Just received another lease offer for Custer County:
Section 6, Township 14N, Range 20 West.
The company extended the offer are Liberty Minerals. They haven’t listed an amount as of yet however, I am interested in finding out what are other mineral offers being offered in that area? Also, does anyone know of upcoming drilling?
Mewbourne just finished a horizontal well in that section earlier in the year. Were you already leased or pooled?
We were offered $500.00 @ 1/8th or $250.00 for 3/16ths, for 3 years with a 2-year option, in Section 20-12-14. I told them to get the low hanging fruit and then call back when they had a serious offer. Never take the first offer, and avoid options at all times.
Thank you for your response. I have been leased for years from Rock Creek. Why would I be receiving so many new offers? Are there plans for new drilling?
Mewbourne just drilled a horizontal well in section 6-14N-20W. Your earlier lease may have expired. If you did not lease and did not respond to a pooling, then you will get stuck with 1/8th lease. Suggest you contact Mewbourne.
Thank you so much. I’ll do that.
Can someone explain to me why it is better to take the higher royalty than the higher price per acre? I have a company offering me a lease on my mineral rights. The last time I leased another parcel I have in a different area I negotiated a 200% option on a 2-year lease. This time they only want to offer me a 150% lease option at the 2-year lease. When I try and bring the royalty up to 1/4 or 1/5 then they drop the dollar amount to $500 an acre; at 3/16 it is $750 an acre. Can someone please clarify?
Many of us would not want an option tied to a lease because it puts all the power in the hands of the lessee. Competition may be entirely different in three years. Five years is a long time to tie up your acreage. I never go for an option as it gives me no power to hunt for a better deal in three years.
On the royalty bonus, the bonus is tied to the royalty. If you get a 1/8th royalty at $400 bonus, then the operator is thrilled because they get to keep the other 7/8ths, so they will pay you more. If the royalty is 1/4th, then the bonus will usually be half, so $200. The reason that savvy mineral owners want a higher royalty is that the bonus is only a one time payment. If the well is productive, the higher royalty will usually be significantly higher for many years on that well and maybe more wells.
A simple example. You have 10 acres at 1/8th with 640 acre spacing on a one section horizontal well versus 10 ares at 1/4 royalty at 640 acre spacing on a one section horizontal well.
The equation for 1/8th royalty is: 10/640 x 1/8 x 1.00 (100% of perforations in the one section.) A 1/8th royalty has a decimal of 0.001953125. For every one Million dollars the operator makes, you would earn $1953.125. Plus the one time payment of $400.
The equation for 1/4th royalty is: 10/640 x 1/4 x 1.00 (100% of perforations in the one section.) A 1/4th royalty has a decimal of 0.00390625. For every one Million dollars, you would earn $3906.25-so double. Plus the one time payment $200. SO a significant difference in the royalties that really add up over the years.
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