Perhaps you are already aware the Texas General Land Office (GLO) used something similar.
(You may wish to ask for more than $200 per nma, depending on your location. . .see below.)
The GLO amount due for Year 4 is as much as the minimum bid for the first three years.
I am not sure, but I think the idea is
a. If they drill in the first three years, they don't have to pay in year 4 and 5, because it would be HBP, or
b. If they don't drill within first three years, they have to pay in year 4 or 5, or
c. What if they don't drill within first three years AND they don't pay the annual bonus due at 4th and 5th yrs? I do not know if the Texas GLO can or would go after the Lessee for the 4th and 5th yr bonuses if Lessee failed to pay.
But my guess is that the GLO has structured a better lease for the mineral owner than a 3-yr lease with lessee's right to take an additional 2 yrs.
I'll paste in my notes about (the Reeves County portion of) their recent sealed bid auction.
10/4/11 Texas GLO sealed bid lease auction:
details about Texas GLO sale dated 10/4/11:
Reeves County is tracts 4 thru 13:
roy for PSL land is fixed at 25%, primary term is 5 yrs,
annual rental is $5 per acre for 2nd and 3rd year, then $25 for 45th year and 5th year,
except special conditions for Reeves County:
Reeves Co. annual rent is $5 per acre for 2nd, 3rd, and 5th year, but for 4th year it is either $1000 per acre or $1500 per acre, depending on minimum bid in offerings.
Reeves County tracts were:
Tracts 4 thru 12 are in Blocks 70, 71, and 72, around Toyah:
Minimum bids are apparently all $1000 per acre for these Toyah-area tracts
These are all southwest of Pecos, in three sections all around Toyah:
e.g. Section 8 in Block 70 is 24 miles South and 82 miles west of county seat
e.g. Section 7 in Block 71 is 25 miles south and 71 miles west of county seat
e.g. Section 21 in Block 72 is 15 miles south and 72 miles west of county seat
Results: No bids on tracts 4 thru 12.
Tract 13 is in northwest part of Reeves close to the Culberson line:
minimum bid Tract 13 is $1500,
Tract 13 is in Block 58 or 58-2, most of this block is in Culb Co. and some of it lies in Reeves Co.:
in Section 8 in Block 58 in T2S or in TSP 2-S, survey is T. & P. Ry. Co., it is 99 acres,
minimum bid is $148,500 for 99 acres , i.e. the min is $1500/acre,
and the distance/direction from county seat is blank.
My research shows it is A-3622, T&P RR Co/Steen, J A, Section 36, in 58 T2S
Results: One bid on Tract 13, Thunderhead Petroleum LP bid $161,172. = $1628 per acre
[plus kickers: $1500 kicker at 4th year and $5 for the other yrs.]
Here is the url of the offerings.
http://www.glo.texas.gov/what-we-do/energy-and-minerals/_documents/sealed-bids/bid10-04-11/notice-for-bids-10-04-11.pdf
The special info for Reeves County is on page 4 using the Adobe numbering of pages, or it is page 1 using the page number at the bottom of the document page itself. Be aware the sample lease form in the offering is not pertinent to on-land leases. I seem to recall that if you call the GLO they will send you the sample lease form for land tracts; however, i am not sure the sample document would have the language about the 4th-year kicker.