HELP - just signed an oil and gas lease aggrement in Oklahoma

Oil and Gas Leasing Help
1

Was wondering if anyone had any clue as to what amount my royalty checks should be. I received a lease agreement in the mail from Lowry Land Co. It states I own 5.00 net mineral acres in the captioned area above (Section 26-6S-6E) and the terms I agreed to were $350.00 per net mineral acre, 3/16ths royalty and a three-year term with a 2-year option to renew.

I also received an Affidavit of Death and Heirship from my father. It gives a land reference description on it. If anyone can help me out I have no idea as to what I received.

2

Darla,

Trying to determine what royalties you may receive is impossible. It depends on whether the exploration company is drilling for oil, or natural gas and what type of production they encounter. Most leasing is very speculative and most lessors never see a well drilled. Worst case scenario is you take their $1750 and never hear from them again.

As far as what you inherited, any information you can share would be helpful. Are you wondering where the land is or what you received?

3

I have been in contact with the guy from Lowry Land Co, I guess he is the landman? I asked him what was the time frame and he said he was just waiting for the affidavit of death and heirship to be signed (which I promptly did and sent back) so that would clear up anything with title so they can proceed. And yes, they said they were drilling for oil, we checked around that area and there are tons of oil wells drilling.

Randy S said:

Darla,

Trying to determine what royalties you may receive is impossible. It depends on whether the exploration company is drilling for oil, or natural gas and what type of production they encounter. Most leasing is very speculative and most lessors never see a well drilled. Worst case scenario is you take their $1750 and never hear from them again.

As far as what you inherited, any information you can share would be helpful. Are you wondering where the land is or what you received?

4

Randy, Hello. When you say it depends on what type of production they encounter, do you mean how much oil they find or? Why do most lessors never see a well drilled? Why does it sound like it’s just hopeless already? In this case, is this how it usually turns out with the oil drilling? Now you have me thinking but I have to remain optimistic…

You seem to know a lot about this area of stuff, are you going through similar?

Darla said:

I have been in contact with the guy from Lowry Land Co, I guess he is the landman? I asked him what was the time frame and he said he was just waiting for the affidavit of death and heirship to be signed (which I promptly did and sent back) so that would clear up anything with title so they can proceed. And yes, they said they were drilling for oil, we checked around that area and there are tons of oil wells drilling.

Randy S said:

Darla,

Trying to determine what royalties you may receive is impossible. It depends on whether the exploration company is drilling for oil, or natural gas and what type of production they encounter. Most leasing is very speculative and most lessors never see a well drilled. Worst case scenario is you take their $1750 and never hear from them again.

As far as what you inherited, any information you can share would be helpful. Are you wondering where the land is or what you received?

5

Darla, if I knew who they were leasing for I could tell you what their plans were. Some of the larger operators have been drilling horizontal into the Woodford formation where smaller companies are drilling shallow wells. Range has been one of the major players in Marshall but Chesapeake and others have drilled a few. Some of the wells have an IP of 2000 mcfd and 300 bopd not far from your tract. From the bonus offer I’d say you’d be looking at a Woodford as they wouldn’t pay as much for a shallow well. You should put a depth clause on your lease as there are shallow wells with 10 acre spacing that will produce 40+ bopd but won’t ever get drilled on yours probably if it’s HBP.

6

The name of the company is Chesapeake Exploration L.L.C and they are the ones who offered the oil and gas lease.

Tim Metz said:

Darla, if I knew who they were leasing for I could tell you what their plans were. Some of the larger operators have been drilling horizontal into the Woodford formation where smaller companies are drilling shallow wells. Range has been one of the major players in Marshall but Chesapeake and others have drilled a few. Some of the wells have an IP of 2000 mcfd and 300 bopd not far from your tract. From the bonus offer I’d say you’d be looking at a Woodford as they wouldn’t pay as much for a shallow well. You should put a depth clause on your lease as there are shallow wells with 10 acre spacing that will produce 40+ bopd but won’t ever get drilled on yours probably if it’s HBP.

7

Darla,

By what type of production they encounter, yes I meant the amount of gas and or oil they are able to produce.

I did not mean to rain on your parade but I am more of a realist than an optimist :slight_smile: The fact that Chesapeake is the lessee is encouraging. They are usually a little less speculative than some of the smaller operators and probably already know whether your area is going to work for what they are targeting.

If the production is anywhere near the numbers that Mr. Metz mentioned, you could make some decent money.

Example for gas production: 2,000 mcf/day x gas price of $3.50/mcf = $7,000 gross per day If you own 5 acres and the well’s unit is 80 acres, you own 6.25% of the unit. 18.75% royalty x 5 acres/80 unit acres = 1.171875% interest in the production or about $82/day. This is gross, you then have to take away any deductible expenses allowed in your lease. These shouldn’t be more than 15% of your gross royalties. After the production cost you would see about $70 per day or $2100 per month. Not bad. I think this is correct math, maybe a division order expert on here can double check it.

Darla said:

Randy, Hello. When you say it depends on what type of production they encounter, do you mean how much oil they find or? Why do most lessors never see a well drilled? Why does it sound like it’s just hopeless already? In this case, is this how it usually turns out with the oil drilling? Now you have me thinking but I have to remain optimistic…

You seem to know a lot about this area of stuff, are you going through similar?

Darla said:

I have been in contact with the guy from Lowry Land Co, I guess he is the landman? I asked him what was the time frame and he said he was just waiting for the affidavit of death and heirship to be signed (which I promptly did and sent back) so that would clear up anything with title so they can proceed. And yes, they said they were drilling for oil, we checked around that area and there are tons of oil wells drilling.

Randy S said:

Darla,

Trying to determine what royalties you may receive is impossible. It depends on whether the exploration company is drilling for oil, or natural gas and what type of production they encounter. Most leasing is very speculative and most lessors never see a well drilled. Worst case scenario is you take their $1750 and never hear from them again.

As far as what you inherited, any information you can share would be helpful. Are you wondering where the land is or what you received?

8

Sorry, I didn’t realize Lowry Land was leasing for Chesapeake. Chesapeake is as bad as anyone about letting a lease expire as they just did on one of mine this week. They have the money to lease up everything in an area of interest and then walk away. They will drill on yours though as it’s not very deep to the Woodford where yours are compared to the 18,000’ mine would have been so return on investment is fantastic for them when they lease for only $350 and a 3/16ths. The spacing unit will be 640 so if it’s a full 640 your royalty decimal will be 0.0014648 or 0.14648% of the well or lease net. Chesapeake hasn’t had the best wells in the county but they are still pretty decent wells. The one I quoted was from one of Range’s wells. You might do great and they drill more than one well.