Is such a bad idea for the landowner, it borders on insanity. Let me give you an example,
Our poor unrepresented Lessor agrees to lease his land for $500 per acre today (going rate) for three years with the Lessee having the option to extend the lease at the end of the primary term for an extension payment of $4000.00 for the last two years. Sounds wonderful, right?
Well, the landowner is in a no-win situation. If at the end of the primary term the "going rate" is higher, the Lessee exercises their option and can either flip your lease for a profit (if they lost interest in the acreage) or have it at a discounted price compared to current lease rates.
If the Lessee is not interested and the "going rate" is lower, they do not extend the lease.
If the company is interested, but the going rate is $300.00 per acre, they simply do not extend the lease. They may either be upfront (which will be dumb for them to be) and tell you that they are not going to extend at the $4000.00 per acre, but will lease at $300.00 per acre for the last two years. OR, more likely they will not extend the lease, but send in a new landman to buy in another name a new lease at the then current rate of $300.00 for a three year lease.
The landowner loses - again. How does the landowner win?
The landowner negotiates a first right of refusal with the oil company, which by its very nature creates competition. If he is not entirely confident in his actions, he gets some representation and contacts someone who knows what they are doing and let them assist.
Hello, Buddy! I agree with you about the 2 year kicker thing. We've found over the years a straight paid up lease usually works the best for the reasons you stated. 3 years ought to be ample time to get a prospect put together and spudded, but if its not then we can talk about it and give due consideration 2time around. i.e. have you been shooting siesmic, working the geology, put an AFE together, waiting on a good drilling contractor?
Have to think about that "right of refusal" idea - if the other companies got wind of it would they really want to get into a bidding war?
Sometimes, a company for strategy will need to get "long" on a part interest lease, hence the real need for a kicker. The better option is for a first right of refusal, which only comes into play if there is an offer from a third party. It is not a war situation, where you play two companies against each other.
You then accept the offer letter, tell them that there is a FROR and you will let them know if their offer is accepted or rejected. No big deal.
They may need your 15 acre to complete a big protion which is about acre a well. This 15 acre should be paid for your county's going rate. That rate depends on county, and if there is oil, wet gas, or dry gas.. 800 X 15 acres = sign on but remember to get at least a 25 % royalty.
If we had it to do over again, we would have included FROR in the lease we negotiated on behalf of 7600 property owners in Tarrant County, TX. Our original bonus was $22,000 per acre in the spring of 2008 and most of us have been drilled within the primary term of 3 years but there's about 1/4 of those 7600 that haven't and of course the gas company is not going to exercise the option because if they did, they'd have to pay another bonus equal to the first.
For those of us who need an extension, the gas company is offering only 10% of the original amount per acre now BUT we get to keep the original lease form which has many of the clauses that Buddy has taught throughout this forum. It was not the standard Producer 88 lease common in TX but one specially written for urban Tarrant County wells. I feel this is a small victory considering that gas prices are so much lower than they were in the spring of 2008 but our no-cost royalty structure is protected for years to come.
The extension is for 18 months but the site that will service the area is already under development so this will satisfy all concerned.
As to extensions in general, you are extending a pre-set lease. I can assure you my lease form is in a constant state of evolution. Therefore, I do not give extensions. I will give a new lease instead.
Thanks for the info, so maybe its a good idea I get a lawyer experienced in this maybe in atascosa that has been dealing with something like this before we get into a no win situation making it worse than what it is. Marathon has already done both sides of us already, eog has not even called.
If you look at the wells and start and already going ,we are on the edge with Wilson county,which is there a reason it is all happening in Wilson but hardly any in atascosa, is there a different deed with the county are regulation. If you see the pictures it stops at the county line.
I hold an undivided 1/4 mineral interest in a quarter section in Oklahoma and have received a lease offer. This is my first experience regarding sale of mineral rights so educating myself a little before contacting an attorney. There are two other separate mineral holders in the same quarter section also with separate lease offers for their percentage. We have all been offered the same bonus, royalty, and primary lease term of 3 years with a 2 year option. One party has already signed off on their separate lease agreement. Is it possible for me to try and negotiate a lease term of 3 year primary without the 2 year option? Also can I add other clauses such as shut in and a depth clause if the other holder has already
signed and did not have these clauses included in his agreement?
Thank you, Randall