i live in cleburne county arkansas and 5 yrs ago when chesapeake was leasing land in the fayetteville shale play my uncle handled all of the negotiating for our family and we received i feel a fair price and a good contract and royalty percentage. $730. an acre and 20%. Now that chesapeake has sold out to BHP they have contacted my sister and and offered 3 different options . 2 of them are higher in bonus by only $100. but the royalty percentage is less in all 3 offers . None of the 3 offers are i feel as good as the first time we leased. should we take less than we received the first time?
steve:
I would begin to shop around and not take any of these offers especially if the royalty amount is less. In my opinion, this royalty % is far more important than the bonus/acre amount. What length term was this new offer? I would not consider anything more than 3 years. I am not familiar with this Fayetteville shale play but you need to find the nearest producing well to your mineral area and study the production figure as well as others in the area. Again, take your time and market your minerals for the highest bonus but especially, stick with your 20% royalty figure.
I think Charles is right, he usually is in my opinion but there are some considerations, are you going to be drilled and capped ? Considering gas prices, I think it likely unless a well of yours would produce considerable gas liquids and oil. Are there any wells near you so you could determine this ? After royalty the main thing may be a term limit of the time the well can be shut in. I would want shut in to be limited to two years cumulative. The thing I would like least is to be drilled and stockpiled for the next 20 years where my minerals, my asset, becomes the operators asset for the cost of the lease bonus alone. The final consideration is how bad you need the money. The price of gas is not what it was 5 years ago, you may not get better offers. I would not lease unless my royalty figure was met and my shut in clause was in the lease.
Both mr. Mallory and mr. Kennedy make good points. You cannot judge offers in the abstract. Where your minerals are located, how much activity/production surrounds you, and the proposed term of the lease are critical data. The Fayetteville shale is natural gas. Current market prices are a little more that $2 per mcf which is not economic for the working interests. Thus, wells will not be drilled and many that are producing will be shut in. Accordingly, if I were representing you, my advice might be not to lease at this time unless money is an issue. Most think it may be at least two years before gas prices return to $3.50-$4.00 which will make Fayetteville an atractive play once more. When that happens, you will be able to lease, and the terms will be more desirable. BTW: As the other gentlemen say, negotiate for higher royalty - that is where you make money.