I'm just looking for someone more knowledgeable than me who might be able to provide some insight on a Converse County Lease.
My family has received an offer for a paid-up lease from Kastner Land services acting for Chesapeake. We own mineral rights on 320 acres in Township 34 N, Range 69 W, in sections 14W and 15E. I see that Chesapeake has received drilling approvals in sections 17 and 18 just recently.
The offer is for a bonus of $150 nma and 18.75% royalty for a 5 year lease with them having the option to extend for 5 more years for the same bonus.
Does anyone know how this area is doing and whether these are reasonable terms for this area?
Jim:
I am not familiar with the Converse County area so the $150/nma bonus question and royalty amount would have to answered by someone else. I can tell you that a 5 year lease is too long, 3 years would be my max with no extension clauses. They are trying to tie up your minerals for as many as 10 years which is an offer that I would never consider even if the bonus was tripled and the royalty was over 20%. This means that Chesapeake would most likely be in no hurry to drill on your acreage while drilling other acreages which has sooner expiration dates. The main object is not the upfront bonus but the hope that you will get a well or wells drilled within a short amount of time. Others may disagree with my theory but I have been leasing since 2004 and I have seen how these companies operate if given a considerable amount of time.
Thanks Charles. I appreciate your insight.
Jim, I don't follow your specific township, 34-69, but here is some guidance on Chesapeake's and other companies offers in the county.
A) The royalty offer of 18.75% is the top end for the county.
B) 3 years is nice but I don't know anyone offering that. More likely you'll find 3 years + 3 years, or 4 years + 4 years, or a five year term with no extensions as more realistic options. I've not heard of any offers less than a straight five year term. Ideally you should avoid any extensions.
C) The $150 per acre is on the low end. I suspect you should be able to secure $250 or $350 if you negotiate. Though I don't know what other leases in 34-69 have gone for, it's likely they'll boost the $150 some. For comparision, in the more active areas they've paid $450 to $650.
Charles is correct in that the longer your lease term is the longer it may be before drilling. So try for the shortest possible lease with a higher bonus payment. The fact CHK permited near you helps your cause. Check with other nearby mineral owners if you can. Good Luck.
Thanks for the information.
You have 320 gross acres, how many net mineral acres do you have?
1. You can get a 5 year, no option lease easily. You can ask for a 3/2 but I'm not sure you can get it.
2. 150/year is on the low end. I would ask for 300/acre and see what they come back with. Don't expect to get much more than 250/acre out of CHK.
3. 18.75% is the best you are going to get from CHK.
4. You won't be able to get a depth pugh clause, but I would sign separate leases on each tract or ask for a standard pugh clause.
5. I'd ask for no warranty of title
6. Call someone besides CHK, I'd never sign a lease with them.
Jim, TXWY landman has excellent points and I would pay very close attention to #6. I hear so often of Chesapeake selling production to an affiliate for a very low price and paying the mineral owner based on that very low price resulting in the mineral owner being paid less than what they should receive. Find a better operator to lease to. With all the taxes, production and severance, state income if any, federal and deductions that the operator may make from your royalty for transport and making the product ready for sale, your net earnings that you pocket may be half of your gross earnings or less, you don't want to be underpaid from the beginning reducing this further.
Thanks for your excellent advice. I have 320 NMA.
Thanks again
Jim
TXWYlandman said:
You have 320 gross acres, how many net mineral acres do you have?
1. You can get a 5 year, no option lease easily. You can ask for a 3/2 but I'm not sure you can get it.
2. 150/year is on the low end. I would ask for 300/acre and see what they come back with. Don't expect to get much more than 250/acre out of CHK.
3. 18.75% is the best you are going to get from CHK.
4. You won't be able to get a depth pugh clause, but I would sign separate leases on each tract or ask for a standard pugh clause.
5. I'd ask for no warranty of title
6. Call someone besides CHK, I'd never sign a lease with them.
Thanks. I will check with a couple others.
Jim
r w kennedy said:
Jim, TXWY landman has excellent points and I would pay very close attention to #6. I hear so often of Chesapeake selling production to an affiliate for a very low price and paying the mineral owner based on that very low price resulting in the mineral owner being paid less than what they should receive. Find a better operator to lease to. With all the taxes, production and severance, state income if any, federal and deductions that the operator may make from your royalty for transport and making the product ready for sale, your net earnings that you pocket may be half of your gross earnings or less, you don't want to be underpaid from the beginning reducing this further.
If you have 320 net acres that is a terrible first offer. Ask to deal with the CHK landman directly, whoever is handling the in house side, and see what better offer you can get. Shop it around as well. See who is leasing in your area and just call them up and tell them CHK is interested.
Jim Larson said:
Thanks for your excellent advice. I have 320 NMA.
Thanks again
Jim
TXWYlandman said:
You have 320 gross acres, how many net mineral acres do you have?
1. You can get a 5 year, no option lease easily. You can ask for a 3/2 but I'm not sure you can get it.
2. 150/year is on the low end. I would ask for 300/acre and see what they come back with. Don't expect to get much more than 250/acre out of CHK.
3. 18.75% is the best you are going to get from CHK.
4. You won't be able to get a depth pugh clause, but I would sign separate leases on each tract or ask for a standard pugh clause.
5. I'd ask for no warranty of title
6. Call someone besides CHK, I'd never sign a lease with them.
Jim:
I have minerals in T 34 R 69 Converse County. They are leased to Chesapeake. We are in a deep drilling unit and I expect they will drill soon. It may be a good idea for us to talk. How do I reach you?
John
Hi John,
You can reach me on my cell phone at (360) 791-3516. Our rights are in sections 14 and 15. What sections are yours in?
Thanks a lot
Jim Larson