My Lessee exercised their right to execute a 2 year extension after the original 3 year lease expired. I guess this is good news that they still have interest. I just don't know if this means they will start drilling soon or not. I've heard stories about oil companies claiming they will drill and then don't while tying up the mineral acreage from being leased to someone else and also avoiding renewing the lease. Anyone know what rights we as lessors have in terms of receiving information from these companies regarding their intentions?
Jon:
The one thing you can do as a lessor is to stay abreast of the activity in and around your immediate area. Take note of any newly drilled wells in regards to the production figures. If this company does not drill during this extension period, I would advise that you let your lease expire (do not top-lease) and when a new lease is negotiated, do not allow for any extension clause. This clause at times only allows the operator to acquire acreage for a lesser price than they could lease at current rates.
Thanks Charles. Good to know about the top-lease, because I was also wondering about that option. I can't believe the current lessee would go to the trouble to extend and then let the lease expire without any activity. There does seem to be constant activity in the vicinity of the mineral acreage and I have been approached by other oil companies about leasing once these leases expire. It's positive that there is so much interest, but I'm in the dark as to what the lessee is planning.
Jon:
It's sometimes hard to second guess the actions of operators. If the area is very active, I'm sure there is a reason that the extension is wanted. What State and area are your minerals located in? Again, stay abreast of the drilling activity and production figures in the event you get a chance to negotiate new leases in the future.
The Baaken in North Dakota.
Jon,
Note that the lessee did not sign the lease. The lessee's only obligation under the lease is to share production revenue, if any, and that will most likely be compromised with Lessee's costs of production. Take Mr. Mallory's advice and pay attention to the lease termination clauses when the lease date is reached. Update yourself as to lessee's post primary term rights and then send a notice of lease termination. Evaluate your mineral potential, then determine what a lease is worth to you. Your in a good area for long term mineral values to be realized. Make the most of it.
Next time you will know how important lease provisions are over a getting a little bonus money. Depending on your location, production value may be 4 to 10 times what little bonus you may be offered. Lots of money could go into your pocket that would otherwise go into a lessees pocket at your expense. Good Luck.