New to this site and it seems that maybe I can get some help. My brother and I inherited partial mineral rights from our grandfather on 40 acres in Reeves county We have recently been contacted by 2 companies wanting to lease the land for 3 years with no right of renewal. One company first offered 2000/acre but doubled that to 4000/acre when I told them that their first offer had been outbid. I have no idea what the going rate is for the area. The legal description for the 40 acres is SW/4SW/4, Section 14. Block 5. Any info on this area would be greatly appreciated. Thank you...
I would ask for $6,000 next and probably settle somewhere in the middle.
Nancy,
This will probably be the last lease you sign in the next few decades so the royalty rate ad measurement and payment terms thereof are 10-20 times more important than the bonus. You are in a lessor's market. Get what suits your needs knowing that this is not a retail game you are in but a transaction that will benefit the lessee tremendously in the future. Make certain you get your fair share as you may not get another chance.
Holding an auction as Cameron suggests will only get you the best of the worst deals and giving your potential profits away to the high bidder. You don't have to settle for anything less than what is good for you and under your terms.
Gary L Hutchinson
Minerals Managment
Gary,
I don't understand how trying to negotiate a higher bonus rate is giving away any profits? You should always try to negotiate a higher bonus amount if you can. You should also shoot for 1/4 royalty. Just because she asks for higher bonus amount does mean you get less favorable language in your lease or royalty rate. I don't understand your reasoning, care to elaborate?
Cameron
I just read two of the leases offered. Both are for 25% royalty, but one is cost free at the well head and the other is net after costs. I called the one that had costs added to it and he agreed to change the lease to also be cost free royalties. Makes me wonder how many actually read the fine print other then the up front lease pymt. Also am amazed that the bonus lease offer had doubled with just one phone call. I am not at all familiar with any of this as my Mother recently passed away and she took care of this property. Trying to become educated with all of this. The property has become somewhat fragmented with heirs, but I am 10% land and mineral rights owner. I don't expect a huge windfall, but since I am 61 and a widow, a little extra money would be nice.
Quality and capability of lessee/operator who will spend $4 million to prove up your acreage and protect the long term income potential.
Uncontrolled use of surface,
Use of water rights and other rights that could affect surface lessee
Price at well head, tank, pipeline
rights to acreage not mentioned in lease
Release of formations not produced or proven
Arbitrary and unauditable deductions for product enhancement and transportation (A big)
Rights to acreage not included in a producing unit.
Warranty of title and obligation to prove up without a law suit
Obligation to extend lease
Penalty for top leasing
Definition of HBP point
In some states, the obligation of the lessee to accept force pooling orderss
Notice of assignment of lease
Disposal of water
Fracking into water wells
Arbitration of disputes
Arms-length sale prices and rights
To name a few ways that make a bonus only decision a killer in the hot areas of the new oil business
Gary L Hutchinson
Minerals Managment for more than 35 years.
40 years in the business.....I agree with Gary re auction,,,,,,what's good for YOU!....
My condolences on loss of your mother. Take you time and do not let the landmen pressure you into signing a lease. Let them bid up on the bonus, but do not accept less than 25% royalty. Be sure to read articles on mineral leasing as well as postings on this site. Texas A&M extension has a good discussion you can access on the internet. If the lease says "cost free at the wellhead" or "market value at the wellhead" then it is not cost free. Texas courts have held that pricing references back to the wellhead automatically including 100% of all costs incurred from the wellhead forward. So all post-production costs - such as gathering, transportation, processing, marketing - are deducted from the final sales price off lease. To be cost free, you have to have to be paid from the forward point of sale, such as at the tailgate of the plant, and specifically exclude the costs incurred to that point. Many companies own the gathering lines and so do not negotiate the best prices as the charges effectively all go into one pot. Similarly, marketing costs are a way to charge royalty owners for internal overhead and you should be able to specifically exclude that charge.
Nancy-
Have you tried contacting relatives and banding together on negotiating the lease? Gives you more leverage and reduces your cost if you hire someone to help you.
$4000-4500 is reasonable in that area.
I reread the lease that I thought was cost free and found the wording "market value at the wellhead". Appears it is not cost free. So I guess I need to request that the lease specifically exclude that charge. Can leases be done that exclude all costs? Or is it common practice to subtract costs from royalty pymts? Just wondering if I will be requesting something that is not normally done.
Nancy you need to get in touch with Wade Caldwell and let him draw up this lease for you and it will be done right. Don't sign that lease with that wording in it.
http://beclaw.com/attorney.php?pg=g-wade-caldwell
Clint Liles
I have contacted some relatives and they are all on the same page so far. thanks for your input