I am wondering if I should have an attorney review the offer I've received. It is from Consol Energy.
It looks like the basic idea is as follows:
- 5 year term
- $1000 signing bonus (one time)
- 12.5% production royalty
He also offered to buy out my rights for $2500, which I declined.
The lease states the parcel is 89.47 acres but I am sure that I share ownership with several others. I don't know for sure what my portion works out to, acreage-wise.
Any recommendations for attorneys and expectations of their fee would be welcome, as well as thoughts if the offer is fair.
Thank you!
Nancy
The offer is lowball. In every aspect. I would not sign for less than $2,500 an acre. Make the company rep/landman put in writing what your net acreage would be. Also try to get a 2 ½ year term. If they have not started to drill by that time the lease should expire. Nobody settles for 12.5 % any more. State law requires that they offer no less than that. 15% seems to be the lowest offer that I have seen lately. There will probably also be a pooling clause. Use the Natural Gas Royality Calculator that is included as part of this web site. The formula is; the amount of your property in the pool divided by the total property in the pool. Multiplied by your percentage of mineral ownership. Multiplied by the percentage of royalty stated in your lease. (that is the 12.5% that they are offering). All of these figures should be fixed. The main varibles will be 1) the price of the Gas and any other products. 2) The amount produced. So, here is an example. You have 10 acres in a 400 acre pool. You own 50% of the mineral rights. That equals 5 acres. So, 5/400=0.0125. Your production royalty is15%. .0125*.15= .001875 That is your decimal interest. Many wells produce between 1,000,000 cu ft to 8,000,000 cu ft per day. The gas is priced by thousand cu ft. So, if gas is $3.00 per thousand cu ft. that would be $3000 to $24,000 per day. Your share would be 3000*.001875= $5.625 to $45 per day. Or $168.75 to $1,350 a month. Now, you also need to know that it appears that the average Marcellus well declines 40% to 60% the first two years and then the decline slows dramatically. Estimates to how long they will continue to produce are all over the map. Another thing to consider of course is that a 400 acre pool will probally have more that one well running through it. You would get a.001875 share of each. I need to warn you once again that none of this is written in stone until a lease is signed and wells are drilled. Then you have to pay close attention to every aspect of what is calculated and paid. The companies have all kinds of ways to manipulate the outcomes. I have no knowledge of how Consol is to deal with. My advice is; at the bare minimum, have a knowledgeable lawyer review and advise you on any contract/lease. Off the top of my head, If your share is 5 or more net acres, get the lawyer involved in the negotiations. If anyone has any thing to add, or disagrees with any of this, feel free to jump in. I have made so many mistakes and learned the hard way that I know that there is always something new to learn.
Hi Richard,
Thanks for the good info. You seem very knowledgeable. I have one drilled well with Antero; it is in year 5/6, so it is only paying royalty in the $200 range per month.....about ready to die- I think. Have you ever found Antero (or some other gas company) to make an error in the royalty calculation? I wonder if there is a company or service that verifies the payments as correct?
Oil and gas companies make mistakes in royalty calculations much more often than you think. It is rarely an error in arithmetic. It is usually who owns what... title. Mineral rights title is much more complicated than real estate (surface) title. It can really get to be a can of worms, a puzzle, a mess. And they might have you as owning x-percentage of a tract and then a few years later say, oops, our title attorney found something... we/you were wrong... you don't own that much. And they make an adjustment downwards for you and upwards for others who own in the tract.