We have 40 acres leased in 157 N 96 W and XTO has offered an early lease renewal (expires 1/18/13) They are offering 3/16 and $1,000 per acre
What do you think of the terms?
XTO is saying they could drill before lease expiration, but they would offer a bonus now and slightly better royalty now (obviously if they drill before the lease expires there would be no bonus) I've heard of some renewals getting 20% and $1500 per acre
Your thoughts are welcome
I have more questions than answers, before I can give you an opinion. [1] What is your present royalty %? If it's 18%, 3/16 [18.75 would be slight], the difference between 1/6 and 3/16 would be considerable. [2] Is XTO the majority mineral holder in your spacing / has XTO even gotten a permit for your spacing ? If XTO is not the majority acreage holder, It might be a matter of XTO literally can't drill that spacing if the majority belongs to another operator and that operator will be acting on their own timetable and XTO's problems are their own. If that is the case that other operator would probably like for your lease to expire so they could pick up your acres. I'd do some research and wait a month or two before negotiating, if not just let the lease expire, depending on what my research turned up. Do find out if XTO holds the majority in your spacing, if they don't they probably have no control over when or if it is drilled.
William:
The $1000/acre and 3/16 royalty sounds low for this area. Areas just South of yours are bringing $1500 - 2,000/acre with a 20% royalty. I would postpone the lease renewal, especially if the lease doesn't expire until January 2013. There could be some good wells drilled in the area within the next seven months which will only make your negotiation power stronger. I'm thinking that XTO might see a problem drilling on your minerals prior to the expiration date or they wouldn't be trying to extend the lease. Keep an eye on the new wells between now and your expiration date and if it is November or even after the lease expires, you will most likely come out ahead.
Our current royalty is 1/6 (16.7%) they are offering 3/16 (18.75%)
Its apparent that the oil company is the majority holder in the spacing, they are talking about drilling late this year or sometime next year, they say they'd like to have flexibility in their drilling plans and that why they're contacting mineral owners well in advance of lease expirations and offering advance payments
How do I obtain the info on the mineral holders in the spacing?
Also aside from checking every date for the past year on the ND oil and gas web site, how do I know if they have a permit?
A couple more questions:
Does a simple majority allow drilling in a spacing and what if they dont have a lease with a rights owner in the spacing and a well is drilled and producing, what determines the payment to the rights holders without an agreement?
William:
If you will google "Eser.org" ; plug in your Township/Range/Section; scroll down once the map appears; this will sometimes give the names of the Lessors and Lessees by date for the area. You can go the NDIC website, click on the GIS map; go to your area on the map using the "Section" on the left side of page; plug in your T/R/S and if a permit has been issued, there will be a colored dot in the section with a # beside it. It will probably be a 1280 spacing so the dot and # could be on the section above or below your section. You can click on spacing in the right hand column of the page and it will show which two sections make up a spacing unit.
William W Gaffin said:
Our current royalty is 1/6 (16.7%) they are offering 3/16 (18.75%)
Its apparent that the oil company is the majority holder in the spacing, they are talking about drilling late this year or sometime next year, they say they'd like to have flexibility in their drilling plans and that why they're contacting mineral owners well in advance of lease expirations and offering advance payments
How do I obtain the info on the mineral holders in the spacing?
Also aside from checking every date for the past year on the ND oil and gas web site, how do I know if they have a permit?
A couple more questions:
Does a simple majority allow drilling in a spacing and what if they dont have a lease with a rights owner in the spacing and a well is drilled and producing, what determines the payment to the rights holders without an agreement?
William, theoretically an oil company can drill holding 40% (or less) of the mineral leases, if the remaining Lessees each individually hold less than that amount. If XTO is already the dominant Lessee it sounds like a reasonable request though with low terms.
You are in a producing area so I'd strongly focus on securing a 20% royalty. On the bonus you might consider offering them this trade off; Either $1,000 for a one year extension, or $1,750 for a three year lease term. While it's reasonable to allow them additional time, each additional year you grant them potentially delays your minerals being produced. If they're intent on drilling soon the year extension will fit their needs, if not you're compensated for their delay. Good Luck.