We own minerals in southern Gonzales county, TX. The land has been leased to EOG and will expire in July 2014. No drilling has taken place. They are asking for a modification to our lease. Is this unusual? If it extends the lease should we get a bonus? What is the going rate for leases in The Smiley area?
If you will post what lease modification that EOG is requesting, you will be more likely to get a better response.
That would have been interesting to read... Hope Cindy comes back with more information.
If the Lease term is extended, then yes, you should ask for more bonus.
So EOG finally came back with the papers. They want to change the legal description from xx acres in the jjj survey as recorded in deed transfer from CP Uncle to CP Dad, CP brother, CP aunt dated 1981 to the most recent deed transfer description where the land was transferred from my brother to me as recorded in records dated 2010. The modification did not change the terms of the lease at all. Is this common?
It is common to use the legal description in the most recent instrument of conveyance, especially if the acreage amount is slightly different (slightly more or slightly less) than the older instrument of conveyance. I always used the most recent legal description, even if the acreage amount had never changed and even if the legal description was not based upon metes and bounds but instead on Township and Range.
Thank you. I was not sure what they were up to. Then they took forever to come back with paperwork. The changes did not change the terms or dates on the lease and they tell me we are on the short list for drilling. We shall see!!!!
Pete Wrench said:
It is common to use the legal description in the most recent instrument of conveyance, especially if the acreage amount is slightly different (slightly more or slightly less) than the older instrument of conveyance. I always used the most recent legal description, even if the acreage amount had never changed and even if the legal description was not based upon metes and bounds but instead on Township and Range.
Asking for a modification to correct the legal description is not unusual--in fact, it likely is being done as "lease curative" as it's called in the industry. But this is good news: asking for a correction means they most likely are getting ready to drill and they need to make sure there are no flaws in their leasehold title--so your mineral rights might be getting ready to start paying income.
Thanks Marsha, It would be nice to have a royalty check on the way!!!
If I'm right and they are still in the "title curative" phase, it will probably be as much as 60 days (or more) before the drilling rig is set up and starts to drill. Once drilling starts, it generally takes at least 60 days of drilling a horizontal well to reach the planned depth (length of horizontal lateral). Then the site can sit idle for another 2-3 weeks waiting for the completion rig to move in and rig up. Then the completion and fracking are usually done one right after the other, with the fracking being done in "stages" of X number of perforations being fracked per stage, with all of the completion/fracking taking another 30-60 days. Then the final logging and testing and other preparatory steps are done, usually about a week, then the well is turned to sales. THEN the revenue distribution title analysis has to be done, to find out who is entitled to receive any part of the production revenues each month--and here in Texas, the law allows the oil company 120 days from the first day of the month following the date of first production to make the first royalty payment to landowners. Summing all of that up, you could be looking at September or even October of 2014 at the earliest before you see your first royalty check. But that first check has to contain at least the first 2 full months of production revenues.
I suspected it was a drawn out process. I did not know all that was involved. But that is OK. I can wait. I’ll let you know when they set the rig on my place. Thank you for your insight. You have been very helpful.
Actually right now is a good time to sell your minerals. People that say "never sell" have thrown logic/reason out of the window. Oil prices are high right now and mineral values have gone up (ever heard of buy low sell high)? There will be another bust sooner or later...history repeats itself. Once that happens, then buy some minerals and hold on to them. Just something to keep in mind. I am in the business of both buying and selling minerals. There is a company called Yakka that will pay a pretty penny for minerals in most areas of Texas. I'd give them a call if I were you.
Whatever a company could offer to purchase the minerals is likely to pale in comparison to what the mineral owner, who appears to lie directly in the path of the oil seam of the Eagle Ford shale, is likely to earn as a royalty stream of income. One would be a fool to sell minerals in the Eagle Ford shale right now, in my humble opinion.
Actually that is factored in to the purchase so you can get a lump sum immediately for what would take years to get in revenue (IF they drill a good well. If they drill a bad well or dry hole your minerals are worthless and you missed out on an opportunity to sell at a great price and take the risk out of it).
Jimmy:
Even considering the sale of minerals isn't an easy decision at best; however, there is also one other consideration which should play a big part in this decision and that is federal income. A big lump sum could give require a lot of income tax where as a long term royalty payment would be spread out over time and potentially cost less. Since you are discussing the sale, I'm sure you have done the math, so help me here. On a sale is this considered Long Term Capital Gains and what percentage of the sale goes to Obama to throw away on another lavish trip.
Jimmy Jones said:
Actually that is factored in to the purchase so you can get a lump sum immediately for what would take years to get in revenue (IF they drill a good well. If they drill a bad well or dry hole your minerals are worthless and you missed out on an opportunity to sell at a great price and take the risk out of it).
I believe that long-term capital gains applies after the asset has been owned for more than one (1) year and then sold.
I don't really mess with this much any longer so I'm just making a stab in the dark here. I let the CPA keep up with that now; however, I would suspect that most people that sell their minerals have owned the property and mineral rights over one year and if they haven't, I'm sure they would have to pay differently. At one point there was a short term capital gains tax; however I believe Obama got that, so I would guess it would just be ordinary income if owned less than one year. There is bound to be some expert out there that can give a blow by blow detail of how the taxes would be calculated on a mineral sale. That is a big part of the puzzle to consider though.
Pete Wrench said:
I believe that long-term capital gains applies after the asset has been owned for more than one (1) year and then sold.