Rodney, interesting concept. Lets look at it logically. 20% lease, $100 oil, the operator clears $60 a barrel. 23% lease, $100 oil, the operator clears $57 a barrel. Do you really think $3 a barrel is going to stop the operator from drilling? Is that a good enough reason to keep paying lease bonuses over and over again, or walk away from a spacing in which they already $2,000,000 invested, with bonuses and landman/legal work?
An oil man once said, don't get mad at your money. I take this to mean don't get mad at 28 million doallars just because it's not 29 million dollars that you made.
In my opinion, and quite a few others, drilling is geology driven. Operators drill what they believe to be the most profitable areas first, also taking into consideration lease expirations. If you have your ear to the ground, the greatest majority of leases that are drilled are still drilled in the last 6 months of the majority of the leases in the spacings expiration. $3 a barrel may move you farther back in line but how far? How many years back in line are you right now and is it going to make a significant difference? Would not demanding shorter lease terms with no extension be more likely to move up drilling?
The bird in the hand is a malleasble concept. If you really believe it to be true that lower royalty will get you drilled faster, and a bird in the hand is worth 2 in the bush, you should be leasing for 12.5% so you get the one bird as quickly as possible.
I would like to caution you about something you may not have considered. You may not want to be the first one on your block with a well. Usually the first wells in an area are substandard, I would much rather my well were the 20th and not the first, allowing the operators to get drillbit input before my well is drilled. I have 4 wells that were drilled in 2007-2008 the first in the area and wells drilled just 2 years later produce twice as much oil in half the time. Getting an early well for your area may cut your royalty income by alot more than what you are thinking to voluntarily give up to attract the drilling. In my searches I see it time and again, the second and third wells being a great deal better than the first. If this does not deter you, I would like to thank you for your civic mindedness and the great thing you are doing for the neighboring spacings who will benefit from information gathered from the drilling of your well.
I believe that people are in somewhat of a hurry because of all the activity, and that it works against them. Step back and look at the timeline. 1954 they drilled into the Bakken on Mr. Bakkens property, 45 years later or so, a few companies start a low key search for how to produce it. Six to seven years ago the boom begins to really take off, driven by oil prices near $140 a barrel. The frenzied drilling of wells began in known good areas and in places that were totally unproven in an attempt to find something good, as yet undiscovered and get in on the ground floor. It hasn't been that long since the boom took off. I am as subject to impatience as much as the next man but the evidence is overwhelming that impatience is not good for your future earnings in oil and gas and that is what this is all about. Make sure you make enough from that oil beneath you.
Many people are dismayed by how little they make from the leasing and production of their minerals. Suppose you lease for a lower royalty and possibly the operator takes out some post production costs of 3%, the state takes out 11.5% combined production and severance tax and up to 4% state income tax. Right now we have a 15% depletion deduction against federal taxes but there are those in Washington who want to abolish the depletion deduction. If you get that first, less productive well in your area, I hope you have enough left after deductions to satisfy you. I know people with 20% royalty whose effective royalty is less than 10%. Be careful how much you give up on the front end. If you pocket 60% of your royalty you are doing well in my opinion. There is the matter of the price of oil, it's really good right now. I personally believe that $80 commodity price is the floor now, but that is commodity price, your oil will probably sell for $10-$23 less than that commodity price, I've seen both in just the last year. I suggest you really refine the calculation as to how little you will accept in royalty and be satisfied. I respect your opinion, I just don't know if you are using all the same factors I have used to come to your conclusion that lower royalty is the way to go. Good luck whatever you do.