My family just discovered that we are heirs to mineral rights for property in Wood County, TX. There are 3 tracts: (1) tract in the J Crockett Survey and (2) tracts in the S. L. Tewell Survey. I have a few questions/concerns.
1. The landman indicated there are numerous individuals involved in these parcels of land totaling 54 acres. Do we have a right to the names of the other individuals part of this proposed lease?
2. The proposed Paid-Up lease states that the royalty rate is 1/6, but it doesn't indicate what portion of that royalty (our pro rata share) would actually be paid to us. Since the landman has investigated and verified the heirs and owners, shouldn't this be disclosed in the documentation? Is 1/6 Royalty the average rate?
3. The proposed lease is from an Energy Brokerage/Management Company and doesn't indicate the drilling company/operator. I want to know if the operator is successful with their ventures. Why isn't this disclosed?
4. The Bonus Rate is only $75/acre. Isn't this low?
And most importantly, any recommendations for professional guidance about structuring
this lease? Some names in the Dallas area would be appreciated. Some of the language sends up red flags...
I would never, ever give out unleased mineral owner names. I worked hard and spent a lot of time and money gathering that information, giving them away would be giving away the entire prospect.
If you royalty is 1/6, you'll get 1/6 of your mineral interest. You should be able to know what your net mineral acreage is.
A lot of landmen are independent and don't work for any particular operator. Not knowing who the final operator is going to be shouldn't bother you, as that lease if probably going to change hands a few times before it gets drilled.
I don't know if $75 an acre is low out there, but I accepted a bonus payment of $100 an acre in Oklahoma last year. All the markets are different and at the end of the day, the bonus is only worth what someone is willing to pay.
The Landman has no obligation to disclose to you the names of the other parties involved in your lease but most would give you the names provided their client has no objections.
There is no way the Landman can give you the number for your pro rata share of production because he does not know how many acres will be in the well. The well could be drilled on only your property or your property may be pooled with other to form a drilling unit. Size of a drilling unit is established by the Railroad Commission.
Many companies have their brokers take the leases in the brokers name, this is not uncommon.
I do not know anything about the prices in Wood County but your figures seem a little low.
Linda: I manage the minerals for numerous extended Family members and I would advise that all the heirs work together in leasing your Family's minerals. The terms you stated appear to be low and this is typical when you are first presented an offer by a Company and/or Land Agent. I personally would not entertain a royalty interest rate less than 20% even in this period of low oil prices. Typical primary terms to drill are around 3 years and many Operators request an option to extend for 2 or more years. I prefer a 3 year primary term only. Bonus monies are difficult to assess. Depending on any nearby production the value can be several hundred to several thousand dollars. I prefer to negotiate for a higher royalty interest rate and accept a lower bonus if the area has good potential for production. As others have stated you need to determine your Family's net mineral acres.
I couldn't agree with you more about wanting to know the identity of the Operator or the Entity making the offer to lease. When first approached that is the first question I ask the Land Agent. I have never had a problem in leasing minerals about requiring disclosure of the Operator and that is with properties as little as 3 acres. I believe mineral owners should have that courtesy.
1. No, you have no right to that information, although some (very few) producers will authorize the landman to release that information to you if you request it. You could make it sound like you're doing them (the producer) a favor by saying, "I want to get in touch with them to make sure we all own what we think we own and therefore less problems all the way around." My clients would never authorize that information be released unless and until all Lessors had been leased or we abandoned the prospect.
2. I have no idea if 1/6 is an average rate for your tract of land, but you wrote that the landman indicated that there are numerous individuals involved. That does not automatically mean that he has investigated and verified ALL the heirs and owners. And if he has not done that, then how can he say for sure what your fractional interest is? No, that information should not be disclosed on the lease or supporting documentation because what if the amount is WRONG? If the operator believes that you own an undivided 1/4th interest and puts that in the lease, then if you actually own an undivided 1/8th interest the producer is obligated to overpay you and if you actually own more than an undivided 1/4th interest then they cause problems for themselves, including a possible lawsuit. For the same reason, you will almost never see a mineral acreage amount specified in the lease, only the gross acreage.
3. You have every right to ask which company is going to actually drill the well, because you want to know that they have the wherewithal to get the job done, you don't want to lease to somebody will little to no experience drilling wells, somebody who is just trying to flip your lease to a real outfit. But again, the Lessee does not have to disclose that information to you.