Company wants to lease land for 18 months with no bonus payment

Company wants to lease land for 18 months with no bonus payment. They want to go back in a well they drilled in 2004 that was producing some and drill deeper like a nearby well that was not producing much but since that they came back in and drilled deeper that well is now producing about 1100-1200 barrels per month. Since they are offering no bonus payment and say they want to get a rig up as soon as possible, should I have them include a commencement clause in the lease say for 90-120 days and should I get them to up the royalty from 1/5 to 1/4 since they are not offering a bonus payment? Thanks for any input…Steve

If I understand you correctly they want to drill deeper and complete in a different formation. That makes it a new well, to me anyway. There is also considerable savings in using the previous well or they wouldn't be doing it that way. I'd treat it as a new well, bonus at todays rates and as much royalty as you can get.

By all means get the royalty increased to 25%.

Steve,

Mr. Kennedy is on the right track. This should be considered a new well and they should get a new lease and go through spacing determination before drilling. This proposal may be an effort to flip a low cost lease. I would advise my clients to know what wells the lessee has drilled in the area and to get as good a geologic evaluation of the geology of he area of the new good well and how it associates with your minerals. Since there is a well on your property, much of the local geology is known and may be public information.



Gary L. Hutchinson said:

Steve,

Mr. Kennedy is on the right track. This should be considered a new well and they should get a new lease and go through spacing determination before drilling. This proposal may be an effort to flip a low cost lease. I would advise my clients to know what wells the lessee has drilled in the area and to get as good a geologic evaluation of the geology of he area of the new good well and how it associates with your minerals. Since there is a well on your property, much of the local geology is known and may be public information.

Gary L. Hutchinson

Minerals Management