I too have just received a lease offer from RedSky. It proposes four options:
- $1500 per net acre, 3/16 royalty 5 year
- $1300 per net acre 1/5 royalty 5 year
- $1200 per net acre 3/16 royalty 3 year 2 year extension option
- $1000 per net acre 1/5 royalty 3 year 2 year extension option
I understand these are not optimal terms, and I’m asked to indicate which of these offers I find acceptable, SIGN it, and return. Only then the “necessary documents” will be sent for “my review and execution”. Should I sign it, or simply request the documents for review without signing anything?
You do not have to sign anything. RedSky is usually a broker for an operator.
You can sit back and wait for other offers or wait for the pooling order to be filed and at that time you can choose 1/8, 3/16, 1/4, or participate. Depending on your financial situation, if you can I’d hold out for better terms. The only problem is the state of oil and gas industry in Oklahoma; not many wells are going to be drilled in 2020, so you maybe waiting a while.
You do not have to accept those terms. I would write back and say that you will only lease for three years maximum. Also, you need to watch out for the post production charges that they will try to add to the lease. They are leasing for Continental. The documents they send will not be in your favor and will need some negotiation. You can also wait until they pool and select an option then. Continental is putting together a horizontal drilling program in that area. The five year time frame is way too long.
Thanks for the advice. I only recently learned of my property there, so it hasn’t been in my financial plans at all. I’m going to propose a different lease arrangement and see what happens.
Thanks for your advice. I’ll propose a three year lease with no extensions. And I can be patient. This isn’t critical to my financial situation.
A lot depends on what stage in the process the operator, probably Continental, is at. There are several applications they must file and have approved by the OCC before they can move on to the permitting stage, at that point the offers will probably increase. Wanting you to lease for 5 years tells me that drilling might not be in the near future. One benefit to leasing now is the theory of a bird in the hand in case they don’t drill.