Negotiating Lease Modifications

Here’s a question for the legal folks. I have some HBP leases with old lease agreements on shallow wells. An operator wants to drill a new Horizontal well and wants me to update the lease to include new language (pooling, depth, etc) in that lease.

Can I negotiate this to get a better royalty rate or a signing bonus? I know legally I can, but is it done and do operators actually modify the lease royalties and/or bonuses in these situations?

Thanks in advance!

Yes, you definitely can. We’ve gotten up to $500/acre on a lease modification before, and I’ve heard of others getting more. We’ve gotten an increase in the royalty, too, but that’s usually not as easy to get a lot of movement on.

You’ll want to ask for a lot of the same changes that you would with a lease: No Warranty of Title, No Recoupment, Indemnification, changes to the Shut-in royalty clause, maybe a formation limit, and a few other things that will be specific to whichever company you’re dealing with.

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I have negotiated 3 or 4 modifications for better terms in both Wetzel and Marion Counties. Personally I care little about the bonus/ac consideration and focus purely on items pertaining to production. Be careful. If your assets are HBP by an early lease, chances are you are 12.5% True Gross. Most will tell you a 12.5% Gross lease will treat you better than a 15% net lease, and IMO they are right. Carefully review your steering lease. If it is true gross and they are not willing to adjust the rate, ask for re-enforcement in the modification that your lease is TRUE GROSS. Use an attorney if you have any doubt as they will try to sneak “closet deduction” language in there at times.

Good Luck!

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We just received a letter in the mail from a company wanting to buy our mineral rights. Recommendations on determining if the amount is fair. I think it is a low offer. The permit site doesn’t show any wells on the property yet. How can I determine what the yeild may be on the property? Thanks for any help!

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Christy_Shockley – First, I recommend you don’t sell your mineral rights. They should be worth more in the long term that they will be in a one-time sale. However, if you would rather sell, be sure to get at least double the initial offer and make sure that you’re not warranting title (that’s a promise from you to the buyer that you own the mineral rights, which is not a promise you’re in a good position to make). Also make sure it’s not an Option to Purchase or some such nonsense. If they’re really interested in your property they’ll do a straight up purchase.

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