Offers to buy my lease for 3 years

Oil and Gas Leasing Help
21

Dorothy,

Based on the wording you provided, the company is offering to buy the right to receive your royalty checks (if any) for a minimum term of three years and as long thereafter as your minerals are producing, assuming there is no break for more than three years (in which case the royalty rights would revert back to you.) Once they no longer have any rights, you'd be able to receive any royalty payments that came from any wells that may be drilled on your minerals in the future.

This "Term Royalty Conveyance" they are wanting you to agree to could mean they get paid your royalty checks for decades, if production goes on that long. In other words, there could be ten wells drilled, but if you sell your royalty rights to these folks, then they, not you, will be getting all the royalty checks until all those wells are drained.

If you sign with these folks, make sure they give you a B-I-G check, because you'll be giving up a lot of potential income! Parts of Lavaca County are very productive. They probably made the offer because they know a well is about to be drilled, and if that well comes in good, often others are drilled and you'd be missing out on those, too.


If it were me, I wouldn't take the offer. Even though they aren't technically wanting to buy your MINERAL rights, they may as well be because they'll be getting all the income from any production. If you are needing money I'd just sell the mineral rights to someone outright, rather than selling just the royalty. The reason I say that is because you could probably get more for selling them outright than you are being offered to sell just the royalty. Without royalty, there's little value in owning mineral rights other than receiving a lease bonus, unless you plan to drill your own well or something (most people can't afford that.)

Hope this helps you out.

Frederick M. "Mick" Scott CMM RPL

22



A. Loren said:

It sounds to me like the company is trying to deceive you into thinking you are only selling them the rights to your royalties for 3 years when in reality they know that production is about to begin in which case they will really be buying the rights for an indefinite period time (i.e. until production ceases, which could be 15-20 years down the road at which point the minerals will have little value). We have companies here in the Barnett Shale that pull the same stuff trying to prey on people that dont fully understand that the term of their lease is just the term that the lessor has to begin drilling operations, as opposed to the the full term of the agreement. Many people think when they sign a 3 year lease that their lease expires after three years regardless of whether the lessor acts. This company is hoping to capitalize on this same common misconception. If I were you, I'd set up a meeting with them in person at a neutral location and then just not show up.....

-----------

Texas is full of lawyers who will advise their clients on lease documents. The Barnett Shale area is also full of folks who held out for bigger and biger bonus checks....until the gas bubble burst. They left hundreds of thousands of dollars 'on the table'.

In over 30 years as an Independent Landman....I have yet to work for a client who engaged in deceptive practices. I also have no issue with folks taking my lease form to their lawyer for review.....that way they can't claim they were deceived.

23

would you please explain how the buying company is benefiting from other leases by paying this pool owner? Thank you,

Cookie

Gary L. Hutchinson said:

Dorothy,

You apparently own a portion of PROVEN MINERAL RESERVES (a term of legal art) through your lease agreement with the operator. The offering company wants to pay you for all or part of your PROVEN MINERAL RESERVES now in exchange for a long term benefit from those RESERVES and gamble that the benefit will be several times the risk money paid to you. Your downside and the added upside for the buyer will be the benefit from other formations and additional wells in which you will not share. The time of possession at 3 years is a smoke screen for wells in your area. You will probably not get your royalty back until you get your minerals back under the existing lease terms. In addiction, you could have a hefty tax bill for selling PROVEN RESERVES.

As always, informed knowledge of what you may be selling is paramount to your decision. There are better ways for the landowner to take "advanced royalty" from PROVEN RESERVES and still share in the upside benefit from the addition of proven reserves for your account. The decision to accept lease bonus money is minuscule to the potential loss of future production income.

Gary L Hutchinson

Mineral Management

24

Cookie,

They will not benefit from other leases unless they buy them as well. The buyer can only benefit from the terms of the underlying lease as that is all the lessor can sell. GLH


Cookie Gartner said:

would you please explain how the buying company is benefiting from other leases by paying this pool owner? Thank you,

Cookie

Gary L. Hutchinson said:

Dorothy,

You apparently own a portion of PROVEN MINERAL RESERVES (a term of legal art) through your lease agreement with the operator. The offering company wants to pay you for all or part of your PROVEN MINERAL RESERVES now in exchange for a long term benefit from those RESERVES and gamble that the benefit will be several times the risk money paid to you. Your downside and the added upside for the buyer will be the benefit from other formations and additional wells in which you will not share. The time of possession at 3 years is a smoke screen for wells in your area. You will probably not get your royalty back until you get your minerals back under the existing lease terms. In addiction, you could have a hefty tax bill for selling PROVEN RESERVES.

As always, informed knowledge of what you may be selling is paramount to your decision. There are better ways for the landowner to take "advanced royalty" from PROVEN RESERVES and still share in the upside benefit from the addition of proven reserves for your account. The decision to accept lease bonus money is minuscule to the potential loss of future production income.

Gary L Hutchinson

Mineral Management

25

Thanks to all of you for the good advice. And indeed, the first confirmed permit in my pool has been

approved.. Guess they knew before me that it was going to happen...My lease is staying with me!

26


$8200.00 acre or if another offer, then more to negotiate
Cookie Gartner said:

THE WORDING OBVIOUSLY STATES THAT AS LONG AS THEY ARE GETTING OIL OUT OF THAT GROUND, YOU ARE OUT. IT HAS NOTHING TO DO WITH 3 YEARS. ONCE AN OIL CO STARTS DRILLING, YOU CONTRACT WITH THEM IS FOREVER OR AS LONG AS THEY WANT IT. THAT IS VERY LUCRATIVE FOR THE BUYER. JUST FOR FUN, HOW MUCH ARE THEY OFFERING PER ACRE?

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To respond to your question- offer was $8200., now $12,500.

Cookie Gartner said:

THE WORDING OBVIOUSLY STATES THAT AS LONG AS THEY ARE GETTING OIL OUT OF THAT GROUND, YOU ARE OUT. IT HAS NOTHING TO DO WITH 3 YEARS. ONCE AN OIL CO STARTS DRILLING, YOU CONTRACT WITH THEM IS FOREVER OR AS LONG AS THEY WANT IT. THAT IS VERY LUCRATIVE FOR THE BUYER. JUST FOR FUN, HOW MUCH ARE THEY OFFERING PER ACRE?

28

Searching Nantcket Resorces in forum. I would like to know if anyone has accepted their offer to buy mineral rights?

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I wouldn't deal with these people just on the basis of hearing the offer/trap for the unwary they already made. I hope you don't want to be the guinea pig either. There are ways to market your minerals to reputable buyers, I'd do that.

s. Buckalew said:

Searching Nantcket Resorces in forum. I would like to know if anyone has accepted their offer to buy mineral rights?

30


I appreciate your reply. I am not familar with oil and gas minerals, other than having inherited a few. my step daughter and I split her late fathers assets etc. He comes form a long line of Texans who were into oil and gas for decades. I have seen on the "unclaimed property Tx. St. comptroller... his name is listed dozens of times. All pertaining to oil and gas. We have no records of his investments or patnerships. The few leases we have signed with oil co. drilling...have all been becuase they searched us out. How can we find out what is out there in the oil and gas world that belonged to him? Even those who have turned money over to the state comptroller we have not been able to satisfy their requirements. We have the will, death cert. etc.... just no actual documents from oil and gas. Any help is appreciated. r w kennedy said:

I wouldn't deal with these people just on the basis of hearing the offer/trap for the unwary they already made. I hope you don't want to be the guinea pig either. There are ways to market your minerals to reputable buyers, I'd do that.

s. Buckalew said:

Searching Nantcket Resorces in forum. I would like to know if anyone has accepted their offer to buy mineral rights?

31

I have a good friend who is in a similar situation and he found someone willing to look for the interests he inherited from his father so they could buy them at a price the low side of reasonable but they are finding them and some of these mineral acres are going to be nowhere near any production. I would not deal with Nantucket Resources. I believe that if you have all the information you can deal with anyone but you don't have the needed information here.

s. Buckalew said:


I appreciate your reply. I am not familar with oil and gas minerals, other than having inherited a few. my step daughter and I split her late fathers assets etc. He comes form a long line of Texans who were into oil and gas for decades. I have seen on the "unclaimed property Tx. St. comptroller... his name is listed dozens of times. All pertaining to oil and gas. We have no records of his investments or patnerships. The few leases we have signed with oil co. drilling...have all been becuase they searched us out. How can we find out what is out there in the oil and gas world that belonged to him? Even those who have turned money over to the state comptroller we have not been able to satisfy their requirements. We have the will, death cert. etc.... just no actual documents from oil and gas. Any help is appreciated. r w kennedy said:

I wouldn't deal with these people just on the basis of hearing the offer/trap for the unwary they already made. I hope you don't want to be the guinea pig either. There are ways to market your minerals to reputable buyers, I'd do that.

s. Buckalew said:

Searching Nantcket Resorces in forum. I would like to know if anyone has accepted their offer to buy mineral rights?

32

If you think there is much money involved it might be worth hiring an experienced O & G Attorney or a good Land Manager, there are several on these forums, Gary Hutchinson and Buddy Cotton are some of the best in the business, both of whom I believe have extensive experience in Texas.