Hello everyone,
I own two small lots of land, each 4.36 acres. So total, I own 8.72 acres of land and 1/4 of the minerals. The oil company has approached me with a lease agreement. I have heard that you can have your minerals produced by the oil company without signing the lease but I’m unsure of how this process works. Can someone tell me what the pros and cons of each decision are so I can determine what is best for my situation?
The well was staked last week and it was mentioned to me to start drilling within the next 60 days.
Thanks for any help,
Josh
Where is your property located? County/State? How far “approximately” is the well-location stake from your property line? Being a small tract owner of undivided interests: you don’t have a lot of wiggle room to negotiate; but, I’ll withhold further comment until further advised.
I’m in Midland County, Texas. They have staked the well approx. 150’ from the rear property line (south end) and 467’ off the west boundary.
I’d be suspect about the 150’ line, but the 467’ line tells me they are purposeful not to violate the state-wide rule of obeyance to unleased property line: good news for you; but, bad news for you is that they can now drill/produce well without duty to you whatsoever and with 8.72 acres you can’t drill your own well (State-wide Rule: 40 acres) … so, I’d recommend leaping at the chance to lease on the condition that you’re pooled into the unit. The bonus is somewhat inconsequential, the matter is you get your royalty participation in the well/unit. Insist that your royalty be the same as the “drill-site” tract. Again, with such a small interest, don’t get too in depth with detail matters: get “your” well drilled!
What will insisting that my royalty be the same as the “drill site” tract do for me?
Also, the oil company recently swapped interest ownership between two companies. The unit went from an 80 acre unit to a 640 acre unit. I guess my question now is, do I now collect royalties on the existing wells inside of 640 acres or only any new wells drilled after the purchase of the interest?
If the drill-site royalty is, say 20-25%, or the composite unit royalty in 20-25%, it’s only fair you be offered the same; otherwise, they’re merely trying to lessen their unit royalty by offering you anything less, OK? Again, with a mere 1/4 of 8.72 acres in a 640-acre unit, your Net Unit Royalty = 1/4 x 8.72/640 x %royalty … so: 1/4 x 8.72/640 x 20% = 0.00068125, such that if 100 bbls/day x $100/bbl = $200/month! 1/4 royalty would pay you $250/month on 100 Bopd, 3/16th royalty would pay you $190/month, etc.
Roadee75 said:
what will insisting that my royalty be the same as the “drill site” tract do for me?
I have not seen the drill-site royalty % on the lease agreement…is this where they usually include it?
Have the landman/agent show you the drill-site lease form, it will disclose the royalty%. By all and any means, you should be offered in the range of 18.75 to 25%, it’s negotiable and the higher royalty may reflect a lesser signing bonus.
If and when you decide to sign the lease, most likely they ask you to sign a “Ratification of Oil and Gas Lease”. Be sure that the lease states: No drilling operations will be conducted on the surface of the undersigned’s tracts of land.
This way, in the future they won’t drill a well in your backyard!