We have been contacted by a Landman to lease our North Dakota property.
The terms are:
· Bonus Consideration: $400.00 PER NET ACRE
· Royalty: 1/6th
· Three Year Term
· 3 Year Extension: If option is exercised, company will pay an additional $400.00 per net mineral acre.
Can anyone please tell me if this is fair value and something we should look into.
What does the term "Bonus Consideration" mean?
Any comments or suggestions would be appreciated.
Therese,
Do you know what section township and range? We have some minerals in Stark county.
I would not go for the extension anywhere, and the per acre and 1/6th royalty may depend on location but sound like a low first offer. Bonus consideration, is the payment in advance for rental in a paid up oil and gas lease. It also serves as consideration in a lease which is a contract. A contract must have value [consideration] received on both sides to be valid. You get money they get the option to produce your minerals. Please study up on drafts. I only just today received a release of a lease that was recorded, for which I was never paid. They didn’t honor the draft [ they wish they did now ]. I don’t recommend the process of getting a release, it is no fun. Accepting an actual check before handing over an executed lease would be my preferred transaction. You could set up a sort of escrow using a bank where the oil co didn’t get their hands on the executed lease before you are assured payment, if they insist on a draft, you would need this for your protection. In that case I would remind them that N.D. was a race to file state and you are not bound to accept their offer if you get a better one, are paid, and the lease is recorded first. Of equal importance to the per acre bonus and royalty% are the terms of your lease. You might spend a week or more of study on this and be well repaid. To get a better offer you need to research what others have agreed to or have been offered in your minerals area and also I would seek competitive offers. I have never heard of anyone receiving less because they had too many buyers. May I also direct your attention to the Dunn and Stark co groups at the top of the page. Take your time and good luck.
28-140-93
M A Miller said:
Therese,
Do you know what section township and range? We have some minerals in Stark county.
Thank you for taking the time to give me some advice. It looks like we have some more homework to do on this and educate ourselves a little more.
r w kennedy said:
I would not go for the extension anywhere, and the per acre and 1/6th royalty may depend on location but sound like a low first offer. Bonus consideration, is the payment in advance for rental in a paid up oil and gas lease. It also serves as consideration in a lease which is a contract. A contract must have value [consideration] received on both sides to be valid. You get money they get the option to produce your minerals. Please study up on drafts. I only just today received a release of a lease that was recorded, for which I was never paid. They didn't honor the draft [ they wish they did now ]. I don't recommend the process of getting a release, it is no fun. Accepting an actual check before handing over an executed lease would be my preferred transaction. You could set up a sort of escrow using a bank where the oil co didn't get their hands on the executed lease before you are assured payment, if they insist on a draft, you would need this for your protection. In that case I would remind them that N.D. was a race to file state and you are not bound to accept their offer if you get a better one, are paid, and the lease is recorded first. Of equal importance to the per acre bonus and royalty% are the terms of your lease. You might spend a week or more of study on this and be well repaid. To get a better offer you need to research what others have agreed to or have been offered in your minerals area and also I would seek competitive offers. I have never heard of anyone receiving less because they had too many buyers. May I also direct your attention to the Dunn and Stark co groups at the top of the page. Take your time and good luck.
There are 2 dry wells in your TWP and Range in sections 9, 11 from 1964 and 1974. The fact that they were dry is pretty meaningless the technology is so much better and they drill deeper these days. I have a couple wells drilled right next to dry wells that do fine. There are a few wells on the GIS map about 5 miles from you. Interest may be moving your way.
Therese,
Please give us the name of the landman/company that contacted you.
Wes Luke
Extremely LOW offer. Landman apparently hoping you’re an unsophisticated mineral owner.
the name of the landman is Chad Gatewood, Petroleum Landman with Sullivan Land ResourcesTherese,
Please give us the name of the landman/company that contacted you.
Wes Luke
Don’t know him, but thanks anyway. There are some not so good ones. : (
$400 is not a low offer, it is definitely a fair one for your area–the Three year term is good, but NO extension, this turns your three year lease into a possible six year one and the real money lies within the royalty. A 1/6 royalty isn’t terrible, but a 3/16th royalty would be better. The actual drilling companies always take 80% of the roylaty in North Dakota–leaving the mineral interest owner and leasing companies the remaining 20%. A 1/6 royalty would be something like 16.7% whereas a 3/16 would be 18.75%. Overall, I’d say you could probably bump the upfront price up to $500 (but if they dont go that high, it shouldn’t be a deal-breaker), ask for the three year without the extension, and ask for the 3/16th royalty.
Thank you for your advice. We have not heard back from the landman since asking him some questions about the company he works for. We are not in any hurry at this time and want to make sure we get it right before signing anything.
John Bender said:
$400 is not a low offer, it is definitely a fair one for your area--the Three year term is good, but NO extension, this turns your three year lease into a possible six year one and the real money lies within the royalty. A 1/6 royalty isn't terrible, but a 3/16th royalty would be better. The actual drilling companies always take 80% of the roylaty in North Dakota--leaving the mineral interest owner and leasing companies the remaining 20%. A 1/6 royalty would be something like 16.7% whereas a 3/16 would be 18.75%. Overall, I'd say you could probably bump the upfront price up to $500 (but if they dont go that high, it shouldn't be a deal-breaker), ask for the three year without the extension, and ask for the 3/16th royalty.
With oil prices projected to hit approximately $150 bbl within the next 6 to 7 years according to the CIA World Fact Book, a mineral owner royalty of 22% is more in line. Also, the oil companies know they will come across some real "hard heads" every once in a while, and the company is prepared to go as high as 25% (1/4). Of course, the landman gets nothing. The landman generally has (I don't know if this is still true) made his money on the difference between what the mineral owner/lessor was willing to lease their rights for subtracted from 25%. So, if the owner settled for .1875%, the landman received .0625% as his commission.
Learn to deal, and if need be get a forms book on requests for proposals and send a solicited RFP response request back to you from ABC, GEF, HIJ, etc. etc. exploration and production companies and pick from the best submission (after a little fine tuning) from a company that will offer you closest to what you want. Remember. Its your minerals and no one has the right to take away your property with due process of law (i.e. you generally have had to have broken the law to forfeit your property).