Royalty Offers for small plots

I own mineral rights for a small parcel about 16% of an acre at Township 3 North, Range 67 West, 6thPM. I’m being offered a $750 bonus by a Kerr-McGee landman. Does that sound reasonable?

What section of Township 3 North, Range 67 West? Most operators do not have much of a budget in the aftermath of a very difficult 2020, which is reflected in lease offers across the basin. That said, you should be able to bargain for higher royalty and/or lease bonus.

It is section 6 of Township 3.

If you’re being offered $750 total that is definitely reasonable ($4,687.50/NMA). $750/NMA is probably on the low site but as @jrhagen20 mentioned, it has been a rough 12 months for all operators so lease and purchase rates are down significantly. Lease bonus amount is less important in my opinion than negotiating a higher royalty and language limiting post-production costs. With only 0.16 NMA, if hiring an attorney is cost prohibitive, you could search the Weld county clerk and recorders office for examples of other leases in your area where the lessor has been able to negotiate favorable terms and you can try to get the same terms as they did. I always recommend hiring an attorney to ensure something isn’t missed but also realize the practical side of having a small interest.

Hope this helps, Matt Sands

Many thanks. I think we’ll be looking for a Weld County attorney to review it.

Are post-production costs an issue when the lease specifies no surface activity?

Unfortunately, most recent leases I have found in Weld County, at least around us, are Memorandum of Lease only, so I can’t view the terms.

@Matt_Sands point is important - is your offer for $750 TOTAL or is the offer for $750 per NMA (16% x $750 = $120)?

Total for the 16% of an acre. It would be $4,500 per NMA.

That is quite good for a lease bonus, especially in the current environment. More important is your royalty rate. In my opinion, it is better to accept a lower lease bonus if you can negotiate a higher royalty rate.

@Rachel_Potter, attached is an example of a Weld County lease with an addendum including cost-free royalty language. Now for the disclaimer :slight_smile: OGL Overland Energy Partners to Bonanza Creek.pdf (911.5 KB) I’m not an attorney and should not be construed as legal advice, just for information purposes. Always consult with a qualified attorney before signing a lease or deed.

Thanks, Matt

IMHO $4,500/acre is a very strong offer in this environment in Weld County. While commodity prices have rebounded, most operators capital budgets were slashed significantly so they don’t have nearly as much to spend on leasing as they did in 2017-2019. If you can get that lease bonus with a 20% royalty, that is as good deal as I’ve heard of recently in Weld. Even at 3/16 it’s still definitely a strong offer.

They are offering 20% royalty with a post-production clause. I would ask 22.5% and no post-production clause. I’ve looked at the leases that Weld County uses for it’s mineral rights, and there’s some good language there.

I am concerned about what might be buried in the legalese after the royalty and bonus. Are there any issues to look for? They seem to be able to extend the lease forever, but I’m not so concerned about that. (or should I be?)

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