How are oil & gas leases paid?

[JEN_POGUE]

My family just received a lease agreement from chesapeak/ red sky land companies for our 64 acres in west virginia. We are new to this and are having a hard time understanding a "paid-up" lease. We were under the impression that we were to see $3,000 per acre with 18% royalties, with a 5 year lease. now we get this lease that says (and I am assuming) that we will only ever see a check for $4,000???? Seriously??? Is that ALL we get ever? there's no more funds coming from this? I was thinking this was like leasing your house , you get so much a month over the next 5 years?

Can any one shed some light on this subject Please?

[charles_s_mallory]

Jen:

Is the 64 acres you refer to the "net mineral acreage"? What was the bonus per acre you signed for? You should have been paid so much per net mineral acre and this total would be a one time payment for the term of the lease. If the operator drills a well on the acreage, then the % royalty would be utilized to figure your interest in the well.

[JEN_POGUE]

First of all I havent signed ANYTHING and I am not going to until I fully get an understanding of all this and I am not getting ripped off. The net mineral acres for each person(there are 15 family members splitting the 64 acres) according to the order of payment form(bonus consideration) states 1.3396 with a total pay out of $4,000. That doesnt sound like what they originally stated it would be. We were told they are paying $3,000 per acre for 64 acres. So am I to understand that oil companies only pay off of the "net acreage"? one time then over the course of the 5 year lease we get the "royalties" checks once a year? Because we were told one thing and now we see something different in writing.

[r_w_kennedy]

Ms. Pogue, first, I would not hand over an executed lease in exchange for an order of payment, bank draft or bill of exchange as they are all unenforceable IOU’s and it’s completely at the lessee’s discretion if they EVER pay you. Demand a form of real payment before you hand over the executed lease. I didn’t and I’m having to sue the lessee and just sent my lawyers the second large check. You don’t want to have to sue, learn from my mistake. I think it’s possible that you don’t own 100% of the mineral interest in the 64 acres. The only way to find out how much you own is to follow the chain of title and look for reservations, sales and rights being divided between heirs. If you ask whoever is wanting to lease you, they might explain to you how they arrived at the net acres calculation. As to the lease bonus, it is likely for what is called a paid up lease, which means that they are paying all 5 years rental payments in advance. If operations to commence drilling that results in production, or continuous operations in an attempt to obtain production occours, then the lease extends into the future as long as production or operations deemed continuous occour, with no more payments except for royalty percentage for minerals produced. With no production or operations in the 5 years, the lease will expire and you can then lease and recieve a bonus again. I hope this helps.

[Joel_King]

Jen, it may be that the 15 family members only own a portion of the minerals. They may be offering 4000 per acre but that is then pro-rated based on the amount of mineral acres you own, I.E, if you own 1/2 mineral acre then you would recieve 2000 total. If minerals are produced in paying quantities within the 5 year primary term as you mentioned, then you would start recieving 18% of the production based on the amount of mineral acres you own, minus any deductions. These royalty payments would payout for the duration of production, not 5 years. The production would eclipse the primary term. Once production ceases, then at some point the control of your minerals would revert back to you. You might click "mineral help" at the top of this page. There is a lot of good info there.

Joel

JEN POGUE said:

First of all I havent signed ANYTHING and I am not going to until I fully get an understanding of all this and I am not getting ripped off. The net mineral acres for each person(there are 15 family members splitting the 64 acres) according to the order of payment form(bonus consideration) states 1.3396 with a total pay out of $4,000. That doesnt sound like what they originally stated it would be. We were told they are paying $3,000 per acre for 64 acres. So am I to understand that oil companies only pay off of the "net acreage"? one time then over the course of the 5 year lease we get the "royalties" checks once a year? Because we were told one thing and now we see something different in writing.

[JEN_POGUE]

Thanks for the info, but that doesnt sound right either. 64 acres divided by 15 people means that each person gets 4.26 acres to play with at $3,000 per acre thats still alot more money than We are being told now. So if thats the case then how did these people get a “net acre” amount of 1.33?

Joel King said:

Jen, it may be that the 15 family members only own a portion of the minerals. They may be offering 4000 per acre but that is then pro-rated based on the amount of mineral acres you own, I.E, if you own 1/2 mineral acre then you would recieve 2000 total. If minerals are produced in paying quantities within the 5 year primary term as you mentioned, then you would start recieving 18% of the production based on the amount of mineral acres you own, minus any deductions. These royalty payments would payout for the duration of production, not 5 years. The production would eclipse the primary term. Once production ceases, then at some point the control of your minerals would revert back to you. You might click "mineral help" at the top of this page. There is a lot of good info there.

Joel

JEN POGUE said:

First of all I havent signed ANYTHING and I am not going to until I fully get an understanding of all this and I am not getting ripped off. The net mineral acres for each person(there are 15 family members splitting the 64 acres) according to the order of payment form(bonus consideration) states 1.3396 with a total pay out of $4,000. That doesnt sound like what they originally stated it would be. We were told they are paying $3,000 per acre for 64 acres. So am I to understand that oil companies only pay off of the "net acreage"? one time then over the course of the 5 year lease we get the "royalties" checks once a year? Because we were told one thing and now we see something different in writing.

[JEN_POGUE]

I wasnt planning on handing anything over until I see something very concrete, they could promise me the moon but that doesnt mean i am going to actually see it. No they pay me then they can have their signed lease IF this is real, and i am getting fair value.

r w kennedy said:

Ms. pogue gue, first, I would not hand over an executed lease in exchange for an order of payment, bank draft or bill of exchange as they are all unenforceable IOU's and it's completely at the lessee's discretion if they EVER pay you. Demand a form of real payment before you hand over the executed lease. I ididn't and I'm having to sue the lessee and just sent my lawyers the second large check. You don't want to have to sue, learn from my mistake. I think it's possible that you don't own 100% of the mineral interest in the 64 acres. The only way to find out how much you own is to follow the chain of title and look for reservations, sales and rights being divided between heirs. If you ask whoever is wanting to lease you, they might explain to you how they arrived at the net acres calculation. As to the lease bonus, it is likely for what is called a paid up lease, which means that they are paying all 5 years rental payments in advance. If operations to commence drilling that results in production, or continuous operations in an attempt to obtain production occours, then the lease extends into the future as long as production or operations deemed continuous occour, with no more payments except for royalty percentage for minerals produced. With no production or operations in the 5 years, the lease will expire and you can then lease and recieve a bonus again. I hope this helps.

[Joel_King]

You would probably be best to communicate with the lessee as Mr. Kennedy suggested & get some more detailes. 64 surface acres doesn’t necessarily mean the net mineral acres owned are equal. You could also look on your deed & see if anything is mentioned there. It’s possible they are wrong but you’ll just have to see where they came up with that number.

JEN POGUE said:

Thanks for the info, but that doesnt sound right either. 64 acres divided by 15 people means that each person gets 4.26 acres to play with at $3,000 per acre thats still alot more money than We are being told now. So if thats the case then how did these people get a "net acre" amount of 1.33?

Joel King said:

Jen, it may be that the 15 family members only own a portion of the minerals. They may be offering 4000 per acre but that is then pro-rated based on the amount of mineral acres you own, I.E, if you own 1/2 mineral acre then you would recieve 2000 total. If minerals are produced in paying quantities within the 5 year primary term as you mentioned, then you would start recieving 18% of the production based on the amount of mineral acres you own, minus any deductions. These royalty payments would payout for the duration of production, not 5 years. The production would eclipse the primary term. Once production ceases, then at some point the control of your minerals would revert back to you. You might click "mineral help" at the top of this page. There is a lot of good info there.

Joel

JEN POGUE said:

First of all I havent signed ANYTHING and I am not going to until I fully get an understanding of all this and I am not getting ripped off. The net mineral acres for each person(there are 15 family members splitting the 64 acres) according to the order of payment form(bonus consideration) states 1.3396 with a total pay out of $4,000. That doesnt sound like what they originally stated it would be. We were told they are paying $3,000 per acre for 64 acres. So am I to understand that oil companies only pay off of the "net acreage"? one time then over the course of the 5 year lease we get the "royalties" checks once a year? Because we were told one thing and now we see something different in writing.

[JEN_POGUE]

Thank You, Now I get it. That made more sense because i remember reading somewhere that we owned a fourth of what was underneath. So That would mean the “net acres” is Underneath that is to be cashed in on right?

You would probably be best to communicate with the lessee as Mr. Kennedy suggested & get some more detailes. 64 surface acres doesn't necessarily mean the net mineral acres owned are equal. You could also look on your deed & see if anything is mentioned there. It's possible they are wrong but you'll just have to see where they came up with that number.

JEN POGUE said:

Thanks for the info, but that doesnt sound right either. 64 acres divided by 15 people means that each person gets 4.26 acres to play with at $3,000 per acre thats still alot more money than We are being told now. So if thats the case then how did these people get a "net acre" amount of 1.33?

Joel King said:

Jen, it may be that the 15 family members only own a portion of the minerals. They may be offering 4000 per acre but that is then pro-rated based on the amount of mineral acres you own, I.E, if you own 1/2 mineral acre then you would recieve 2000 total. If minerals are produced in paying quantities within the 5 year primary term as you mentioned, then you would start recieving 18% of the production based on the amount of mineral acres you own, minus any deductions. These royalty payments would payout for the duration of production, not 5 years. The production would eclipse the primary term. Once production ceases, then at some point the control of your minerals would revert back to you. You might click "mineral help" at the top of this page. There is a lot of good info there.

Joel

JEN POGUE said:

First of all I havent signed ANYTHING and I am not going to until I fully get an understanding of all this and I am not getting ripped off. The net mineral acres for each person(there are 15 family members splitting the 64 acres) according to the order of payment form(bonus consideration) states 1.3396 with a total pay out of $4,000. That doesnt sound like what they originally stated it would be. We were told they are paying $3,000 per acre for 64 acres. So am I to understand that oil companies only pay off of the "net acreage"? one time then over the course of the 5 year lease we get the "royalties" checks once a year? Because we were told one thing and now we see something different in writing.

[Joel_King]

You got it. Somewhere in the past there may have been a mineral reservation (not sold with the surface) of a portion of the minerals which means the portion reserved would be owned by that party. You would get paid on the percentage of your ownership.

JEN POGUE said:

Thank You, Now I get it. That made more sense because i remember reading somewhere that we owned a fourth of what was underneath. So That would mean the "net acres" is Underneath that is to be cashed in on right?

You would probably be best to communicate with the lessee as Mr. Kennedy suggested & get some more detailes. 64 surface acres doesn't necessarily mean the net mineral acres owned are equal. You could also look on your deed & see if anything is mentioned there. It's possible they are wrong but you'll just have to see where they came up with that number.

JEN POGUE said:

Thanks for the info, but that doesnt sound right either. 64 acres divided by 15 people means that each person gets 4.26 acres to play with at $3,000 per acre thats still alot more money than We are being told now. So if thats the case then how did these people get a "net acre" amount of 1.33?

Joel King said:

Jen, it may be that the 15 family members only own a portion of the minerals. They may be offering 4000 per acre but that is then pro-rated based on the amount of mineral acres you own, I.E, if you own 1/2 mineral acre then you would recieve 2000 total. If minerals are produced in paying quantities within the 5 year primary term as you mentioned, then you would start recieving 18% of the production based on the amount of mineral acres you own, minus any deductions. These royalty payments would payout for the duration of production, not 5 years. The production would eclipse the primary term. Once production ceases, then at some point the control of your minerals would revert back to you. You might click "mineral help" at the top of this page. There is a lot of good info there.

Joel

JEN POGUE said:

First of all I havent signed ANYTHING and I am not going to until I fully get an understanding of all this and I am not getting ripped off. The net mineral acres for each person(there are 15 family members splitting the 64 acres) according to the order of payment form(bonus consideration) states 1.3396 with a total pay out of $4,000. That doesnt sound like what they originally stated it would be. We were told they are paying $3,000 per acre for 64 acres. So am I to understand that oil companies only pay off of the "net acreage"? one time then over the course of the 5 year lease we get the "royalties" checks once a year? Because we were told one thing and now we see something different in writing.