My family has an interest in a producing oil well in Section 1 in Grady County. We have been approached by a land man to sell. We know very little about the process. Question 1.: We know the buyer is to pay all costs up front. We have inherited the interest from our mother who died intestate. The land man has not, and may not be able to, tell us what his curative title cost would be for that may vary greatly. Can you all give me either estimates or from your experience, cost figures for what such title and associated costs would be? They would be deducted from what we would finally receive and this could give us an idea of the net payment.
Question 2.: We have been told that including a depth clause, a favored nation clause, and a shut in clause is good to do for several reasons. Is it your experience also that these should be included in a contract?
3.: Is there any practical way for the seller to know, and at no cost, what the forecast is for the future production of his well?
Any pointers or tips will be most welcome!
Jim,
Comments:
- there are over 20 "Section 1s" in Grady. Location is very important especially if you have a horizontal well that is producing. Convey the Township and Range numbers to one of the folks on MRF for an eval. I suggest you "friend" M Barnes. She may give you a valuation range /net mineral acre from a geologic point of view. There are others who can do the same. Tom Moore is another.
- If you leased, get a copy of the lease and know your royalty interest and a copy of the Affidavit of heirship if you signed one.
- If you are being paid royalties, find your decimal interest on a check stub or division order if received.
- With your royalty interest and producing (well) unit size, you can calculate your net mineral acre that has been attributed to you by the operator. It is an indication not a fact.
- List the names and addresses of your mother, father, and grandparents. If you mother had siblings or was married to someone other than your father.
- Understand the liabilities you are committing to in the mineral deed you are asked to sign and notarize. Only deliver the deed when you have the agreed amount of money in your account.
Questions:
- Get a lump sum proposal from the landman and check against your acreage and value/acre estimate. If it seems like an amount you may consider selling at, find a mineral lawyer or manger and write a purchase and sale agreement and obtain more bids. Ask a lawyer about your share of your mother's estate and get confirmation of your net mental acres. Determine the Fair Market Value to you. Allow $5,000 for the documentation of your title and legal research.
- If you are selling the leased or pooled inters, depth clauses should be included in the FMV estimate. Google a definition. It is meaningful. If you are selling a leasehold interest, depth is set out in the lease.
- In many areas of Grady, the number of potential wells will be more important in establishing FMV than just the first one.
Bottom line: When you are a seller, don't skimp on professional advise. A fair deal that closes to your satisfaction is usually a large multiple of the offer that first gets you thinking about selling. If you haven't been paid anything for the existing well, BEWARE!!!! Operators will pay a fair price for minerals but the owner must make them do so. Don't for a minute think you can outsmart an industry that has been doing this for 100 years.
Gary L Hutchinson