January 2018 Lease Offer near Snook, Tx

This week I received a lease offer on about 8 mineral acres I own near Snook off CR 278. What's the going rate(or range) for Lease Bonuses and Royalties in the area?

Thanks in advance for any info!

We gave a lease just outside of Snook in 2015 for $1,275.00 per net mineral acre. We just received another lease offer down just off of lake Somerville for $750 per net mineral acre. We turned it down because the lease broker couldn't agree to a 1/4 royalty, they were stuck at 1/5th.

I cannot comment on lease bonuses in this area, but 25% royalty interest should be your objective on any lease.

Plus a "cost free" lease so you don't get your payments dinged with various post production charges. Plus you need a Pugh clause for depth severances once primary lease term expires (even if there is production associated with your lease).

The area around Snook has been very active for Eagle Ford drilling over the past several years. Right now, Wildhorse is the lead dog as to drilling in this part of Burleson County. They were running 4-5 rigs in this area recently. Very aggressive players. Not sure who they are using as lease brokers picking up new acreage for them.

Hope some of this info helps!

Thanks for the information! I was thinking 1/4 royalty was more in line.

Thank you for the info!

We're located just south of FM 60 between Snook and Lyons and just got an offer from Esquisto for $650/ac and 20% royalty. This is only $50 per acre more than we originally got in 2013 ... a few things have changed since then! I countered for considerably more and some new guy got back to me with a $500/ac offer. Somebody doesn't have their act together.

Considering the activity in your area, I personally would want a 25% royalty and be willing to go lower on bonus. I would also make sure I got a “cost free lease” so I would max out my potential royalty payments. 8 acres will only give you a very small position in a drilling unit. Assuming a 320 acre unit and a 25% royalty, you would end up getting a 0.625% share of gross production value (minus taxes). 20% royalty would give you a 0.5% share. The 320 acre unit size I cited may be small - could be double that at 640 acres (if operator opts to drill longer lateral). Assuming economic success for the operator, you could see 3-5 laterals on the unit over time.

We had the same thing happen to us so I contacted an oil and gas attorney to help us. 1/5 is too low for sure. Our attorney helped us not only get a larger royalty, but a better bonus per acre too. I would contact attorney Jospeh Briars who helped us. His number is 979-268-4343. A great man to do business with......

Thanks for the information Arlie and Rock Man. The second guy just got back to me after over a week saying they could go with the last offer from the first guy. No mention of my counter-offer. Apparently "negotiating" means something different to Esquisto.

Nothing says you have to take their terms. They may come back with better terms later.

Arlie, if I may ask, how many mineral acres do you have and approximately where? We've only got 8 mineral acres, so I'm wondering if an attorney would be worth it. The Esquisto land man just said they've never offered more than $650/ac in our area, (about a mile SE of Lone Oak Baptist Church between Snook and Lyons). He made no counter-offer. Pretty much take it or leave it

Broker is going to try to get as cheap a lease as possible - they sometimes get bonuses for getting good terms for their clients. So I wouldn't believe his comment @ the $650 per NMA being max number for the area. Remember that they are NOT working for you.

Is 8 mineral acres too small a block to merit legal involvement?

Good question.

Assuming 320 acre drilling unit, you would have 2.5% of the unit. At 25% royalty (the going rate for royalty), you get 0.625% of the production revenue after taxes.

Let's assume a 400,000 BO well (over 25-30 years) plus gas and NGL's. Your share of oil revenue assuming $60 per BO is $150,000 before taxes. And then add in gas and NGL revenue.

Then figure that an operator should be able to drill 3 to 4 more well in the same unit.

The lifetime numbers do add up. Remember that there is steep decline on these horizontal wells but they will flatten out at a lower rate after 5-6 years and produce for a long time.

If it were my 8 mineral acres, I would get a good O&G lawyer to look at lease and make sure you have the proper clauses in place to protect your interests.

And I would wait out Esquisto - I believe that they are leasing for Wildhorse who are the major drilling in this area. They will come back with better terms as the unit is leased up and you are the "hold out".

Just may opinion on leasing strategy and legal involvement - these are personal decisions and unique to every mineral owner.

Thanks as usual Rock Man. That lifetime calculation is extremely useful and I agree that some legal advice will be a good idea. Lawyers are expensive, but can be worth the money.

The first guy worked for a local outfit that seemed to have an established connection to Esquisto. The new guy I'm dealing with appears to be an out-of-town solo operator ... probably why he low-balled me at first.

Broker groups will bring in people from where ever as needed. I wouldn't be surprised if there are brokers from LA in your area.

Remember that the lifetime numbers and cash flow are assuming successful operations, but considering your location and historical drilling success in the Eagle Ford, successful horizontal wells will be drilled - the question will be how good will they be.