Help with new mineral lease in Gaines Cty Texas

Oil and Gas Leasing Help
1

I am a novice at this, so any advice would be much appreciated! I inherited mineral interests for 15 acres in Gaines County Texas. The gross acres are 160. I was approached by a broker with an offer to lease the minerals for 3 years, $250 bonus, 20% royalty, $150 bonus for two year extension. This was negotiated up to $350 bonus, 25% royalty, $200 bonus for the two year extension. At first, the broker said they could not disclose who their client was, later they indicated it was Chesapeake, which makes sense because on some maps I looked at, Chesapeake appears to be a big player in this area of Gaines County, along with Pioneer Natural resources. However, I do not have anything in writing that the lease will be assigned to Chesapeake. Is this OK?

We had an O&G attorney review the lease. He crossed out a lot of the language and added an addendum with new language. This was presented to the broker who said they’re client could not accept, but they could offer better terms (mentioned above) and add a vertical and horizontal pugh clause along with a marketing enhancement clause. The marketing enhancement clause is as follows:

Lessor's royalty shall be calculated free and clear of costs and expenses for exploration, drilling, development and production including, but not limited to, dehydration, storage, compression, separation by mechanical means and product stabilization incurred prior to the production leaving the leased premises or lands pooled therewith. Lessor's royalty shall bear its proportionate share of ad valorem taxes and production, severance, or other excise taxes and the actual, reasonable costs incurred by Lessee to transport, compress, process, stabilize, gather or treat the production off the leased premises or any lands pooled therewith.

I am still concerned about the costs, the clause above seems a bit open ended, I can still get dinged with the various costs such as transportation, processing, ect. However, maybe this is standard language? And I realize I don’t have much bargaining power at 15 acres. I am really ready to sign the lease, but don’t want to do anything stupid or not follow up on something.

Thank you!

2

Joseph:

You will incur transportation costs, etc. if the last part is left in the lease. If this is not to your liking, I would not sign the lease until it is removed. These are your minerals and you should lease them on terms which is acceptable by you. I am not familiar with this area so I can't comment on the bonus amount but I would not allow for a two year extension. If this operator does not drill within the 3 year period and the area is leasing for much more than the original bonus amount, then with this type lease, you are stuck with the lower amount.