I have mineral rights to 160 acres in Pratt County, KS with one producing oil lease. I have 80% royalty interest and 100% working interest. I have an offer to farm out 150 acres for $75/acre bonus and 5% override.
I believe this is located in the Mississippi Lime Play. My questions are: Is this offer reasonable? And if I choose to convert override to working interest after payout, should I ask for a different percentage?
Dear Donna,
Is the current well producing enough to hold the lands for some time to come?
If it were me, I would suggest delivering a 75% NRI lease with an option converting all or a portion of your retained override at payout of 40-50% WI, on a well-by-well basis. The carry really depends on your risk aversion and cash liquidity.
No cash up front and a well commitment.
Dear Donna,
Is the current well producing enough to hold the lands for some time to come?
If it were me, I would suggest delivering a 75% NRI lease with an option converting all or a portion of your retained override at payout of 40-50% WI, on a well by well basis. The carry really depends on your risk aversion and cash liquidity.
No cash up front and a well commitment.
Best Buddy Cotten Mineral Manager
Hey Buddy you kind of lost me. The current lease produces about 450 bbl a year, a nice little income. It will not be included in farmout. You suggest I deliver 75% NRI lease. Explain 75% NRI. Are you meaning 75% override to be converted at payout of 40-50% WI on well by well basis? What are you basing 75% on? I am a little slow understanding that part.
Buddy Cotten said:
Dear Donna,
Is the current well producing enough to hold the lands for some time to come?
If it were me, I would suggest delivering a 75% NRI lease with an option converting all or a portion of your retained override at payout of 40-50% WI, on a well by well basis. The carry really depends on your risk aversion and cash liquidity.
No cash up front and a well commitment.
Best Buddy Cotten Mineral Manager
Donna,
I made some faulty assumptions. If you are not aware of these terms as a working interest owner, I suggest that you employ an attorney experienced in these matters to review any documents drafted. There are many moving parts to a joint venture.
Best Buddy Cotten
Donna said:
Hey Buddy you kind of lost me. The current lease produces about 450 bbl a year, a nice little income. It will not be included in farmout. You suggest I deliver 75% NRI lease. Explain 75% NRI; are you meaning 75% override to be converted at payout of 40-50% WI on well by well basis? What are you basing 75% on? I am a little slow understanding that part.
Buddy Cotten said:
Dear Donna,
Is the current well producing enough to hold the lands for some time to come?
If it were me, I would suggest delivering a 75% NRI lease with an option converting all or a portion of your retained override at payout of 40-50% WI, on a well by well basis. The carry really depends on your risk aversion and cash liquidity.
No cash up front and a well commitment.
Hello Buddy,
I do not think financially it would be wise for me to convert to more than 35% WI. I would also rather forget about a bonus and negotiate a better deal for myself. Any new ideas? Thanks for pointing out it needs to be on a well by well basis.
Thanks again,
Donna
Buddy Cotten said:
Donna,
I made some faulty assumptions. If you are not aware of these terms as a working interest owner, I suggest that you employ an attorney experienced in these matters to review any documents drafted. There are many moving parts to a joint venture.
Best, Buddy Cotten Mineral Manager
Donna said:
Hey Buddy you kind of lost me. The current lease produces about 450 bbl a year a nice little income it will not be included in farmout. You suggest I deliver 75% NRI lease… explain 75% NRI are you meaning 75% override to be converted at payout of 40-50% WI on well by well basis. What are you basing 75% on? I am a little slow understanding that part.
Buddy Cotten said:
Dear Donna,
Is the current well producing enough to hold the lands for some time to come?
If it were me, I would suggest delivering a 75% NRI lease with an option converting all or a portion of your retained override at payout of 40-50% WI, on a well by well basis. The carry really depends on your risk aversion and cash liquidity.
No cash up front and a well commitment.
Best, Buddy Cotten Mineral Manager