In reviewing the sites where State mineral sales (Montana/North Dakota), I noticed that the bonus rates are extremely higher than those being obtained thru private sales. My question is why the huge $ difference between the two bonus amounts per acre? Also, what is the normal lease provisions on these State mineral leases?
Dear Mr. Mallory,
When you have a state competitive bid situation, the lessee is forced to bring his best offer to the table -- at least the best offer that he can afford. In this case, subject to minimum bid, the lessee sets the price. The sale is open to anybody, anywhere with the money. You could be bidding against Exxon, with unlimited capital. You could be bidding against Chesapeake, who pays some of the highest bonus dollars around. You have to bring your "A" game. You have one bite at the apple.
In a private sale, the lessor sets the price (in my opinion - and it has always been so). The typical lessor has mortgages, kids to put through college, farm loans to service, whatever. He has a MUCH different motivation than the state. In the private sale, there is typically little to no competition. Also, the much maligned landman is able to use his force of personality to consummate the transaction. In a public sale, it is just dollars. Do not think for an instant that a successful lease buying landman has not superior skills that will translate easily to sales.
In a state sale, you do not have to worry about running title or adverse possession or actually finding the mineral owner or their heirs. You do not have to spend time educating the landowner on the terms of the lease. You do not have to deal with a landowner who read something online from a well intentioned know nothing and is then convinced you are a liar. You do not have motel, mileage and meal costs for a staff of people. Very clean transaction. You make a bid. If it is the best, you get the lease and can drill the well.
Best,
Buddy Cotten
PS. Pick a state and go look at their lease form. It is always on the website of the agency that conducts the sale.
Mr. Cotten:
I understand what you are saying about the reasons why an operator would be willing to give a larger amount to lease these minerals on a state level but the extreme difference in the price between state vs private is unbelieveable. If nothing else, it is a strong motivation factor to deal on a "hardball" level when negotiating a lease with a company.
Buddy Cotten said:
Dear Mr. Mallory,
When you have a state competitive bid situation, the lessee is forced to bring his best offer to the table -- at least the best offer that he can afford. In this case, subject to minimum bid, the lessee sets the price. The sale is open to anybody, anywhere with the money. You could be bidding against Exxon, with unlimited capital. You could be bidding against Chesapeake, who pays some of the highest bonus dollars around. You have to bring your "A" game. You have one bite at the apple.
In a private sale, the lessor sets the price (in my opinion - and it has always been so). The typical lessor has mortgages, kids to put through college, farm loans to service, whatever. He has a MUCH different motivation than the state. In the private sale, there is typically little to no competition. Also, the much maligned landman is able to use his force of personality to consummate the transaction. In a public sale, it is just dollars. Do not think for an instant that a successful lease buying landman has not superior skills that will translate easily to sales.
In a state sale, you do not have to worry about running title or adverse possession or actually finding the mineral owner or their heirs. You do not have to spend time educating the landowner on the terms of the lease. You do not have motel, mileage and meal costs for a staff of people. Very clean transaction. You make a bid. If it is the best, you get the lease and can drill the well.
Best,
Buddy Cotten
PS. Pick a state and go look at their lease form. It is always on the website of the agency that conducts the sale.
Mr. Mallory,
Agreed.
It has been my philosophy for years that the lessor sets the price for his minerals, not the lessee.
In the case of the competitive state sale, there is a minimum bid (generally) and no maximum bid. In the instance of a state sale, the lessee sets the price, not the lessor.
I feel as if this is strong indication that my philosophy for many years holds water. If the lessee set the price, on the average, it would be significantly higher than if the lessor set the price.
charles s mallory said:
Mr. Cotten:
I understand what you are saying about the reasons why an operator would be willing to give a larger amount to lease these minerals on a state level but the extreme difference in the price between state vs private is unbelieveable. If nothing else, it is a strong motivation factor to deal on a "hardball" level when negotiating a lease with a company.
Mr. Cotten:
I agree with your idea on price setting. I always use this state bid site to give me an idea on how "hot" an area is as this has been a very good indicatior.
Thanks,
Charles S. Mallory
Buddy Cotten said:
Mr. Mallory,
Agreed.
It has been my philosophy for years that the lessor sets the price for his minerals, not the lessee.
In the case of the competitive state sale, there is a minimum bid (generally) and no maximum bid. In the instance of a state sale, the lessee sets the price, not the lessor.
I feel as if this is strong indication that my philosophy for many years holds water. If the lessee set the price, on the average, it would be significantly higher than if the lessor set the price.
Best,
Buddy Cotten
charles s mallory said:
Mr. Cotten:
I understand what you are saying about the reasons why an operator would be willing to give a larger amount to lease these minerals on a state level but the extreme difference in the price between state vs private is unbelieveable. If nothing else, it is a strong motivation factor to deal on a "hardball" level when negotiating a lease with a company.
The worst part about it is like right now when they are leasing entire counties and surrounding counties and the counties surrounding those counties. I signed on unfavorable terms rather than not get leased as they will not negotiate and they will have enough on their plate for many years to come without yours.
Mineral Joe:
If our current lease expires, I will set the terms in a new lease the way I want to and if they will not negotiate then my contact list (created over the past year), will be fully utilized. I may have to settle for less than what I want but I will give in only after contacting all companies on my list. This is the mistake I made in 2008 but I've gained much more knowledge about leases and their contents.
Mineral Joe said:
The worst part about it is like right now when they are leasing entire counties and surrounding counties and the counties surrounding those counties. I signed on unfavorable terms rather than not get leased as they will not negotiate and they will have enough on their plate for many years to come without yours.
Yours are probably in a better area than mine.
Mineral Joe:
Ours minerals are located in T157N; R103W; Sections 29 and 31 located near the Montana border in Williams County. We only have 18 acres in one section and 20 acres in the other. All our minerals are across the border in Roosevelt County, Montana where we have about 400 acres and about 40 acres in Sheridan County, Montana. All our areas have been spaced but no drilling yet. Montana is my main interest, so hoping to see additional activity this year or next. Good luck on your end!
Mineral Joe said:
Yours are probably in a better area than mine.
I don’t know if it’s the red tape or the taxes or just what it is but they don’t seem to like drilling in Montana much. Hopefully you’ll have you some great wells soon.
Mineral Joe:
I think that the majority of the rigs are tied up in ND at the present time since that is the main origin of the Bakken play. It appears the few drills in Montana might be exploring the boundaries of the Bakken in Richland and Roosevelt Counties as not many drills in the heart of these counties.