I am an owner of about 25 acres, mineral rights only, in young county, Texas. This acreage is a small part of a much larger tract, maybe several hundred acres owned by many different individuals. I’ve received an oil and gas lease contract offering slightly over $100 per acre for a three year primary period with option to lease years four and five. A royalty fraction included in this offer. While the contract is full of oil and gas specific legalize, even to the uninformed, this contract seems to provide the Lessee absolute control of the mineral acreage with numerous caveats to either limit their requirements or enhance their position. Is there a site where I can pull up a contract form to review and a glossary of relevant terminology? A couple of weeks after receiving the contract to review, I then received an Addendum with more conditions and favorable terms to the Lessee.
While I am interested in doing business, I want to know how the royalty fraction actually works and would I receive royalties if the operator leased all this acreage, drilled a vertical and then went h,oriental; then discovered a viable reserve somewhere in this large acreage, but claimed this production was not coming from my acreage.
I recommend about a months worth of study, so you can understand and evaluate what the professional you probably should be hiring tells you. Also so that you can tell if your professional is just getting paid and doing as little as possible for you, as some will. You can start by clicking the mineral owners resources at the header of the page. Good luck.
Thanks. Not sure I have a month, but will try to use time effectively.
Do the best you can. I’ve been studying hard for months and doubt I could cover ALL the bases
I’m a native to Young County TX, worked there 14 years and am a 35-year lveteran andman. Your 25 net acre position in a larger tract puts you at a dissadvantage, but you should still get competitive terms of bonus ($100/ac. is commonly popular to this area), royalty (anywhere from 1/6th, 3/16th or 1/5th), term (3 years, be carefull of the extension provisions, their generally not favorable to you). Perhaps equally important to you is who the lessee/operator may be and what are there intention … merely stockpiling acreage (as some “non-resident” companies are doing) or is it a known “driller”. You can secure yourself as a minority owner by asking for a “most favored nation” clause … you getting the equal of the best terms agreed/signed by any other owner in the tract.
The contract landman representing Christian and White Inc. out of Graham so far has declined to disclose the identity of the Operating company, if one actually exists. The terms of the contract is for three years and does not require any drilling during this primary term.
1) Would you please explain the basics of how a production royalty works. Hypothetically this leasing effort is to contract with numerous mineral owners comprising more than 500 acres and possibly up to 700 to 800 acres. Lets say I own 25 total mineral acres of two tracts totaling 200 acres, which is part of the bundled lease of other tracts totaling 500 acres, including my 25 acres. Lets say I have a royalty of 1/5th with no sharing of production costs and a well is producing 50 barrels daily, market price is $100/barrel. What would the monthly royalty payment be?
2) If this well is a horizontal producing well and the end drilling point is not under my 25 acres, do I share royalty with all lessors regardless, or can the Lessee eliminate me from royalty payments, claiming the production is not from my acreage?
3) If my 25 acres are part of two tracts totaling 200 mineral acres that are not adjoining, but are separated by other tracts, should I ask for separate contracts for each?
4) Are there any conditions where I would be denied production royalty based on location of my acreages in relationship to site of production?
5) Would I be foolish to not have an expert review my contract and if so could you estimate cost, since the initial bonus payment will be nominal and for me to start incurring costs before signing the contract just to maximize the outcome of some hypothetical is hard to swallow.
Really appreciate you time and input
(1) 25 net acres/200 gross acres x 1/5th royalty x 50 Bopd x $100/bbl x 30 days = $3,750/month Net Royalty (2) your 25 net acres is “spread” among the larger “host tract”, your pro-rata royalty is a factor of numerator 25 over denominator of acres in larger tract and your net royalty is the same no matter where the well is located on the host tract (3) YES, get separate leases on each tract if they are non-contiguous (4) probably not (5) … attorney? Likely a fee of $200-$500, which would eat up a lot of your bonus, your choice FYI, re: Christian & White … Wayne Christian is past mayor/councilman, Barry White is the encumbent mayor of Graham Tx, both of impecable integrity.
Ron jaco said:
The contract landman representing Christian and White Inc. out of Graham so far has declined to disclose the identity of the Operating company, if one actually exists. The terms of the contract is for three years and does not require any drilling during this primary term.
1) Would you please explain the basics of how a production royalty works. Hypothetically this leasing effort is to contract with numerous mineral owners comprising more than 500 acres and possibly up to 700 to 800 acres. Lets say I own 25 total mineral acres of two tracts totaling 200 acres, which is part of the bundled lease of other tracts totaling 500 acres, including my 25 acres. Lets say I have a royalty of 1/5th with no sharing of production costs and a well is producing 50 barrels daily, market price is $100/barrel. What would the monthly royalty payment be?
2) If this well is a horizontal producing well and the end drilling point is not under my 25 acres, do I share royalty with all lessors regardless, or can the Lessee eliminate me from royalty payments, claiming the production is not from my acreage?
3) If my 25 acres are part of two tracts totaling 200 mineral acres that are not adjoining, but are separated by other tracts, should I ask for separate contracts for each?
4) Are there any conditions where I would be denied production royalty based on location of my acreages in relationship to site of production?
5) Would I be foolish to not have an expert review my contract and if so could you estimate cost, since the initial bonus payment will be nominal and for me to start incurring costs before signing the contract just to maximize the outcome of some hypothetical is hard to swallow.
Really appreciate you time and input
Rocky, Is it common for a land man/ aggregate broker to expect mineral and surface owners to sell multiple year leases and not be told the identity of the big boy, Operator? And also not say whether they are currently under contract aggregating for an Operator or just aggregating to flip at some later date for a profit. Rather than a 1001 forum questions Would you consider a five minute phone conversation?