Gas lease

Oil and Gas Leasing Help
#1

My four siblings and I have mineral rights in Pittsburgh County Oklahoma. We have about 30 acres in total that an oil company wants to re-lease. These acres have been under continuous lease for the last 20 years or possibly more. They have yet to drill but continue to pay for the option to do so. They re-new every 3 years and without fail, the rate per acre goes up. In 2007 it was $400 per acre and here in 2010 they are offering us $500 per acre. Unlike any prior year though, they are also requesting an option for 2 additional years at the same $500 per acre. This, they say is due to the current gas market.

i understand the motivation for this – take advantage of a down market. My questions would be:

Is the gas market down as drastically as they are inferring?

Is this a practice (asking for options at the same rate) that is more commonplace the market than in year's past?

Is there typically room to negotiate these matters with such little control over the bigger parcel?

Is 3/16 a relatively typical gas royalty?

Thank you for any replies!

Joe

978-388-7242

#2

Joe,

I’m not familiar with your area, but the gas market is down. I don’t think anyone would expect gas production to grow if prices stay around $4/mmbtu. That is where prices sit today.

Most of the leases I have seen pay less for the option to extend than they do for the initial bonus. One of the landmen on the board will be able to help more on this subject.

3/16 to 1/5 royalty is pretty common right now. You’ll see some 25% royalty rates, but that is in the very best areas that are proven.

Hope that helps a little

#3

Indeed it does Reagan. I also spoke with a mineral rights appraiser today who said he could provide me with a one page appraisal that would give me some insight (market data?) for a $300 fee. He sounds like a knowledgable and sincere fellow so I’m inclined to do that for perspective on what is typical to the specific area. Maybe it’s not necessary…but your information here is helpful and appreciated. Thanks again.

Joe

Reagan Thompson said:

Joe,

I’m not familiar with your area, but the gas market is down. I don’t think anyone would expect gas production to grow if prices stay around $4/mmbtu. That is where prices sit today.

Most of the leases I have seen pay less for the option to extend than they do for the initial bonus. One of the landmen on the board will be able to help more on this subject.

3/16 to 1/5 royalty is pretty common right now. You’ll see some 25% royalty rates, but that is in the very best areas that are proven.

Hope that helps a little
#4