Forgive me if I don’t use the correct terminology. Feel free to correct me if I make an error. I am sure this question has been asked before
I have received an offer from an oil company to lease from me for some mineral rights (I think). How do I go about finding out whether or not this is a good offer, or if I have been lowballed, other than asking about specifics here? I don’t even know where to start.
So, the offer is on 0.4167 mineral acres in Stephens County, OK, Section 13, 01 N 06W. What would I do to see whether or not this is good?
To start. Let the forum know what the royalty rate and lease bonuses are that were offered. Someone in here should be familiar with the current leasing / pooling bonus rates are in the area.
Since this is a small interest and your lease bonus will amount to most likely under $1,000, you may want to wait for a forced pooling action for the property. This of course assumes that an action occurs. This will provide you with multiple options based upon what the Company pooling the unit has paid in the unit. The election period for the Pooling Order is short, so be sure to respond promptly. Looking at Section 13, $400 and a 1/4 looks like a fairly strong offer.
The clauses in the lease are more important to me than the bonus. The draft lease from most agents is not usually in the mineral owner’s favor and cost them money in the long run. You can either invest in an attorney to get better wording in the lease or wait for pooling and take the 1/4th option if it is offered. At the small acreage, I would go for the pooling.
I am by NO means experienced in the negotiation of mineral rights leases, but it all or most of the offers that come to me offer 3/16ths for royalties. Maybe it’s different for very small pieces of property.
Generally, you want to treat the first offer as negotiable. You want the most $/acre you can get, for the shortest period of time. Fractional royalties don’t seem negotiable, in my dealings.
I would suggest an alternative way to approach an offer. Many first offers are low just to see who will bite. I always ask for a higher royalty than 3/16ths (1/5th, 22% or 25%) and ask what is the best that they can offer. The answer will depend upon the area and the competition, but if you don’t ask, you don’t get the information (if they tell the truth). I prefer to lease for the higher royalty with a lower bonus. If the well is successful, then the higher royalty for the outgoing years will usually far outweigh the higher bonus for a lower royalty. Also, if the first well is successful, then there may be infill wells and I want the higher royalty for them as well.