Just received two participation offers on proposed wells. Dark Frost State Com 110H and Cactus Sour State Com 110H, both Horizontal San Andrus Well. The offer presents three options: 1) Participate in drilling, including costs, 2) Elect not to participate, or 3) Assign option for fee. If you do not elect, they will pool. I have not received such a participation offer in the past and not familiar with them. I do recognize the potential financial risk of participation, has anyone else received such offers or have any advice on next steps?
In NM Operators are obligated to offer mineral owners a royalty interest lease for open mineral acreage. When we get these types of working interest offers, we elect not to participate but then always request that they provide us with initial terms for a royalty interest lease for our mineral acres. By doing this you can negotiate a royalty lease proactively so your minerals won’t be pooled as non-consent and you leave the cost of drilling to the Operator. I’d reach out to the contact on the offer, requesting confirmation of your mineral acres and any available information on the project (this general interest from you usually gets a response so you have someone to deal with) and then you can opt out and request a royalty lease.
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Thanks for the information. What royalty interest and bonus are norm for this area?
For a royalty lease, in Eddy we always request 1/4 royalty. For a bonus, it depends on the area. In recent leases we’ve had a low of $700 and as high as $3,500/NRA. We will typically request some standard terms and ask them to provide their thoughts on a bonus. We then usually counter with a slightly higher bonus and try to meet in the middle.
Some of our standard terms we ask for include: -1/4 royalty (always ask for 1/4- this is more imp than increasing the bonus offer) -A shut-in rate of $100 (this is often reduced but worth asking for) -Royalties paid at the well head with no deductions for anything e.g. marketing, transportation, employee expenses etc -Inclusion of standard Pugh clauses -No lease extension/Or a 2 yr lease extension considered only with a re-negotiated bonus