Hi all — long-time reader, first post. I recently inherited ~40 net acres in central Lea County, NM, and have had landmen calling for the past six months. Now sitting on three offers and trying to figure out what to do.
My situation: the lowest offer is from a larger, seemingly reputable operator that — from what I’ve been able to gather — has a strong track record of drilling quickly and drilling well. The two higher offers are from smaller, less-experienced groups with similar royalty terms but meaningfully higher bonus payments. My concern is that if I take one of the higher bonuses, the acreage may never actually get developed and I’ll be looking for a new lessee in five years.
Any thoughts on how to weigh this risk and think about operator quality vs. upfront cash? Appreciate any guidance from people who’ve been through this.
Where are your minerals located?
Make sure to check the details of the bonus and royalty payments. They may all superficially look alike, but the details may tell a wildly different story.
For example, is the royalty paid on the price at the wellhead or after some (often many) different expenses are deducted. It can make a huge difference in your royalty payments - I know from personal experience!
As to the bonus amounts…are they all paid up for the same length of time? Do any of them have a right of extension? If so, is the bonus amount to be paid upon extension the same as the original bonus per NMA?
Mu suggestion would be to approach the firm you consider to be the most reputable with a counter offer of the highest bonus amount offered by either of the other two firms.
I also have several mineral holdings in Lea County. Not getting any action at this time, so I am curious where your minerals are located.
Cecil
Location, location, location. You are not really picking the operator, that is determined by market competition. Depending upon where your acreage is, we can help with whether you are looking a horizontal well or a vertical well. That might have some bearing on the operator.
The bonus is not the important item. It is a one time payment. You want the highest royalty and the best clauses in the lease. A higher royalty over many years of production can be MUCH more significant. Be aware that operators often have working interest partners as that spreads the risk for them. They have to abide by all leases within the drilling unit. The mineral owner wants to get the best lease they can within that drilling unit.
If you want to share the township and range, we can help with more info on the activity in the area.
Everybody is right, location matters. Central Lea County can mean all sorts of things ranging from “worthless” to “some dudes just paid $300k/nma bonus for Federal land in this Township”. One would guess it’s closer to the lower end of that spectrum, but who knows. But that is to say that there is a chance that the bonus is actually pretty important.
Counter everyone’s offer. Nobody is leasing your minerals expecting the lease to expire, but if it does, you get to make another bonus. Beauty of mineral ownership. You own it. I mean if you need a whole bunch of money upfront, then just sell it all to somebody.
It’s 40 acres. Whoever drills wells here is going to need to have 640 acres or so (combined), so there is no guarantee that whoever you lease it to is going to be the one that will drill on your property. So I’d just take the highest bonus (after counter offers) assuming the royalty rate is the same. If it’s not all 1/4 royalty offers, first try to get 1/4 royalty.