We recently received a "Paid-up Oil and Gas Lease" offer from a major oil company for 320 acres we have in Wyoming.
The terms appear pretty good:
3 year, $300 per acre bonus, at 3/16 production (18.75%) royalty.
A few questions:
My understanding is WY leases oil/gas work in 640 acre blocks and that only one well is allowed on 640 acre block...correct?
That they start in one corner and drill horizontally across the 640 acres. If nothing found then that is that?
Very new to this. My great granddad homesteaded this land and we haven't paid much attention to it...UNTIL NOW!
Fingers crossed.
Ned,
Typically the generosity of an offer indicates the degree of interest a company, or Lessee, has in your minerals. Though it is no guarantee of how productive a well will be. On lease offers, it's also often a safe bet that whatever initial amount was offered it is not the full amount they might pay if you ask for better terms.
$300 with 3/16th, for three years is a pretty good rate for much of WY. Though rates could be higher if your minerals are in a "hot" area. In general it sounds like you have a good offer.
Regarding "blocking" or spacing in WY; A vertical well could be spaced on as little as 160 acres. Horizontal well spacing is typically 640 acres. However, some companies have now begun to file for 1,280 acres.
So it sounds to me like the initial exploratory drill will be horizontal?
If they strike then what they could place vertical wells every 160 acre spacing or would they stay with the one horizontal?
So much to learn but I was told that 800 barrels per day is a "marginal" well while 1700 barrels would be considered a "good" producer.
I am obviously jumping the gun a bit as nothing has been found yet, but I want to understand what a worst, moderate, and best case production scenario is.
thanks
Eastern MT said:
Ned,
Typically the generosity of an offer indicates the degree of interest a company, or Lessee, has in your minerals. Though it is no guarantee of how productive a well will be. On lease offers, it's also often a safe bet that whatever initial amount was offered it is not the full amount they might pay if you ask for better terms.
$300 with 3/16th, for three years is a pretty good rate for much of WY. Though rates could be higher if your minerals are in a "hot" area. In general it sounds like you have a good offer.
Regarding "blocking" or spacing in WY; A vertical well could be spaced on as little as 160 acres. Horizontal well spacing is typically 640 acres. However, some companies have now begun to file for 1,280 acres.
Ned:
I agree with Eastern MT and good advice was given in the fact that never consider the first lease offer (bonus/acre). These landmen are generally working for an oil company and they have a ceiling on the amount of money they are allowed to offer. I would ask at lease $100/acre more with the same lease terms and see what they say. Most likely, seismic work has been conducted on your mineral acreage and they see something that looks positive.
Ned,
First make certain that the lease really supports the offer made. If your land is in more than one section, you may want to issue more than one lease. Development of an oil field can be on much smaller spacing than 160 acres per well so find out what the company's plans are for your land. If you are located in SE Wyoming, lease rates are pretty good right now if you are there, multiple pay zones in the area may dictate that you get a development clause or Pugh clause in your lease. Lastly, if you have good title documents, make copies for the leasing agent and demand you get paid your bonus before turning over the original signed lease.
See an attorney - doesn’t sound all that good to me.
Could you elaborate on what would be considered "good"?
We have heard from folks from that area of WY who are impressed with the offer who have no vested interest in what happens on our property.
Susan Nolen said:
See an attorney - doesn't sound all that good to me.
Ned:
When I have leased in the past, I normally do some research and find out what the going bonus/acre is around my mineral area. I learn this by reading various posts and watching the State lease auction site (this will always be a higher amount than you can expect to get but you can tell which areas in a County are "hot". A good place to post is in the "County Group" area on this forum where most everyone has an interest in that county. The main thing is that you are satisfied with the bonus, % royalty and the lease terms.
Ned,
It's impossible to say what "Good" is, except as Mr Mallory posted "that you are satisfied with the bonus, and royalty". Earlier I shouldn't have posted "In general it sounds like you have a good offer." This is because it always depends on where your minerals are located, and what is happening in that area at the time you lease.
So it isn't correct to say what a lease is worth "In general". The value can vary week by week, and will vary based upon the county they're located in, the Township & Range, and sometimes even by Section. In some areas of WY or MT, $50 per net acre and 3/16th can be a very "good lease". Though in some areas here $500 per acre and 3/16th can be far too cheap.
Everyone above has given you sound advice. Since you're unfamiliar with the process take your time before you sign. Do as much research as you can about your immediate area. If possible show your minerals to at least one other company, or more. Review and understand the important terms to include in your lease such as a "Pugh Clause". Ask the company questions about their intent. Then depending upon how many mineral acres you own consider hiring a WY attorney to represent you in the lease process. Good luck!
Thanks for all the good advice.
Came across an interesting paper on Royalty clauses you might find helpful. Google “Royalty clause ndsu”
(North Dakota State University)