HELP WITH A MINERAL RIGHTS LEASE OFFER

Texas Mineral Rights Nacogdoches County, TX
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Hello everyone. Greetings from the suburbs of Philadelphia, where came across this forum and need your help to determine if a mineral lease proposal from BP America is something I should sign off on.

I recently inherited 25 acres in Nacogdoches County, Texas. I am being approached by a Petroleum Landman whose client, BP America, wishes to lease certain mineral interest on the land I own. BP is acquiring acreage to drill and not to barter to a third party. I have absolutely no knowledge of this issue and am turning to you guys as the experts to help me through this if you wish to respond. Thank you in advance.

The proposal is as follows, as far as I can tell in reading the proposed lease:

  • Offer of a bonus amount equal to $350 per net mineral acre for a three year paid up primary term with a two year option at the same price.

  • Offer of a royalty burden of 1/5ths

The landman's cover letter indicates the client might be willing to negotiate.

The questions I have (and I am sure there are other questions I should ask but am not sure as I am a neophyte on this issue) are as follows:

  • Is this a fair offer?

  • Should I consider negotiating on the per acre amount or on the 1/5ths in royalties?

  • Is it worth it to get an attorney to review the lease, or not economically feasible given the potential totality of the offer?

  • Is there a website or a place I can call that can tell me about the credibility of the landman who is making this proposal?

  • Does the fact that BP, a well known company is the client make this deal more reputable or enhances the possible ultimate payout?

  • I have no idea where this land is- are there any resources that I can use to pinpoint exactly where the land is?

  • As to the 1/5ths royalty offer, is it assumed BP would be paying all of the drilling expenses to get the oil or gas out?

  • How would the royalty offer calculated?

  • Is there anything else in the lease I need to get feedback on?

I really appreciate any responses to these questions. Thanks again.

Bruce

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In short, if I were in that situation, I would get with an attorney. Not just any attorney, but one that specializes in oil & gas and does this daily. I would go with someone local to the state the minerals are located so they know the laws of that state. You can be sure that BP's lease form has been poured over by hundreds of attorneys, developed and adapted over the last 100 years. There are lots and lots of items to consider to make sure you're protected and get the best deal. It would be very difficult to come in, do it on your own from scratch and get everything right. People make careers out of this. Paying an attorney now could make you more money and save you money in the future. If you also own the surface there are several protections you want in place. If you own the full 25 acres, 25 @ $350 is $8750. The attorney fee may be a flat fee or may be one to five hours at an hourly rate. That's just a guesstimate. A good attorney in this field is familiar with what terms the oil companies will accept, and have the language already drawn up, so it shouldn't take long. I'm not an attorney but I'll try to answer some of you questions. Obviously this is not legal advice.

Hard to say if the offer is fair, but it seems fairly typical for an opening offer. Actually, companies usually open with a 1/6 or 3/16 royalty offer, so the 1/5 is on the high side to start.

You can negotiate on both the bonus and royalty, along with the terms of the lease. The real money will be made from the royalty if they make a well. Sometimes it may be worth it to push for more royalty even if it means giving up a little on the bonus side. Shoot for 1/4 royalty. That's pretty much the most any company will give, and some companies won't give that.

American Association of Professional Landmen (AAPL) is at landman.org. They have a member directory but it looks like you have to be a member to search it, which doesn't make a lot sense. You may be able to call them to ask if the person is a member, has a certification, and has any ethics complaints or violations. There's also naltea.org, but AAPL is the main group. Both are voluntary groups, but most career landmen are members.

The fact that it is BP would give me a bit of assurance as opposed to Tom Dick & Harry's DIY Oil & Gas Company that I've never heard of. Not that a smaller company is necessarily not as good, but because there is much more information available on a major like BP. It's a successful company.

The landman should be able to provide a plat on a map of the land, and definitely a legal description. You can go to the appraisal district's website at http://www.nacocad.org/(S(dszp1a553sz2hw55xj15bh55))/search.aspx?clientid=nacogdochescad and search. The Railroad Commission of Texas regulates O&G in Texas. They have a map viewer at http://wwwgisp.rrc.texas.gov/GISViewer2/ You can search by county and then abstract #.

The 1/5 royalty should be clear and free of all pre-production and drilling costs. It may (probably will) be charged with some post-production costs, depending on the lease terms you negotiate. Those would be deducted from your royalty each month.

The royalty is calculated as 20% of your proportionate share of the production. So if you own 25 net mineral acres, with a 1/5 royalty and your acreage is pooled (unitized) into a 640 acre unit, you'd have a 0.78125% interest in the production from that unit. Your net acreage/total unit acreage * royalty amount. If the well is not unitized, it'd be calculated differently, but should still be proportional.

There's so much to get feedback on, it's hard to get into every detail. There is a lot of information on this site that will give you an idea. And many of us here will answer your questions. Hope that helps and good luck with everything. Hope they hit a gusher for you.

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JR- thank you for taking the time to respond. The information you provided is very valuable! Thanks again.

Bruce