What would be a good oil and gas renewal offer on 4-3S-3W in Carter Co, OK? Not sure what to do, renew or not. Offer now $252 an acre with 3/16 royalty.
Well, if it were me and I had signed a draft lease from a company without any edits, I would not renew without really understanding what those clauses meant. Did you have a clause in the first lease that had an option to renew? If so, then you may be locked into the old lease clauses. If you did not have a clause to renew and the company just wants to renew, then it might be a good idea to get better terms and clauses. I always ask what they are offering at 1/5th and 1/4th to see if they have those options. If your old lease allows post production charges, that is a big red flag for me.
I agree with you Martha. Plus I always start at 1/4th. Depending on clauses I want being approved (no deductions, Pugh etc) I will negotiate down to 1/5th, sometimes 3/16ths.
I’m in Carter County and have seen bonuses and royalty % all over the map.
I have always wondered why nobody ever talks about royalties greater then 25%. I have seen leases with royalties greater than 25%. Taking 25% royalty is in effect, giving away 75% of your interest for some bonus money.
A word of caution: coming from the operator side, I would have significantly reduced priority for drilling acreage burdened with >25% royalties (or to be more clear, I absolutely did).
It might not impact timing if all of your neighbors are doing it too and the operator has no other location to go with better economics, but >25% royalty might make your acreage dramatically less desirable to drill.
If you have the leverage to demand >25%, I would personally use that leverage to up the bonus payment (significantly) instead. It typically comes out of a different bucket of money (like a “land and leasing acquisition” budget) than the royalty payments. Once paid out, it’d just be sunk costs to the person deciding which locations to drill and shouldn’t affect priority of drilling.
I’ve seen one, about 33% and I think it was someone leasing to a friend (I knew one of the parties) and I don’t think anything was ever drilled under that lease.
From a Working Interest standpoint - There is a very large risk that operators and partners take and they expect a decent percentage (Net Revenue Interest) to compensate for the risk, the drilling expenses and for expenses to maintain the lease if a well(s) is successful. Expenses are such as, but not limited to, equipment, repairs, vehicles, employee compensation, utilities, fuel, contractors, consultant services, insurance, taxes, maintaining roads & well location - the list goes on and on.
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