Marathon Offer Extending Lease

A few years ago Marathon took over a Delargo Resources oil & gas lease. Delargo had drilled one successful well before the sale to Marathon. The well was Comanche. We still have acreage under the lease just outside Shiner city limits that have not been drilled on. Marathon extended the lease to January 2023 per the original lease. The lease has no more extensions. We just received from Marathon a contract to extend the lease for another year. They are just offering a bonus of $500 per acre. Given that crude prices are high and the acreage will be successful, the offer seems low. The royalty is 20%. As I see it, everything is up for negotiations.

I am looking for suggestions on how to handle it.

Based on what you described the idea “everything is up for negotiations” sounds logical. A one year term for an extension could be reasonable if Marathon has immediate plans. It looks like they got permits approved last month for two wells in the Cheers unit, just west of the Comanche. Maybe they’ll move your direction soon.

How does $500/acre compare, on a per year basis, to the original bonus paid by DeLargo, or the additional bonus paid on the extensions included in the lease? You can try countering at the bonus amount you would “consider”, or say you’d be willing to take the $500 for an extra 2.5% royalty, or other changes that wouldn’t raise their up-front lease cost.

If Marathon won’t negotiate you’ll need to judge how much potential competition they might have for your acreage. How much mineral interest you own, whether it is the full interest or a fractional undivided interest in a tract, and how much acreage Marathon controls around you, could make a difference.

It looks like that Comanche unit, and the Shiner unit Marathon also operates, bracket the east and west sides of town, and Penn Virginia (now called Ranger) controls the areas to the north and the south. Beyond them it may be hard for anyone to put together enough contiguous acreage to form a large unit required to drill horizontal wells.

If you are willing to do some research, determine who owns the adjoining mineral interest around you and try contacting, particularly the large interests who are also be under lease to Marathon and not HBP. Propose sharing information and possibly agreeing to negotiate as a group on extensions or future leasing.

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$500/acre for only 1 year is a good offer…and Marathon usually never goes over 20% royalty. There are not many players left looking to lease in that area, so really no competition to drive up prices. In my opinion, the deal looks good…and with only wanting 1 year extension they must have plans to drill ASAP…the money is in the royalty of a drilled lease…consider yourself lucky that they want to drill and lease…other drillers in the area are mainly just drilling out existing units and not leasing anymore…just look at the county records…

Another option is to give Marathon your terms, and if they won’t negotiate be an unleased mineral owner. As long as your terms are reasonable, I think they will move instead of dealing with you as unleased.

In this insane political environment there are some tough decisions to make. In this area, IMO, $500 for one year is definitely workable; but, at $100 to $150 or even higher oil prices, 20% is way too low. Push for 25% royalty!

I’d contact Gary Schroeder (lawyer) in Gonzales for an opinion. He assisted me in a similar situation with Penn Virginia (now Ranger Oil) and what was proposed and what was agreed upon were quite different in my favor. And if anything, I’d work a higher royalty percentage as an additional 2% royalty equates to a 10% increase in your production payments because you are starting from 20%. So that extra 2 percentage points is actually 10% more than the original offer and over the years it adds up. Anyway, best wishes.

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