Just received another lease offer for Custer County:
Sec. 6, T14N, R20 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 than 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.