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I have been asked to extend a lease by 68 days that still has approximately 7 months remaining. 

 

This was originally an 18 month lease, with depth limitations and still has over six months to run. 

 

The Lessee has supposedly drilled one well but wants to drill at least one additional well if not more and claims they are having difficulty obtaining a drilling rig.  That seems somewhat surprising in the current environment... and I have not yet received a division order on this new well.

 

I originally leased for a 25% cost free royalty with a $600 per net mineral acre bonus on an 18 month term.  This $600 equates to $1.0989 per net mineral acre per day.

 

The intial offer for this short term extension was $30 per net mineral acre and then increased to $50 per net mineral acre.  This equates to $0.44 and $0.74  per net mienral acre per day, respectively.

 

I would think that there should be some premium for 1) a short term extension and 2) asking for this extension so far in advance of expiration.

 

I proposed a 135% premium to that for a short term extension which was $1.48352 per acre per day and have been told that they "respectfully decline" and they are holding out an offer of $50 per net mineral acre for about a week.  Again, this $50.00 per net mineral acre equates to $0.74 per net mineral acre.

 

Does anyone have any thoughts on what is reasoanable to expect for a short term extension, initiated by the current Lessee where I own about 4% of the minerals?

 

 

 

 

 

 

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Replies to This Discussion

I understand where you are coming from on this but an intangible issue is who else would be willing to come in right now and drill a second well on your lease?

Thinking out loud, I would sign the extension but ask for a penalty if they don't drill a second well in the time frame provided. Perhaps 2-3 times the extension bonus number

Do you know anything about the well that was drilled? Who is the operator? 

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