Has anyone ever seen or heard of a clause in the lease where the lessee would have the option to participate as a WI owner. If so was there a limit on that percentage based on the RI percentage? Yes, I am considered a “qualified investor” under IRS/SEC rules. Sort of a I wanna go all in on this lease.
Oops sorry, words do have meaning, I am the lessor. Sorry for the confunsion
Lagunaroy, What you've written does not really make sense. Perhaps I'm missing your intent, but perhaps this will clarify things a bit. This assumes you are a mineral owner:
1. If you sign a lease... You, as Lessor, are surrendering to the Lessee your right to participate in any wells. In exchange you receive a cash payment now as your lease bonus consideration, and you've agreed to accept a specific percentage of the future production if there is any (the "Royalty" specified in your lease, ie... 15%, 16.6%, 18.75%, etc...). The Lessee is responsible for all drilling costs and is entitled to keep the remaining future production (85%, 83.4%, 81.25%, etc...). Once you've leased, if a well is drilled on your minerals later on, you cannot take a working interest in it (unless you buy back some or all of your leased minerals). However, you'll have no cost in the wells, and you'll receive the pre-agreed to royalty amount if there is production.
2. If you want to have a working interest in any wells drilled... You would not sign a lease. In this case you don't ever receive any lease bonus payment. However, as an unleased mineral owner you would have the right to participate in all future wells. As a W.I. owner you are not bound to a royalty percentage of any future production. You will receive 100% of your share of any future production (if any), and you'll be responsible for 100% of your share of all drilling and operating expenses.
3. You could also do a hybrid of the two. You may lease a portion of your net acres while withholding a portion of your minerals from the lease. Say you own 120 net acres, you may lease 100 net acres and hold back 20 net acres to participate. Or, you could hold onto 100 acres and lease 20. The amounts are strictly up to you. You may then participate to the extent of the net mineral acres you did not lease. HOWEVER, if you want to go this route, CAUTION!!!! Seek professional help to make darn sure your lease is properly written. You may inadvertently lease it all if the lease isn't properly done.
Good luck on your decision. Yet I do want to stress that you approach a W.I. with great caution.
Thank you, You cleared it up for me, almost…I think I asked the wrong question. Assume a 25% royality on 640 acres of which my RI is .02+. that I would get plus bonus and I do not lease. What percent of the WI percent would I be at risk for?
Maybe that someone who has participated in a well can chime in on this topic and provide information regarding their experiences.
The best way, IMHO, to accomplish this is to lease the property to another entity of yours, say at a 20% royalty, then assign the lease, reserving a 5% overriding royalty until payout, at which time, you have the option of converting your ORRI to a 25% working interest, or remaining as a Lessor Royalty plus overriding royalty interest.
Thanks to you folks, Mr. Cotton you provided a great answer to a poorly worded question. Thanks again to all.