Hi,
We have acreage with a current lease and a well nearing completion. I just received this offer that I am pretty sure I understand, but wanted more expert opinion, as well as offer a cautionary tale to others. I have not seen this particular scenario discussed.
Here is the edited language in the cover letter:
"We are interested in leasing your interest located in Reeves County, Texas to the following land: 320 acres of land, more or less, in xxx Blk 4 Reeves County, Texas.
Ridge Natural Resources is aware that there may currently be existing oil and gas lease or leases on this land. This lease offer is made subject to any existing lease(s) that you may have in place on this land, and shall in no way invalidate or interfere with those existing leases.
On behalf of Ridge Natural Resources, we would like to offer you $2,000.00/net royalty acre along with a 1/4 Royalty to lease your interest in the above-described tract of land. Therefore, your Lease Payment would be: 0.0375 X 320 acres = 12 Net Royalty Acres 12 Net Royalty Acres X $2,000.00/acre = $24,000.00 Therefore, we are offering you $24,000.00 and 1/4 of the Royalty to lease your interest for 3 years."
The edited relevant language in the 2-page lease is:
“1. In consideration of ten dollars ($10.00) and other good and valuable consideration in hand paid and the covenants herein contained, Lessor hereby grants, leases and lets exclusively to Lessee, subject to the reservation contained herein, all of Lessor’s royalty interest in and to all of the oil, gas and other minerals produced and saved from the hereinafter described lands (the “Subject Interest”), such Subject Interest to include all proceeds thereof in and to the rights, rentals, royalties and other benefits accrued, accruing and/or to accrue and the right to demand, collect and receive same, hereinafter called leased premises: 320 acres of land, more or less, being the South 320 acres of xxx Reeves County, Texas. in the County of Reeves, State of Texas, containing 320.00 gross acres, more or less (including any interests therein which Lessor may hereafter acquire by reversion, prescription or otherwise). The term “gas” as used herein includes helium, carbon dioxide and other commercial gases, as well as hydrocarbon gases. In addition to the above-described leased premises, this royalty lease also covers accretions and any small strips or parcels of land now or hereafter owned by Lessor which are contiguous or adjacent to the above-described leased premises, and, in consideration of the aforementioned ten dollars ($10.00) and other good and valuable consideration, Lessor agrees to execute at Lessee’s request any additional or supplemental instruments for a more complete or accurate description of the land so covered. 2. This royalty lease shall be in force for a primary term of 3 years from the date hereof, and for as long thereafter as oil or gas or other substances covered hereby are produced in paying quantities from the leased premises or from lands pooled therewith. 3. As Royalty on the Subject Interest leased to Lessee herein, Lessor reserves an equal one-fourth (25%) part of the Royalty and other proceeds from the sale of all oil, gas and condensate produced and saved from said land and the Subject Interest leased to Lessee herein.”
Since we also have an interest in adjacent acreage, with a producing well, it would seem that Ridge is also trying to get a back door interest in that land, both parcels of which would then be “HBP” for a whole lot more than 3 years.
I am planning to drop this offer like a hot potato. Any comments?