from selling your house during the lease term, but if you do not reserve the mineral interest you own, that mineral interest will be transferred to your purchaser, and the royalty payments will go to your purchaser as well.

What happens if my neighbors sign leases, but I do not? You will not receive any bonus or royalty payments, and the oil company cannot take your minerals.

Mineral Rights:
How do we determine who owns the mineral rights for our property? This is not something that a homeowner can readily do without incurring significant expense. You could start with your own deed and deed of trust when you purchased your property. These may contain some information about whether there are previous mineral reservations. Your title policy might also have this information. The fact that none of these documents contains this information does not indicate that you do or don’t have a mineral right.

Do oil and gas companies, or their agents, attempt to verify mineral rights ownership prior to making a lease offer? Yes, they will have a preliminary opinion before they offer to lease your land. They will have an attorney’s title opinion before they pay any money to you as your royalty payment. This opinion will state what every landowner’s interest within a unit is in decimal terms and will state the nature of the interest (royalty, overriding royalty, working interest, etc.)

Negotiation Process:
Have negotiations begun? No. The NEAO is still in the organizational process.

How can I be a part of the process? We are currently forming a committee to determine our NEAO collective priorities and needs for a lease and another committee to establish evaluation criteria for offers. Your input to these groups is vital.
E-mail your feedback for what you would like to see included in a lease.
E-mail your thoughts on the evaluation criteria and process for any offers.

Can I be on the negotiating committee? Please contact Brad Perkins if interested in helping to negotiate with the gas companies.

Signing and Paymants:
What if I have already signed a lease? Most leases are binding and you will be obligated to that company for the term of your lease.

What if I want to sign a lease with an operator other than the NEAO recommendation? This is your choice but we would encourage you to stick with the neighborhood to maximize the acreage available, which in turn maximizes our royalties.

Other FAQs on this area to come as we progress through the negotiation process.