Offer for Lease in Section 5, fair or lowball?

I have an unleased mineral interest in Section 5, T-15-S, R-37-E of 20 acres in Lea County. My family members have a combined total of 320 acres in this section adjacent.

The offer i was given was a Bonus of $400 per per net mineral acre, a primary term of three years for $400 per net mineral acre for a three year term with an option to extend for an additional two year period, and a royalty of 20%, proportionally reduced as you my interest.

I think this is a low ball offer and have discussed with other family members to negotiate together.

I was curious if anyone has any information regarding activity and fair pricing for this area. I'm thinking at least twice the bonus per acre and at least 22.5% royalty. Since we have 300 acres all together it might be worth more.

Any input anyone could provide would be greatly appreciated. I live in SC but was in Lea County a few months ago and saw a few rigs and plenty of horse heads in the southern part of the county so there appears to be active drilling going on.

Thanks in advance!


You could look up state leases in your area to get a better estimate of value.

Thanks Bart.

You lease bonus is the least of your problems. If you get 50% royalty and the company claws back 75% of it post-production expenses, are you ahead? Short answer "no". You have a lot of things you need to limit.

I just appraised a tract for a charity and of the 18 or so wells involved in this unit, 3 actually had net LOSS which they took out of the charity's proceeds. In other words, the charity PAID THEM to take their gas...

Demand limits on Post - Production expenses ... not more than 10% ever for any reason whatsoever and NOTHING that will take the monthly take at less than 12½%. I would not sign otherwise. Considering the price of oil and gas now, any bonus over $500 is probably "OK". I don't like extensions on leases...they are lose lose. Basically they walk away if not worth much and if they are worth much, likely are worth a lot more. So you are basically signing a 5 year lease for 3 years pay.

Thank you sir. That is very valuable information. I appreciate it.

Have an offer at 700nma & 1/4 for our family 80 acres in 15S 37E but no paperwork yet and our lease is not up till October

Thanks Paul, do you mind if i ask whom you are working with?

I just inherited two parcels of mineral rights in Lea County that’s been in the family for three generations. I know that over the years, it’s been leased several times. In 1986, there was a well drilled and completed but subsequently plugged. I have a lease offer, however, I never thought one could actually “lose” money on a lease. Are there leases ever contracted whereas the lessor takes less upfront and if a low producing well is placed into production below market prices, the lessors don’t have to write checks to the oil company? Why would a company produce gas or oil out of a well at a loss? This makes no sense to me… And no, I’m not related to anyone owning Yates petroleum…, I’m in the water well business…

It’s not a loss to them. JUST TO YOU, if you signed a lease that allows them to apply post production costs.

My grandmother signed a lease like that . She got $200 for that bonus and NEVER SAW ANOTHER DIME.

So, you should be VERY CAREFUL of what you sign with a lease document.

NEVER EVER EVER SIGN THE LEASE THEY OFFER. It is only in their favor and not yours. GET an O&G attorney to review your lease offer to remove any and all harmful - read at your expense for things that the driller SHOULD pay for. If not, like my grandmother you might find yourself with a well drilled and pumping for more than ten years and you don’t get a dime.

Just my families experience.