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.

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As a prospective lessor, a landowner who is approached for a mineral rights lease must be aware of all the conditions of the lease that allow the producer to drill on his or her 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 integrity and competence of the company that will drill and produce the well. The landowner should know that there will be an initial period of disruption to the property during the drilling, but a wisely executed lease agreement – and a production company that looks to the long term -- will minimize that disruption and protect the property while maximizing oil and gas production during the life of the well.  

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Most leases are standard in form; however, Dorfman Production Company typically includes provisions that 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. The purpose of delay rental payments is to compensate the landowner even though oil and gas production has not yet begun on the land, even if such delays are not attributable to the operator.

 

• Pooling or unitization – Leasing land from multiple owners to create a lease that is large enough to drill a well, and/or in such a way as to maximize the benefit to multiple landowners.

 

• 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, and usually amounts to more gas than one can burn for your domestic dwelling. An average Ohio home consumes only 131,000 cubic feet per year.

 

• Primary or initial term - TThe length of the lease in years, typically 2 years or more. The longer the term of the lease, the less likely it is that a well will be drilled (and oil and gas production will begin) shortly after signing the 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 owns in the unit.

 

• Secondary term - The length of the lease after a well is drilled; the secondary term typically extends for as long as the well produces in commercial quantities.

 

• Termination - The lease expires at the later to occur as between the end of the primary term or the moment when commercial production ceases and the well is plugged.

 

The prospective lessor should consider the following before signing a lease agreement:

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•  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 of their choosing, not yours, and you will likely have no contact or relationship with that company until after the lease has been assigned.  

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• 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 responsible government agency (in Ohio, the Division of Mineral Resources Management; in Texas, the Texas Railroad Commission)?

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• Request references from landowners whose property the company has drilled on. Check them out. These references can give a good idea of what you can expect from the company’s practices and operations.

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• Discuss the term of the lease. Ask when the company intends to drill.

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• 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 it is practical to do so.

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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.

 

*As used here, 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 owned separately from the surface property rights.

 

I N T E R E S T I N G   F A C T S

 

• Dorfman Production Company has been owned by principals of the Dorfman family since its inception. For more about the history of our company please see About DPC.

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• DPC was ranked the 39th overall producer in the State of Ohio for oil and gas production in 2005. At the time DPC operated 281 wells in Ohio. We currently operate over 340 wells and have plans to drill more in the near future.

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• DPC was ranked the 5th producer of oil in the State of Ohio, bringing in 113,825 barrels in 2008.

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• DPC was ranked in the top 16 of producers of gas in the State of Ohio, bringing in 771,829 mcf in 2009.