Proportionately Reduced Royalty Rate

Oil and Gas Leasing Help
1

To all greetings,

A lease states " .... is paying $'s per net acre for a 5 year, paid-up lease term with a proportionately reduced landowner's royalty rate of 15.00% totaling $'s representing the full bonus consideration".

Could someone please explain (A) "a paid up 5 year lease term", what is paid up in this term? (B) "proportionately reduced royalty rate" (C) "representing the full bonus consideration", (I think I know about this, the checks been deposited) but would like to know more about that term, and are these terms good or should all of us be cautious of them.

Lastly, the activity is in CO, I've read about Sections vs. Lot for gross acreage, but how many gross acres are in a T7N, R62W, S24 ? Our documents read NW4, NE4 at 160 gross for each, am I wrong to assume that a township, range and section always contain 640 acres ?

Thanks once again, John

2

John,

You may mean "a lease offer" states.

A) There will be not annual bonus rental payments. The bonus paid up front holds the lease for 5 years

B) That is scary and vague. Get clarification from the lease document itself as that is the only thing that matters. It may have to do with units but shouldn't say "royalty rate".

C) You will not get any more bonus. Check the lease about payment of royalty if they find you own more or less acreage.

Sections do not always contain 640 acres, usually dude to corrections necessary when imposing squares on globes. corrections are usually made in the sections near the township lines and called lots when less than standard 40 acre squares (quarter-quarter sections). Likewise a township usually contains 36 sections but not always again due to necessary corrections.

3

Gary, Your correct that it was in a lease offer, I’ll look into the lease for unit consideration vs. royalty rate. Finally, using a best case scenario, would a township then contain 23,040. acres (36x640), or did I really mess that up.

Thank for the input, John

4

John,

Your math is correct. The actual acreage in a township depends on the sum of the parts i.e. the sections.

"friend" me if you need some help on the royalty rate question. I deal with these things o a daily basis.


John Davids said:

Gary,
Your correct that it was in a lease offer, I'll look into the lease for unit consideration vs. royalty rate. Finally, using a best case scenario, would a township then contain 23,040. acres (36x640), or did I really mess that up.

Thank for the input, John