Kansas farmout agreement

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 farmout 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 pay out should I ask for a different percentage?

thanks

Donna

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



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


Hey Buddy you kind of lost me. The current lease produces about 450bbl 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.
Donna said:



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 450bbl 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.
Donna said:



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 450bbl 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.
Donna said:



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