I have two lease offers - one with 22% royalty offer from a large oil company, the other from a small oil company with 20% royalty offer and an added minimum royalty of $50/acre/quarter on 250 acres before production and also at the end of the well when the well is not producing equivalent to the $50/acre/quarter amount. Bonus money is the same. Small company “appears” to want to drill as soon as possible. Any advice?
M Baxter:
Why does it "appear" one company wants to drill sooner than the other? How long is the lease terms? Keep in mind, operators generally drill on their on own timeline as opposed to what they may tell you. I would consider the terms offered by both companies and determine what is best for you (money wise) and term wise. Don't be fooled by promises of drilling unless you have it in writing in the lease terms. Good luck.
The percentage of royalty may not be as important as the definition of how your royalty is calculated, allowable deductions, etc.
Hi, M. Baxter -
Mr. Mallory and Mr. Kitchen both have made valid comments. Have you consulted an Attorney about these negotiations?
What zones or formations do each of the companies intend to drill to? You may be able to lease to both of them.
And you should be aware that small companies sometimes lease lands just to "flip" them to another company for a profit and a percentage.
They could be leasing your lands at 20%, simply to "flip" the lease to the larger company at 75%, making their money back with profit and keeping 5% for themselves.
Why hasn't either of the companies offered you a 25% royalty? In an area where two companies are fighting over the same lease, that would be more usual than not.
What County are your lands in? If you'll post your legal description, I can do a little research and may be tell you what is going on around you.
If you want to do so privately, then accept my offer of friendship on The Forum and you can send it to me that way.
Hope this helps -
Charles
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
Hi Charles:
Thank you for taking the time to reply to my question. I have presented the leases to an O&G lawyer. My problem is making a decision on which lease would provide us with the most return. Really, I guess a business decision. Now, the smaller company has offered 24% and the minimum royalty bonus. I'm taking that . Thanks again.
Charles Emery Tooke III said:
Hi, M. Baxter -
Mr. Mallory and Mr. Kitchen both have made valid comments. Have you consulted an Attorney about these negotiations?
What zones or formations do each of the companies intend to drill to? You may be able to lease to both of them.
And you should be aware that small companies sometimes lease lands just to "flip" them to another company for a profit and a percentage.
They could be leasing your lands at 20%, simply to "flip" the lease to the larger company at 75%, making their money back with profit and keeping 5% for themselves.
Why hasn't either of the companies offered you a 25% royalty? In an area where two companies are fighting over the same lease, that would be more usual than not.
What County are your lands in? If you'll post your legal description, I can do a little research and may be tell you what is going on around you.
If you want to do so privately, then accept my offer of friendship on The Forum and you can send it to me that way.
Hope this helps -
Charles
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
thank you for your comment.
M. Baxter
Kitchen said:
The percentage of royalty may not be as important as the definition of how your royalty is calculated, allowable deductions, etc.
OK, but don't be surprised if they flip in to keep the 1% between your 24% and 25%.
What Mr. Kitchen said about defining royalty and allowed deductions is important. Would you like to see one of the best leases I've ever seen drawn up by a landowner?
Go to the following and download Christine's Lease:
http://www.hightail.com/download/OGhmUWVpOC83N0RIRHNUQw
Paragraph or Provision No 14 is what is known as an Anti-Chesapeake Provision.
Hope this helps!
Charles
They probably will, but I'm satisfied. I'll check out your lease. Thanks for the advice.
M. Baxter
Charles Emery Tooke III said:
OK, but don't be surprised if they flip in to keep the 1% between your 24% and 25%.
What Mr. Kitchen said about defining royalty and allowed deductions is important. Would you like to see one of the best leases I've ever seen drawn up by a landowner?
Go to the following and download Christine's Lease:
http://www.hightail.com/download/OGhmUWVpOC83N0RIRHNUQw
Paragraph or Provision No 14 is what is known as an Anti-Chesapeake Provision.
Hope this helps!
Charles
You're welcome.
Not my lease - Christine's.
Charles, Thank you for the lease. It was a pleasure to read.