We have been approached with a lease offer for our 19 acres in this section of $1,500/nma and 1/5 royalty. We have it leased but leases expires 6/18 with not current activity. Is this a good offer?
You should get closer to $5k an acre, with nothing less than a 25% lease.
Your royalty rate is definitely low. You should be able to easily get a 25% royalty for the lease. Also the $1,500 per acre bonus seems low as well. I think bonuses are going anywhere from 2,500 to 5K per acre. However this section is right out side the city of Big Spring so that may be why its a little low. Drilling gets tricky when you get closer to city limits.
I’m not certain aboutBlk 32; however, I know for a fact that Blk 31, Sec’s 24, 28, and 29 are receiving > $6800 per NMA and getting the 25%.
Kevin, Is your offer from the current lessee or a third party? The real issue is whether the current lessee will drill before 6/18. If the offer is from the current lessee, they probably hope to renew all of the leases in Section 19 in order to defer drilling. Hence the low ball offer. If you decline their offer, then they may go ahead and drill now. If the offer is from a third party, they are most likely asking for a top lease. A top lease is a lease that only becomes effective if the current lease expires. A top lessee is gambling that the current lessee will not drill to save the current lease. A top lessee usually offers to pay 25% of the bonus up front and the remainder if and when the top lease becomes effective. Essentially, you are between a rock and a hard place. If you don't lease now, or if you give a top lease to a third party, then the current lessee may decide to drill now to save the lease. If you do give a top lease to a third party, you should require them to not record it until the existing lease expires. Otherwise the current lessee will know you have given a top lease. I agree with the other comments that the bonus and royalty being offered to you seem low. What is your current royalty rate in the existing lease?
We currently have a lease for 1/5 royalty. It is a top lease and the person who is interested says he is sure there will be no drilling before June, the expiration date. Other people posting seem to think the bonus is too low. I am tempted to wait until June and see if I get a better offer.
I don't know how the person making you the offer can be sure there will be no drilling. It only takes a week to get a permit from the Railroad Commission. If your current lessee is an operator in Howard County, then it would not be much of a problem to move a rig on short notice. To some extent, all of the operators are managing their drilling schedules according to lease expirations. One way to smoke out your offeror is to tell them you want a non-refundable bonus of $3,000 per acre (or whatever number you like) up front regardless of whether the base lease is drilled. I bet they won't do this because they really don't want to risk losing that money and it will prove whether they really think it will not be drilled. If they don't like that, then tell them you want the $1,500 per acre as a non-refundable bonus on signing the top lease with another $4,000 per acre (again whatever numbers you like) if the top lease comes into effect. I think it also acceptable to wait until June to see if the current lessee drills. They may come back to you for a renewal at a good price as well. If they never contact you, they either know they will drill in time or have lost interest in your lands. BOTTOM LINE, THERE IS NO CUT AND DRIED EASY ANSWER TO YOUR QUESTION. YOU NEED TO DO WHATEVER YOU FEEL WORKS BEST FOR YOU.
Ours was leased out at 4,750 nma
Sec 45 blk 32 tin
Thanks for your advice. We leased at $5,000 bonus and 1/4 royalty. It's a top lease with 10% down and the rest when the other lease expires.
I have been seeing some offers for more than $5000 per acre, so yes ask for more. also, its very common to get 25% royalty for a lease. I am currently trying to work with two different oil companies for two different sections so I hope we all come out well.
I was offered the same as you and I asked for $5,000/nma and 1/4 royalty. Same timing as your lease. They met my counter offer and gave me 10% down and the balance when the lease takes affect in June. It doesn't hurt to ask for more. Some people have suggested using an lawyer to negotiate the lease.
25% down is more customary for a top lease. Perhaps a lawyer would have told you that.
Thanks for this information, Barbara! I have interest in Section 29 and Block #31! I was offered 1,200.00. This information is rather insightful! Thanks again for posting. You mentioned greater than $6,800.00 . Do you have an exact amount?
Brandi what township is it?
Hello Mjenz, I believe the township is: T-1-N-T
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We have been approached with a lease offer for our 19 acres in this section of $1,500/nma and 1/5 royalty. We have it leased but leases expires 6/18 with not current activity. Is this a good offer?[/quote]