I have a 13 acre mineral interest in the 26 acres out of the W. R. Rhodes Survey.I have been offered $100.00 per acre and a 12.5% royalty (1017 FM 3496, Gainesville, Texas) from Grayson Petroleum Company . How can i find out if this is a good offer?? I live in California and did not know i still had the mineral rights????Also read about Pugh Clause how would i know what should be in the lease for this??
That’s a bad offer. They are betting on the fact that you are non-resident mineral owner.
I agree with Buddy. From what I have been able to observe the average royalty interest rate these days in Texas is around 20%. The terms you were offered are about the same as terms offered mineral owners 50-60 years ago. The normal practice is to submit a counteroffer. Most Operator’s expect to negotiate lease terms.
The offer may seem bad on the surface but in reality your property is quite far from the core of the Barnett Shale, and it’s possible that you may wait several years (or indefinitely) before other another company is interested in leasing you up (only time will tell). So aim for a higher royalty (3/16 or 1/5 would be a very good haul) and a slightly higher bonus ($200/ac?), but if they balk I’d think twice about letting them walk away.
Everybody’s threshold is different. For me, I would not walk across the street for $1300 and 1/8th. I would ride them down if I could.
I would not counteroffer at this point. I would politely tell them to come back when they have more money. A counteroffer is what they are HOPING for. That begins the negotiation dance.
The offer may seem bad on the surface but in reality your property is quite far from the core of the Barnett Shale, and it's possible that you may wait several years (or indefinitely) before other another company is interested in leasing you up (only time will tell). So aim for a higher royalty (3/16 or 1/5 would be a very good haul) and a slightly higher bonus ($200/ac?), but if they balk I'd think twice about letting them walk away.
I don’t mean to contradict Mr. Cotton or anyone else. My point is simply that you should understand the context of your situation before making a decision. Obviously not all minerals of Texas garner the same level of value, so don’t assume that you can get the same lease terms in Cooke County which is far from the core of the Barnett as you can in, say, Tarrant County, it’s just not realistic. And a few thousand dollars up-front with some upside in the future may be a nice bonus for someone who may otherwise realize nothing from the minerals for the foreseeable future. Again, just gather all the facts and don’t make your decisions based on potentially irrelevant soundbytes. And yes, the first offer is rarely the last offer, so don’t jump on the first number they put in front of you.
Your area is just E-NE of a heavy “oily” part of the Barnett Shale. There are a lot of companies leasing right now hoping to get to the underlying shale source rock. I don’t see any old producing oil wells which is one of the signs they are looking for. All in your immediate area are showing dry holes. Just west of you there are some heavily producing new wells. I am working with a company right now who initially offered $500 and 20% on a tract which is also not “IN” (but closer than yours) the core areas, but is very near an old, still-producing well. We have countered with $850 and 25% and they have come to $800. Still apart on the royalty and in process of negotiating lease terms as well. The bonus offers in Cooke County just haven’t reached the numbers in the southern counties, but time may change that. All the operators are anxious to get in on the oily and liquids-rich shale plays (such as the EagleFord in South TX) because the price of oil has remained much more stable in the $70’s while gas prices remain low and volatile. [STANDARD LEGALESE: This is not to be construed as legal advice - attorney/client representation only with written agreement.]
THANK YOU EVERYONE FOR YOUR HELP, AND IF YOU HAVE ANYMORE ADVICE FOR ME THAT WOULD BE GREAT
In the Forestburg area, some have been getting $600/acre and maybe up with a 25% royalty - see an oil and gas attorney i that area - Chuck Bartusch in Muenster, Texas is familiar with the area. Look at the big guys - EOG, Devon - never heard of Grayson Petroleum.
Also, the core of the Barnett Shale being in Tarrant County doesn’t mean you aren’t in a good producing area. The Settle B #1 in Rosston - in COOKE County (same county as Gainesville you know) was reported by EOG to be producing (May 2010)1800 barrels of oil per day and 3.7 million cubic of natural gas per day (that’s NOT shabby either). Of course wells will be choked back after the initial production, so you can’t expect this to happen every day for the life of the well. Also, you have to learn how to calculate your percentage in a well’s oil production AND a well’s gas production. All this is affected by the number of acres you own in the total acerage of the lease. You can find how to do these calculations on the internet also. I think the oil calculation is called the decimal point value and the gas is your acres within the total acres in the lease with your royalty % and the cost of natural gas. Until you know your well’s actual output of natural gas, your numbers won’t be reliable, except you will get an understanding of how the royalties are calculated. These figures will be a guess at best, until the actual production numbers come in, but knowing how to do this will give you some idea. EOG is doing a lot of work in the area - here are some good websites: http://shale.typepad.com/barnettshale/eog-resources/ http://geology.com/royalty/
Again, leasing these days is all about understanding the context of leasing your immediate area, and meeting your priorities. Just as I shouldn’t make sweeping generalizations about Tarrant County (though the vast majority of Tarrant is valuable for nat. gas development), one shouldnt make sweeping generalizations about Cooke County. Frostburg, while also in Cooke County, is on the western end of the county where companies are more aggressively leasing due to the oily liquids that are found in abundance there (as others have stated). Many areas in central and eastern Cooke County are less sought after than the western part of the county. Does that mean that nobody is interested in these areas? Of course not. Does it mean you are likely to get ‘worse’ terms that one would get in SW Cooke County, or Frostburg? Possibly/Probably. Keep in mind the difference between a $200 bonus and a $400 bonus on 11 acres is not a ton of money. The difference between a 1/8 royalty and a 20% (or 22% or 25%) on 11 acres could potentially be more significant in the long run. So if you aren’t strapped for cash today, you may determine that youre better off pushing for a higher royalty and taking slightly less in bonus if you dont have leverage to pull on all levers during your negotiation.
THANK YOU ALL AGAIN, IT IS SO HARD TO KNOW WHAT TO DO OR HOW TO PROCEDE BEING HERE IN CALIFORNIA AND SO UNFAMILIAR WITH TEXAS, AND MINERAL RIGHTS,
Actually, Forestbburg is in Montague County, though it is close to Cooke County. Why settle for a lesser signing bonus when you can get both? Please don’t let your need for quick cash cloud your thinking this through. I know someone who initially leased their property for $1700.00 for two years with NO royalty, due to a sleazy lease-hound (not all lease-hounds are sleazy - just don’t trust any of them). Thankfully, nothing was done for two years and the property came up for re-lease again - this time, an attorney was hired and the leasing bonus was well over $100K with 25% royalty and no production/hauling fees. My opinion is have an attorney negotiate for you. Chuck Bartush in Muenster Texas is an attorney who is very knowledgable about the oil and gas in both Montague and Cooke County. While it is true that the area is not as prolific as Tarrant County, the Barnett Shale, Newark East is a rather new development - it is a Combo Play - meaning both oil and gas. If you get into the Rail Road Commission website you can start tracking production rates of both oil and gas for wells in the area. Also, some in Tarrant County are now in a big lawsuit due to the the promises of huge leasing bonuses not coming through. Also, lots of those huge bonuses, etc. are divided among many residents in a neighborhood and they only get a small fraction of that money - some of course, are luckier and own some acerage.I just hope you don’t do any negotiations on your own. Mr. Bartush is very reasonable in his fees, and they are a drop in the bucket compared to what you might lose if you try to do this on your own. Most in the Forestburg area, who get an attorney are receiving a 25% royalty with no production fees, and $600+ in leasing bonuses. Just be patient, and remember, if you don’t lease for the bonus, you might get pooled in anyway and they still take your oil/gas, so while you would probably get some royalty - that leasing bonus is nothing to sneeze at. My opinion only, but he who gets the better signing bonus/royalty is the one who hires an attorney and on top of that researches and becomes knowledgable on their own. The difference for my situation was that I worked for oil/gas attorneys in Dallas and I learned at from having done so. Knowledge is power - especially when it comes to any oil/gas company - large or small.
THANK YOU ALL AGAIN, IT IS SO HARD TO KNOW WHAT TO DO OR HOW TO PROCEDE BEING HERE IN CALIFORNIA AND SO UNFAMILIAR WITH TEXAS, AND MINERAL RIGHTS,