Good Morning:
My family owns the mineral rights to 325 acres about 10 miles notheast of Craig. We have been offered $135 per acre, 5 year lease, 15% royalty.
I have several questions that I hope someone can help with:
1) Is this a fair price?
2) Why all the activity in the area now? We haven't had a lease for about 15 years, and now it looks like there are several companies competing with each other.
3) Is there any drilling or producing wells already in the area?
4) What is a "unit". The leasing company keeps referring to a "unit", and that we have 1/2 of a unit. They talk about drilling 1 well per unit.
5) What would a typical well produce in barrels per day, and what would generally be used as the pricing mechanism (Texas Crude)?
My family has a lot of questions on the leases, but we will probably have a lawyer look them over.
Any advise, suggestions, or information you can give me would be appreciated.
TimB
Tim - As you can see from the offers posted here, yours was low.
We spoke with an attorney today regarding the contract we were offered. We weren’t comfortable with it as written and of course have more problems with it now that we’ve spoken with someone.
We used this person:
http://www.colo-lawyers.com/bio/SherriSweers.asp
She also mentioned that even our offer seemed low with how things have been lately. Our offer currently stands at $250/acre 15% 5 yr. She thought we should ask for $400. Considering we’re rejecting the contract as written we’ll see what comes of that.
I found this article very helpful since I didn’t know about pooling and units last week either.
http://mytechlaw.law.ttu.edu/library/faculty/Faculty%20Scholarship%20Files/kramer11.pdf
Good luck, Christa
Christa:
Thanks for your reply.
I have raised the issue of the price per acre with our attorney in Craig, and he says that it very much depends on the location of the property and how many acres are involved. He indicated that in the area of our mineral rights, the $135 per acre was “OK”…not great, but not bad. He said that some of his client’s have been offered up to $250 in other areas, or to pick up the last few acres in a unit but $120-$150 in our area is typical.
On the lease, he was fine with ours except for one clause about a “warrenty of title” that he suggested we have taken out.
Since I do not plan on signing any lease for at least 3-4 weeks, I would appreciate hearing what happens with your issues.
TIM
Hi…unless you speak directly to a seller, you will not know if it is a fair price they are offering. There is really no way to know…this is a market function personal to a seller and buyer with many variables.
“Fracking” is the reason for the recent activity.
Oil/gas drillers are very secretive about where, when or if they are or will drill. You might find drilling permits from your state oil or gas commission. This is a clue of up-coming drilling.
Because fracking is side ways drilling, one well can cover one mile (640 acres) or one unit.
There is no such thing as a typical well production. That is one of the reasons they call it “wild cat drilling”.
Pricing is the current world market of crude oil for the quality type produced. This goes up and down daily…generally oil prices are going up.
Lots of educational info on the internet about fracking etc…
Fracking is the process of pumping water/sand down the well under extreme high pressure to force the oil out of the pores of the rock. It is done in combination with horizontal/lateral drilling, but the two are seperate.