I own mineral rights in La Salle County. Carrizo has offered me a $4000 bonus for a 3 yr lease, 25% royalty interest. XTO has only offered me $2500, 25%. As I understand it EXXON owns most of the surface rights where my interests are. Am undecided as what to do. Am being advised to go w/XTO. Has anyone out there had any dealings w/ Carrizo?
Dear Ms. Coy,
I have had personal dealings with both. Both are upstanding organizations. They will follow the letter of the lease and nothing more. So, to deal with either (and all for that matter), you must have protections built into the lease for your benefit and not theirs.
In LaSalle, the companies know that they are going to see sophisticated lease forms. Do not fear to negotiate.
The 25% can be very misleading, based on the verbiage in the lease itself. I have seen recent instances of where (XTO in this case) was deducting approximately 42% in lease operating expense from the royalty owners check.
I would be very interested to find out why someone would recommend XTO over Carrizo. Perhaps they know something that has not been revealed here.
The most obvious guess on that is that they would be the more active operator in her area, or more likely to drill.
25% of nothing is nothing.
If that's not it, she would need to ask her advisers why they prefer XTO, and then post their reasons here.
Ms. McCoy,
My experience aligns with that of Mr Cotten both pro and con. I suggest that you have him write the "measurement, payment, and pricing, provision of your sophisticated lease then ask prospective lessees to set their royalty percentage based on that provision. It could mean hundreds of times more income to you than his fee. If you have much acreage, the difference in bonus amount will be insignificant in the long run. This is a prime example of the need for an experienced oil and gas attorney.
Correction on this information: Exxon does not own the surface rights but 7/8 of the mineral rights, we(3of us) own 1/8. XTO is doing the drilling. Carrizo is a participating co-tenant.
If Carrizo bought the lease from you, that would be the case. You might consider a strong lease with a drilling commitment with a strong damage provision for non-compliance. I would suspect that Carrizo may be more agile in lease negotiations than XTO. If you lease to XTO, they have no incentive to drill, since they control all the minerals. For all intents and purposes, one could consider that XTO already has production since their interest will not expire.
With a lease to Carrizo, they could propose a drilling deal to XTO and have a bargaining position.
So, have you leased to Carrizo yet?
Thank you Buddy for your reply. No, haven't made that decision yet, to go w/ lease or go in as a Non participating co-tenant. XTO is already drilling in our area which they own 7/8 m. rights and have plans to drill several more. Carrizo, as I understand it is in negotiations w/ XTO to be participating co-tenants. Not sure of what the outcome of that will be. I feel safer, for some reason going w/ XTO. They would have more of an interest in getting these wells drilled, correct? Would like to get a better royalty % + better bonus from XTO.
Buddy Cotten said:
If Carrizo bought the lease from you, that would be the case. You might consider a strong lease with a drilling commitment with a strong damage provision for non-compliance. I would suspect that Carrizo may be more agile in lease negotiations than XTO. If you lease to XTO, they have no incentive to drill, since they control all the minerals. For all intents and purposes, one could consider that XTO already has production since their interest will not expire.
With a lease to Carrizo, they could propose a drilling deal to XTO and have a bargaining position.
So, have you leased to Carrizo yet?
Best,
I am part of the 3some (brother) with Karen on the minerals. XTO drill plan has 4 wells off 1 pad and the first one almost complete. We have not signed any lease agreements at this point. Karen most likely going the lease route and myself and other sister going the unleased (non-participating co-tenant) route.
Carrizo is a cash and carry outfit. They will pay you a high premium for the acreage, because they will most likely earn their money back in a deal with a private equity group or an international oil company. In the end, they don't have much skin in the game. Yes, they drill a few wells, but believe it or not, their interest isn't as aligned as your interest with XTO would be. XTO is looking to add productive acreage to their bottom line. In what I have read, Carrizo is looking to add acreage to spinoff to their bottom line. Go with your gut on this.
It is impossible for Carrizo to be a participating co-tenant unless they are a co-tenant. To be so, they either have to own the land, have a lease on the minerals, or have an interest with XTO.
You would have to put a gun to my head for me to not sign a lease. I have WAY too many working interests and the lease operating expenses are killing me and the plugging responsibility is still hanging over my head. However, to each his own.
No, haven't done a lease yet. Still trying to work out the kinks. What is the average area that it takes for 1 well to occupy?
Karen Coy said:
Thank you Buddy for your reply. No, haven't made that decision yet, to go w/ lease or go in as a Non participating co-tenant. XTO is already drilling in our area which they own 7/8 m. rights and have plans to drill several more. Carrizo, as I understand it is in negotiations w/ XTO to be participating co-tenants. Not sure of what the outcome of that will be. I feel safer, for some reason going w/ XTO. They would have more of an interest in getting these wells drilled, correct? Would like to get a better royalty % + better bonus from XTO.
Buddy Cotten said:If Carrizo bought the lease from you, that would be the case. You might consider a strong lease with a drilling commitment with a strong damage provision for non-compliance. I would suspect that Carrizo may be more agile in lease negotiations than XTO. If you lease to XTO, they have no incentive to drill, since they control all the minerals. For all intents and purposes, one could consider that XTO already has production since their interest will not expire.
With a lease to Carrizo, they could propose a drilling deal to XTO and have a bargaining position.
So, have you leased to Carrizo yet?
Best,
I would definitely go with XTO. From what you described, they have the better position in the area.
When a company has a good position in an area, others sometimes try to play the role of blockbuster.
Karen Coy said:
No, haven't done a lease yet. Still trying to work out the kinks. What is the average area that it takes for 1 well to occupy?
Karen Coy said:Thank you Buddy for your reply. No, haven't made that decision yet, to go w/ lease or go in as a Non participating co-tenant. XTO is already drilling in our area which they own 7/8 m. rights and have plans to drill several more. Carrizo, as I understand it is in negotiations w/ XTO to be participating co-tenants. Not sure of what the outcome of that will be. I feel safer, for some reason going w/ XTO. They would have more of an interest in getting these wells drilled, correct? Would like to get a better royalty % + better bonus from XTO.
Buddy Cotten said:If Carrizo bought the lease from you, that would be the case. You might consider a strong lease with a drilling commitment with a strong damage provision for non-compliance. I would suspect that Carrizo may be more agile in lease negotiations than XTO. If you lease to XTO, they have no incentive to drill, since they control all the minerals. For all intents and purposes, one could consider that XTO already has production since their interest will not expire.
With a lease to Carrizo, they could propose a drilling deal to XTO and have a bargaining position.
So, have you leased to Carrizo yet?
Best,
Dear Mr. Schrivner and Ms McCoy,
I have been thinking some more on this. XTO could not care less if you joined in the well. As far as cost/revenues go, if you not sign a lease, you are a 1/8th interest owner APO, which is even better to XTO than if XTO had no minerals on the tract and leased the entire block for a 1/8th royalty.
An option that has not been mentioned is a partnership agreement wherein some parties contribute leases and the other contributes acreage and they split the profits. This really sounds sweet to me, IF you have enough mineral acres to justify taking a ton of risk dollars (in the form of bonus) to the bank and riding the high end as a non-consent.
For example, if each of three parties owned 1/3 x 1/8 in 480 acres, they would own 20 acres. If two parties leased. then the partnership splits (@5k per acre, for example) $200K up front. During the flush production, the partnership has leased for 25% royalty, then the "partnership share" is bringing in 2/3 x 1/8 x 1/4, or 0.02083 of the well. Slightly over 2%.
Assume first year production totals 109,500 BO. At a product price of $85/BBL, the first year gross revenue would be $9,307.500. Most of the good operators have the costs to drill and complete in the Eagleford at around $6MM. If that is the case and assuming only an average of 300 BOPD and an average of $85/bbl, then the payout for the last partner (1/24) would occur in around 9 months, then they are in for their full share.
So the partnership revenue for year 1 looks like this, with above assumptions
Lease Bonus $200K
Lease Royalty $193,719
3 months non consent $125,000
Total first 12 months $518,000, with no risk on the first $200K.
Now let's look at year 2 at $200 BOPD @$92/bbl
Partnership income $467,903.72
Now, in Texas, non consent is accounted on a well by well basis. Let's say XTO or Carrizo drilled 4 wells, 3 of which paid out. Your only risk of the non-consent is on the well that does not pay out, but you still get the 2+% lease royalty and no costs associated with the non payout well..
Let's stabilize conservatively the 4 wells, you could expect a revenue stream of at lease $400,000 per year for 4 years. It just gets so much better with higher flow rates.
Lease royalty .028
NRI Non consent 0.04167
Total revenue interest 0.06967
Annual gross revenue -- a lot
You could play with the numbers all day, but a large factor is how risk adverse or risk tolerant the partnership parties are. I say partnership for convenience, but a LLP would probably be the way to go, but that is an bean counter question.
If the partners are compatible, this could be the way to approach things.
I used conservative flow rates. The numbers could triple without too much trouble. I made some other assumptions as well, such as no pooling or production sharing agreements, etc.
With due respect to Ms Miller, Carrizo is not what I would call a cash and carry outfit. I am not sure even what that is. Prime funding is from market cap on the NASDAQ and are cash flow flush. They JUST completed a deal to drill out 4000 expiring acres in the EagleFord because they had 3 drilling rigs running and 1 full time 24/7 frack unit. The seller could not protect his expiring acreage. Carrizo estimates a total cost to get this acreage at $1600 per acre. Rig time is about 10 days per well. 3 wells running at $6MM per well, they are commuting to about $50MM per month. Not for the faint of heart. From top to bottom, Carrizo has quality individuals and are a very solvent outfit. Their revenue in March of this year was $111.901,000.
I did some work for Richard Miller, their now VP land about 12 years ago. He was a good man then and I think that he is a good man now. I think that someone needs to sit down with him to see if they want to be part of this package, if it makes sense to your group.
Sometimes, I think pretty far out of the box, but this could make some sense to some people. It was a fun exercise to me.