I received an offer to lease my share ( a very small share) of Mineral Rights in Weld County. My question is… if I do not like the offer do I go to the Landman with a counteroffer verbally or am I going to need to hire an attorney? The bonus is acceptable but would like to up the Royalty amt from 16.6667 % to 20% which seems to be the going rate. I am totally out of my league here, so any help would be appreciated. TIA
Michelle, You can certainly do the bulk of the negotiation yourself. If you only have a very small interest you may end up spending more on an attorney than makes sense. That said, it is always a good idea to have an attorney help (one hybrid option would be to negotiate as much as possible on your own verbally and just get them to review and redline/markup the lease once you get a copy).
Anyway, if the bonus is in-line but the royalty rate is low then I would go back to them with a little higher royalty than your target (say 22.5%), knowing that you have room to come down to 20%.
Also keep in mind that the language in the lease as it relates to post-production costs are just as important as any additional deductions effectively reduce your royalty rate. Companies will often include language that allows them to deduct certain costs from your royalty payments. Marketing, transportation, treating, dehydrating, compressing, processing, and other costs can have a significant impact on the amount of your royalty payment. Generally, you may want to consider language such as requiring that the royalties will be free of both “production and post-production costs”. Also, include language that bases your royalty payment on the actual proceeds received at the point of sale in an arm’s-length transaction vs. at the wellhead. If the company won’t budge on cost free provisions, you could try to limit the deductions to a certain percentage per mcf of gas or barrel of oil produced…
I have a podcast episode where we cover how to negotiate an oil and gas lease in more detail that you can listen to for more information.
Just remember once you reach an agreement with the landman, be sure to get everything in writing. If any of the agreed changes are in an addendum to the lease, get them to sign the addendum if possible so they can’t claim that you added it without their knowledge.
I hope this helps! Thanks, Matt Sands
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Thank You Matt! Yes there is a clause in the offer that includes cost 1/8 of rendering it marketable or usable and 1/6 gathering etc @the wellhead. Which even to my uneducated in this field brain leaves an awful lot of room for creative accounting that would eat up all profits. I only have 6.666 acres and attorney fees would probably not be worth the hassle. Can you send me a link to your podcast please? Again thank you so much for the insight.
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This should be posted all over the Minerals Forum. We all must be calling our legislator’s! NOW, IT COULD PASS WITHIN A WEEK OR TWO AND BECOME LAW.
Bella,
I closed on a lease in Weld last September using a well qualified, local attorney. If you DM me I’m willing to provide you a copy of the work product, which I own, was completed for my lease and at no cost to you. I completely understand how fee’s can eat into smaller holding’s of any type of asset.
John,
Thank you so much for your response and offer. I would dearly love to see the end product from your attorney on your lease but I cannot for the life of me figure out how to DM on this site. 20 mins+ on help still a no go. I have contacted several attorneys in Weld Co. and so far none have responded. Maybe 6.7 acres is not worth the time? I just know that the offer presented is ridiculous… maybe because we are inexperienced or don’t live locally? IDK. Thank you for kindly offering to help and if you know how the DM works can you DM me, please.
Bella,
Go to “Home” at the top left, on the new platform they call it “PM” vs “DM” and its open to viewing by the mods.
Jon
John_Davids ,
I went through all the steps earlier until exhausted then again per this msg. I guess I do not have the permission? Although within my profile it says I have been granted all basic permissions. ? IDKJon, I had it wrong the first time read # wrong so I gave up.Tried this E-mail and it was bounced back? Can you please e-mail me @ Michelled53@hotmail.com. Thank You for bearing with me on this.
Kind Regards, Michelle
Bella,
I understand our initial contact was difficult due to my platform knowledge, direct frustration to me because though the platform isn’t new I don’t like change. If you would still like an opinion on a Weld county lease let me know via email. Lastly, I recommend deleting the above email addy- it can get weird out there.
John