Replies to This Discussion

Permalink Reply by Jon Cb 1 on May 22, 2012 at 11:11am

What are the terms of the offers?

Permalink Reply by Skip Peel- Independent Landman on May 22, 2012 at 1:42pm

I haven't been able to get all the details yet, Jon.  All I know so far is $400/acre bonus and split royalty.  25% above the Cotton Valley and 20% below. 

Permalink Reply by Jon Cb 1 on May 22, 2012 at 4:27pm

That is what I have heard also. With a 3yr lease & 4 yr  option.

Permalink Reply by RMcMilleon on June 11, 2012 at 8:33pm

I spoke to a rep with Miller Land Professionals this afternoon. They are offering us $350.00 an acre for 3 years with 20% royalty. If they haven't hit anything in three years, we will get another check with a lease extension of 4 more years, no option. Total contact of 7 years. This company is a broker company, the maim company is remainimg secret until they drill. This is what I was told today. Is this a fair offer for this area? I ask this because in the Caddo parish area, the price per acre was much higher with 25% royalty. Thoughts or comments are appreciated, since we are still considering this offer.
Thank you.

Permalink Reply by Skip Peel- Independent Landman on June 11, 2012 at 8:50pm

Lease value is location and acreage size specific.  No one can give you an accurate answer without that information.

Permalink Reply by Mike R on June 12, 2012 at 7:22pm

Personally, I would not tie-up my minerals for a 7 year period (3+4). Also, I would want to know who the Operator was before leasing. It seems that this arrangement has some risks that you should address prior to leasing. Examples include whether your area is prospective (allowing for better lease terms over the near term), operator reputation (you could end up HBP with an operator drilling shallow and intent on holding your deep, more productive minerals for an eventual sale), and whether the Lessees have an interest in eventually drilling (rather than flipping your lease). These examples are subjective and my opinion. I have family members who own prospective East Texas Haynesville minerals but are HBP (marginal Travis Peak production) with a small time East Texas Operator who is incapable of further developing their minerals (and eventually hoping to sell to a bigger Operator). Unfortunately they rushed into a lease and didn’t look at all the risks or time horizon. I didn’t make that mistake when I leased.

As a general rule, I would consider a $500 per acre bonus with a 25% royalty as being a fair Lessee starting point. Try to get a cost free royalty and negotiate a 3 year term (no longer than 3+2). Since this is free advice, you may want to consult an O&G attorney if you have a large acreage position.

Mike

Permalink Reply by RMcMilleon on June 12, 2012 at 7:37pm

Thank you skip peel and Mike, I really appreciate the advice. I'm afraid all the land owners around me will jump on this first time lease and miss a real opportunity. What will happen if I'm the only hold out with 10 acres in Sec. 23-23-10?
Will they drill anyway and take my minerals right out from under me?

Permalink Reply by Skip Peel- Independent Landman on June 12, 2012 at 8:11pm

If the operator forms a compulsory unit, you will be subject to force pooling.  However you may enter into a lease at any time even after the well is drilled and producing.  Operators prefer to have 100% of minerals in a unit under lease if they can get them at terms they find acceptable.  The best time to negotiate a lease is after a well has been permitted or spud.  You just have to decide what you are willing to accept in the way of lease terms.  Should you not receive an offer that you find acceptable and you choose to remain unleased, the operator will withhold your proportional share of production until the well costs are recovered and then pay you 100% of your share of production subject to periodic deductions for operating expenses.  That is "if" the well is productive and "if" it is sufficiently so to repay the cost of drilling the well.