Oil and Gas Royalty Offer

We own mineral rights (approximately 366.653 acres) in Scurry County Texas. All of the North Half of Section 76, Block 20, Lavaca Navigation Survey, Scurry County, Texas and All of the Southwest Quarter of section 76, Block 20 of same survey. A family member is wanting to lease this area to drill and has offered us a $10.00 flat leasing fee and a 20% royalty on oil and gas. I’m not sure if this is not a lowball percentage. I was thinking 23-25% was more reasonable. No one else has expressed interest in leasing this area, hence his rationale of no upfront leasing fee.

It also includes a section which states "…Lessor’s interest in either case to bear its Twenty Percent of any expenses for treating oil to make it marketable as crude; (b) on gas, including casinghead gas and all gaseous substances, produced from said land and sold, the royalty shall be Twenty Percent of the amount realized from sale less both a Twenty Percent share of any compression, treating or other expenses necessary to render such gas merchantable and a Twenty Percent share of any transportation costs incurred with regard thereto…

I have never had a lease state we have to pay percentage of expenses like that. It makes me wary. Is this normal in a fair lease?

Any insight would be appreciated.

You may want to repost this in the Scurry County Group.

As to a flat 20% of production costs, that is very high on oil, not high on gas, but only if you want to bear any production or post-production costs. Most people on this board would say don’y do it if you can avoid it.

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In my opinion it sounds like your family member or the lessor wanting to lease is trying to screw you. You should all split the bonus (and for that size a tract if they are serious about drilling they will pay a per net mineral acre bonus) and 25% Royalty for every lessee sounds fair to me. Who has leasing rights? Usually it’s all the heirs and they each sign their own respective lease. Also, I have never signed a lease that included pre or post production costs. My advice is: hire a good landman or attorney to negotiate your lease. Good luck. Get a “Free of ALL costs” clause added to your lease in the form of an addendum for starters too.

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Thank you. We all have leasing rights. This family member has an oil company and he wants to drill on that land. He also is one of the mineral owners same as I am. However, in continuing on through the lease there are many, many red flags. This one is best served letting an oil & gas attorney look over extremely carefully.

Thank you. You are correct. There are too many other areas in his lease that cause me pause. An attorney to look this over is the way to go.