Hi, all. I'm trying to find out what current lease offers are looking like in or around Cheyenne Co. I've received a Paid-Up Oil and Gas Lease that offers a signing bonus of $50 per acre, a five year lease, and 12.5% royalties. From what I've found so far, this is in the ballpark, but I'm a little concerned about the 5 year term and that the royalty might be on the low side.
Any thoughts or comments?
Thanks
Matthew:
I don't know what State Cheyenne County is located in (I will guess Wyoming) and I will not be able to help you on the bonus rates in the area but I can advise you that second thoughts should be given on a 5 year lease as I only lease for 3 years. The reason being, if the area becomes "hot" with several good drills, then the bonus amounts rise quickly. Also, the royalty % is questionable as that would be low in the areas where my minerals are located.
Matt,
In general, those sound like typical/reasonable terms for the area which is essentially a wildcat situation (unless they're already drilled next to you). Yet, Mr. Mallory is correct. Counter by offering to lease for 3 years, at $75, with a 3/16th (18.75%) royalty.
They'll likely insist they need 5 years (which might be correct), and that $75 is too high. Yet use this as your leverage to get them to up their 1/8th (12.5%) royalty offer. In the end you should end up with a 5 year lease at $50 with 1/6th (16.66%) or better. Either way, stick to your guns and insist you need more than an 1/8th royalty to lease. Good luck.
Mr. Potter I agree with Mr. Mallory altogether, and especially on the royalty. As I have told my own brother, if it’s worth anything it’s worth more than 12.5%. Watch out for fees and charges also.
Sorry, Mr. Malory, Cheyenne County is in Colorado, about halfway down near the Kansas border. Thank you for the excellent advice.
charles s mallory said:
Matthew:
I don't know what State Cheyenne County is located in (I will guess Wyoming) and I will not be able to help you on the bonus rates in the area but I can advise you that second thoughts should be given on a 5 year lease as I only lease for 3 years. The reason being, if the area becomes "hot" with several good drills, then the bonus amounts rise quickly. Also, the royalty % is questionable as that would be low in the areas where my minerals are located.
Thanks, great advice from all of you.
r w kennedy said:
Mr. Potter I agree with Mr. Mallory altogether, and especially on the royalty. As I have told my own brother, if it's worth anything it's worth more than 12.5%. Watch out for fees and charges also.
Matt,
Which company is attempting to lease you, and what formation are they targeting?
It’s Paschal Energy Services and I do not know yet what formation it is. It is in Cheyenne County, CO near the town of Kit Carson.
i have had 2 offers for my land in Chey Co. one at $75 nma and 15% roy w a 3 yr option at $75 and 15% and another at $50 nma/15% and a 5 yr option at $100nma/15% roy. Is a 3 year option better to take over a 5 year? anyone had any dealings with either Westphal or Diamond Resources?
Glen:
In my opinion, I would always go with a 3 year option over a 5 year option. If the area heats up, those two additional years would mean much more in bonuses, etc. and it will also give an operator more incentive to drill if the lease expires in 3 years.
glen everhart said:
i have had 2 offers for my land in Chey Co. one at $75 nma and 15% roy w a 3 yr option at $75 and 15% and another at $50 nma/15% and a 5 yr option at $100nma/15% roy. Is a 3 year option better to take over a 5 year? anyone had any dealings with either Westphal or Diamond Resources?