The pooling order was issued on 3/8/2023, election deadline of 3/8/2023. Nonparticipating options are:
1: The default royalty (lowest) is 1/8th with a $475 per acre bonus.
2: A 3/16th royalty with a $450 per acre bonus
3. A 1/5th royalty with a $400 per acre bonus; or
4. A 21% royalty with no bonus.
The 1/5th royalty might make the most sense for most due to the consideration vs. the 21% royalty. By my calculation it would require $25,000,000 in revenues before the 21% choice would break even with the 1/5th due to the cash bonus.
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My in-laws have a similar offer from Mach3 with the exact wording. Am i understanding correctly that you do not think the 21% royalty is the best way to go due to the return on investment having to hit $25,000,000 before they start paying out.?
Iām pretty sure that they missed the deadline of March 28th. So I suppose the answer is academic at this point. Some like the cash bonus which is kept if no well or a dry hole is drilled.
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For most OK pooling orders, if the well is successful. the royalties begin paying 180 days after first sales to all royalty owners. Whether the company makes a profit or not is their problem. They are also getting the remainder of the royalties from day one. Internal agreements between working interest owners or farmouts may have a payout penalty, but regular mineral owners are not under those rules. (Other states have other rules).
Sorry, I misunderstood. Each offer should be considered based upon the royalty, bonus, acreage and spacing unit. Also, whether it is a lease offer or a pooling order election.
This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.