Does anyone have an educated or not opinion on how far out from the end of an existing lease is top leasing a viable option and no, contrary to popular belief the art of run-on sentences is not dead? Are top leases normally initiated by interested lessors or by the mineral rights holder?
Top leases can really be done anytime. They are simply not valid until the underlying lease terminates. Typically the top lessee will take the top lease close to the end of the primary term of the underlying lease or in the secondary term if the top lessee believes the underlying lease has terminated for cessation of production, failure to pay shut-in royalties or something of that nature. They can be initiated by either the lessor or potential lessee.
I think uncertainty characterizes top leasing. The present lessee would only be interested if they are uncertain they would get the lease drilled in time. A third party would be taking a chance in top leasing, so they aren't risking much up front. I recommend letting the lease expire, so you are in a stronger position for negotiations. When your lease expires you will have certainty. Lease rates seem to be on the upswing also. Your minerals in the ground are an appreciating asset like gold. When you are unleased they are your appreciating asset, and when you are leased they are your lessors appreciating asset. I would want my minerals back, even if just briefly so I could try to take advantage of their appreciation in the last few years. If you get a top lease or extention offer from your current lessee, I would suggest a new lease superceding the one you have now, with anything corrected that you find objectionable in your current lease including royalty % and charges for conditioning and marketing gas. A new lease would protect you as a toplease would not, just in case they start dozing dirt on the last day of your current lease to put a well in, assuming you haven't specified in your current lease that a well must be spudded with a rig on site capable of reaching target depth or other such provisions. Good luck with your decisions.
Steve, I am far from an expert on this stuff but, I did read something last night about this. If it is the current lessee is wanting to top lease, hopefully at better terms. You want to have the new lease start right now rather than wait until the current lease expires. The reason is that if they happen to hit oil before the current lease expires you then are bound by those terms. Tom
Dear Mr. Bye,
Listen to Mr. Elmore on this one. He knows of which he speaks.
The current lessee would not want a top lease, unless they wanted to beat down the terms. If they wanted additional time on the lease, they would get an extension, not a top lease.
There are strategic reasons for a top lease, and most of the strategy benefits the oil company. Landowners can sometimes use top leasing to their advantage, if they are VERY sharp.
I appreciate all the input. Our mineral rights in NE Montana have been just outside of drilling activity ever since I can remember. As Sarah Palin would say I can see royalties from my porch. The bakken and new technology seems to have awaken some interest in our acreage. We are almost 4 years into a 5 year lease on most of our acres and have some held by production in a pooled section. Therefore my brother and I have a little experience in leasing but not much after that. So I look forward to what appears to be a steep learning curve.
Steve:
Where in the NE area of Montana are your minerals located? If they are located in Roosevelt or Sheridan Counties, permitting is already increasing. In regards to the top leasing, I have top leased my Roosevelt County minerals in the past (back in 2008), but they were not top leased until approx. 5 months prior to the lease expiration date. If there are permits already issued near your minerals and drilling begins around you prior to lease expiration, another company might be hesitant to top lease in fear of losing their investment. I am optimistic that we will all see increased drilling activity in this NE Montana area in 2012.
In a word – flexibility. Obviously, any company approaching you about a top lease has a hunch that there may be hydrocarbons underneath the tract of land, no company can be absolutely sure. Only the drill bit knows for sure, goes the old saying. Top leasing attempts to secure drilling rights for a time in the future by paying for those rights today. Some top leases turn out to be worthless to the party taking the lease. Some turn out to be good deals for all parties. Some turn out to be disproportionately better for one of the parties. Neither party, the mineral rights owner or the oil company can predict with certainty whether or not they’ve made the best trade. Only time will tell.
Thanks,
Michel
oil and gas production
We are in Sheridan County, if you go on the webmapper and find Neste Myer FLB 14-1, that is the well that pools one quarter of ours. It is called the Salt lake field and is just west of the larger Flat Lake field. Most of our acres are north and north east of Neste Myer.
charles s mallory said:
Steve:
Where in the NE area of Montana are your minerals located? If they are located in Roosevelt or Sheridan Counties, permitting is already increasing. In regards to the top leasing, I have top leased my Roosevelt County minerals in the past (back in 2008), but they were not top leased until approx. 5 months prior to the lease expiration date. If there are permits already issued near your minerals and drilling begins around you prior to lease expiration, another company might be hesitant to top lease in fear of losing their investment. I am optimistic that we will all see increased drilling activity in this NE Montana area in 2012.
Steve:
We have minerals in the T31N;R59E;Sec 31 area of Sheidan County and currently it is temp. spaced by Marathon Oil Company. This lease does not expire until 2013 but Marathon Co. Rep. stated that they plan to develope this area in early 2012. I've been leasing since 2004 and I've to the point that I will believe it when there is a rig on location as these companies change their plans quicker than the weather changes in Texas. Maybe we will both be lucky in 2012.
Michel:
With today's improved research, seismic tests, etc., these companies have a good idea what's under the surface, but the problem is generally, how of well production will it be. Look at the total number of wells drilled vs. the "dry hole" figures and that will be proof enough. Again, what they are looking for is that great producer which really opens up an area for massive drilling.
Michel Tiffin said:
In a word – flexibility. Obviously, any company approaching you about a top lease has a hunch that there may be hydrocarbons underneath the tract of land, no company can be absolutely sure. Only the drill bit knows for sure, goes the old saying. Top leasing attempts to secure drilling rights for a time in the future by paying for those rights today. Some top leases turn out to be worthless to the party taking the lease. Some turn out to be good deals for all parties. Some turn out to be disproportionately better for one of the parties. Neither party, the mineral rights owner or the oil company can predict with certainty whether or not they’ve made the best trade. Only time will tell.
Thanks,
Michel
oil and gas production
Looks like we are in very similar situation, lots of dry holes from prebakken technology and not far away from solid proven production. I am not getting any younger and hope to have something to put the gold in my golden years. My grandfather and father were among those who preached the mantra, "You might have to sell the surface but never never sell the minerals". They knew there was oil there before we were a glimmer in oil company eyes.
charles s mallory said:
Steve:
We have minerals in the T31N;R59E;Sec 31 area of Sheidan County and currently it is temp. spaced by Marathon Oil Company. This lease does not expire until 2013 but Marathon Co. Rep. stated that they plan to develope this area in early 2012. I've been leasing since 2004 and I've to the point that I will believe it when there is a rig on location as these companies change their plans quicker than the weather changes in Texas. Maybe we will both be lucky in 2012.
Buddy,
I got top leased my the same lease holder. I took it as an insurance move on their part; just in case they could not HBP me- and I do expect to get HBP. The terms appeared to me much better than the previous terms. Do you think that this is a "just in case" on their part or did I maybe get tricked on the terms?
Mike
Buddy Cotten said:
Dear Mr. Bye,
Listen to Mr. Elmore on this one. He knows of which he speaks.
The current lessee would not want a top lease, unless they wanted to beat down the terms. If they wanted additional time on the lease, they would get an extension, not a top lease.
There are strategic reasons for a top lease, and most of the strategy benefits the oil company. Landowners can sometimes use top leasing to their advantage, if they are VERY sharp.
Best,
Michel Tiffin said:
In a word – flexibility. Obviously, any company approaching you about a top lease has a hunch that there may be hydrocarbons underneath the tract of land, no company can be absolutely sure. Only the drill bit knows for sure, goes the old saying. Top leasing attempts to secure drilling rights for a time in the future by paying for those rights today. Some top leases turn out to be worthless to the party taking the lease. Some turn out to be good deals for all parties. Some turn out to be disproportionately better for one of the parties. Neither party, the mineral rights owner or the oil company can predict with certainty whether or not they’ve made the best trade. Only time will tell.