Why does a company want an extension on the old lease rather than a new lease (The old one has expired)?
Strong urging from the landsman and from sales lady at Bakken-Hunter to extend old lease. The answer I get as to why they want to is either no response or "we don't want to write off the lease".
I have been trying to determine what terms in the old lease they are trying to preserve, but don't see anything obvious.
The land is in the Fillmore Field , Divide county Ndak. They offered 1000 / acre and 1/6 , 3 year.
They also slipped in (or tried to) a three year extension option at the same rate.
They lowered the bonus to 800/acre when I called them on the option.
Mike, it's the 1/6th that they want to preserve. I hope you are telling any and everyone that you have a lease expiring and you are interested in offers. You may not be able to do better on bonus and royalty but you should at least be able to do better on one. I'd ask some other potential lessees for a second opinion, tell your current lessee that you are offering it to Empire oil or Northern oil and gas, for the same price your lessee is offering, just for the heck of it. Sometimes when they think you aren't bargaining with anyone else they drag their feet and try to wear you without bargaining in earnest.
Actually we aren't seeking a new lease at the moment. The old one expired last year and that's fine.
What I told them is; why should we accept dollars that are deteriorating (albeit slowly at the moment, less than 2% inflation) in exchange for a likely appreciating asset. They want to buy now with inexpensive money (low interest) and acquire an asset that likely will appreciate. The option they put in tells me that.
If they were going to drill right away they would not need the renew in three years option.
r w kennedy said:
Mike, it's the 1/6th that they want to preserve. I hope you are telling any and everyone that you have a lease expiring and you are interested in offers. You may not be able to do better on bonus and royalty but you should at least be able to do better on one. I'd ask some other potential lessees for a second opinion, tell your current lessee that you are offering it to Empire oil or Northern oil and gas, for the same price your lessee is offering, just for the heck of it. Sometimes when they think you aren't bargaining with anyone else they drag their feet and try to wear you without bargaining in earnest.
Since the lease has expired, you are in position to take your time and get the best lease terms available for this area. Don't be in a hurry as time is on your side. I would never consider a lease extension as this will only prolong the drilling of your minerals. The bonus amount is important but I would place my priority on the % royalty as this will be with you for the life of lease. In regards to the three year option, this will provide the company to drill on other acquired leases which are expiring while your minerals are in their safe for later developement. Again, don't get in a hurry and do some serious shopping around.
I'm confused. Most leases state that lease can be extended from the Primary Term to a Secondary Term (extension period) for an amount of bonus consideration equal to that paid for the Primary Term. Does yours not do that?
Think of the option to extend as the new primary term.
Pete Wrench said:
I'm confused. Most leases state that lease can be extended from the Primary Term to a Secondary Term (extension period) for an amount of bonus consideration equal to that paid for the Primary Term. Does yours not do that?
Mike, I think you have a point about deteriorating buying power of money. I also consider the source when they say that inflation is around 2%. They can say whatever they want, but when I compare the actual buying power of my money to what it has been in previous years, about the only thing I can get more of for the same or less money is a house and I don't buy that many of them. Think about what a loaf of bread cost 5 years ago compared to what it costs today.