Oil Lease Pricing

Several years back, my siblings and I inherited the mineral rights to land in Campbell County in Wyoming. (the family no longer owns the land, just the mineral rights.) We recently received an offer from a landman working for EOG wanting to lease our mineral interests for 27 acres 24-44N-74W. The offer is for $500 nma with a 3-2 lease. We have been happy with EOG over the past years as they have several wells on our property already and recently announced an intent to apply for multiple horizontal well permits. Does this sound reasonable? As I’m in NY it’s hard to secure a quality lawyer who knows what is going on in Wyoming.

There is plenty of companies up that way. Don’t rush to sign with EOG because you have in the past, you might get a better offer elsewhere.

Many of us do not go for the first offers as they can be low to what the final offer amounts might be. We also ask for a range of offers from the low royalty to the higher royalty. Many of us take the higher royalty. I will not do a lease with an option to extend as too much can happen in three years and I want the option to renegotiate at the end of the first term, not be locked into a second time frame at a low bonus.
EOG is an experienced operator, but there may be others who may offer better lease terms because they want a piece of the wells. EOG may still be the operator. Also a good time to learn about the clauses in your old leases and determine if you want better ones in the new leases. Most leases offered by companies are in the company’s favor and not the mineral owner’s favor. The Mineral Help tab above may be helpful.

EOG is the premiere operator in this basin, IMO. They have a whole lot of wells permitted across your section targeting the Mowry Shale. Given the relatively high likelihood of wells being drilled, I would focus more on the royalty rate than the bonus. In this part of the world, I think you could get 15-20% depending on the bonus you are willing to accept.

Devon has a few wells nearby, so you might try contacting them, but I don’t believe they are as active in the area.

The offer of 18.75% for royalties sounds like it is on the high end, even if the $500 nma seems a tad low. What is the real risk of avoiding the option to extend? The offer is to end in 10 days. While it may well be an artificial deadline to force a prompt decision, I don’t want to risk losing a good deal by waffling and hoping someone will offer something better. I think most of us in the family are anxious to “take the money and run” but yet we don’t want to lose out, either.

We signed a lease with Petro Hunt which was bought by EOG and are getting 18.75% royalties.

99% of the time, there is plenty of time to negotiate after an operator’s arbitrary deadline. Take your time and make sure you are receiving favorable terms. In your case, I would recommend having a Wyoming-licensed oil and gas attorney take a quick look at the lease before you agree to anything.

I recommend reaching out to some of the other companies that are leasing to see what they offer. From my experience, a non-operating working interest investment group will pay a better lease bonus and provide more favorable lease terms than the operator.

More information comes trickling in. Talking on the phone with the landman reveals the 10 days is totally arbitrary, but hey would like a decision soon. It isn’t necessary for the entire family to agree - each of us can do as we like with our shares, but non-lease signers may end up in forced pooling. It seems EOG drilled wells there in the past - they want to drill again using new technology and are expecting good results, even if it may not be long term. A cousin in the industry has volunteered to find a knowledgeable person in that area to go over the terms of the lease and see how it compares to the current prices. Should have thought of that connection earlier!