We were just offered $450/ac bonus with 18.75% royalties on a lease in Maria Kegan survey A-28, Brazos County, TX. Is this a fair offer? Or should we counter the offer?
I don't know exactly where your lease is but I own oil and gas property in Brazos County. You should look at the University of Texas Lease requirements which are public information. UT does not lease ANYTHING that does not have a 25% royalty. I have not seen a 3/16 royalty in years. Also, $450.00 bonus appears very low. Normally the brokers try to lease land with something less that 25% and then retain an overriding royalty equal to the difference between 25% and what you lease it for such that the Exploration and Production Company that is actually going to drill the well gets a lease with total burdens of 25%.
The short answer is to do your homework and counter.
A couple of years ago, this would have been very low but with the current oil prices, this is about the norm. I leased my minerals several months ago and your offer is in-line with the offers that were made to me. The more "NET ACRES" you have the higher it should be but with minimal acreage, this is about right.
Robert mentioned that the University of Texas does not lease ANYTHING that does not have a 25% royalty which is true but you must understand that UT is normally leasing out larger Net Mineral Acreage than most when negotiating. Back in 2013-14, yes I too got 25% with $850 an acre bonus but that was when the price of a barrel of oil was averaging around $80-90.
Just make sure you get royalties as "Gross At The Wellhead" so you are not responsible for various charges such as treating and transporting the oil.
In order to avoid "expenses" other than production taxes you will need to amend the lease document that most brokers are offering. Specifically, you need to incorporate language as outlined in Heritage Resources v. Nations Bank and Chesapeake v. Hyder otherwise the operator WILL charge you post production charges for gathering and transportation. The standard producer's 88 lease document is deficient with regards to the prohibition of post production charges to royalty owners. You need a qualified oil and gas attorney. The post production charges add up very fast and make the legal fees seem small. If you don;t take action to alter the lease document you will NOT net 3/16 th as stated in your current offer.
Robert, thank you for your reply and advice. Good information.
Bill, thank you for your reply and for the good information.
Thanks, Robert. That's good to know!
Texas courts have held that the gross price at the well or at the wellhead automatically includes all post production expenses, regard less of any contrary language in the lease. Gas is no longer sold to a pipeline at the well. It is transported to a gas plant where it is processed and then the dry gas and products are sold. If your lease uses gross price at the well, then al transportation, gathering and other costs incurred from the well to the tailgate at the plant will be deducted from your royalties. The deductions may be listed or may be hidden in the price. You must use the gross sales price received by the oil company at the point of sale. Same issue for oil which will be sold off-site and subject to transportation costs. There are other discussions on this point on this website, some of which may have include specific language. Or you can look at terms in the Relinquishment Act lease form on the General Land Office website.
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