If there are two or more offers to lease mineral rights, what are the most important factors in making a decision about who gets to lease the rights? Is it better to lease to someone who has an abundance of permits in the area or does that matter?
Thank you.
Deborah,
In an area known for oil and gas production, a share of minerals produced and sold (your royalty) is ten to twenty times more important to you than a lease bonus. Go with the company that has proven that it knows how to get the minerals out of the ground at a profit as long as its royalty rate is competitive and the terms are fair to you. Remember that minerals in the ground have no real value until someone takes the risk to explore and exploit them. You always want someone who knows what they are dong to be on your side.
Agree with Gary, and I would add if they are already active in the area with good results, it is a plus.
Well done, Gary. Generally speaking, wherever production is high, the royalty is more important than the bonus, wherever production is low or non-existent or unproven, the bonus is more important than the royalty because the chances are good that there won't be production that is profitable. I recommend that you search for any production around the particular tract of land containing your minerals, and talk with your neighbors in the area about what offers that might have received.
These are very helpful. Thanks. Another question: If you choose one lessee does that preclude you from benefitting from any other company that successfully drills and produces in the area. You see, I do not understand how these units are established and how they work. Thank you all for your input.
I would say that some of the replies tend to overrate the importance of who you lease to. You see, oil & gas leases are assigned on a daily basis. If you lease to one company, that does not mean that is the company who will ultimately drill it. Quite often in a competitive area, the map will look like a checkerboard. You might have two (or more) companies leasing in the same area, as is the basis for your question. It is not only not unusual, but very common for companies to get together after the dust settles, and execute assignments, partial assignments, farm out and farm in agreements with one another. Sorry that I don't have time to touch on unitization, but need to get ready for work.
You will benefit whenever your mineral rights are included in a successfully drilled and completed unit regardless of who holds your lease. Your benefit will generally be proportionate to your acreage in the unit to the total competed unit. With horizontal drilling criteria other than acreage are sometimes used. Texas is the only place where I have personally experienced other revenue distribution criteria but I think we will see more of it.
Its a complicated, site specific issue but remember that once you sign a lease, you loose 100% of sayso and control of your minerals. Another reason to choose your lessee wisely and work a deal that is best for your goals.
If you have a lot of acreage, your options for leasing expand exponentially.
These are very helpful. Thanks. Another question: If you choose one lessee does that preclude you from benefitting from any other company that successfully drills and produces in the area. You see, I do not understand how these units are established and how they work. Thank you all for your input.
Don't give up your day job
Dave Quincy said:
I would say that some of the replies tend to overrate the importance of who you lease to. You see, oil & gas leases are assigned on a daily basis. If you lease to one company, that does not mean that is the company who will ultimately drill it. Quite often in a competitive area, the map will look like a checkerboard. You might have two (or more) companies leasing in the same area, as is the basis for your question. It is not only not unusual, but very common for companies to get together after the dust settles, and execute assignments, partial assignments, farm out and farm in agreements with one another. Sorry that I don't have time to touch on unitization, but need to get ready for work.
At least I know how to spell lose.
Gary L. Hutchinson said:
Don't give up your day job
Dave Quincy said:I would say that some of the replies tend to overrate the importance of who you lease to. You see, oil & gas leases are assigned on a daily basis. If you lease to one company, that does not mean that is the company who will ultimately drill it. Quite often in a competitive area, the map will look like a checkerboard. You might have two (or more) companies leasing in the same area, as is the basis for your question. It is not only not unusual, but very common for companies to get together after the dust settles, and execute assignments, partial assignments, farm out and farm in agreements with one another. Sorry that I don't have time to touch on unitization, but need to get ready for work.
You guys crack me up.
Well, now that I've had a good chuckle I have another question. I do appreciate the help and don't want to be a pest but here it is: Say we lease to one company and another company gets a permit to drill nearby (within unit distance). I'm assuming the units are determined when permits are issued.. don't know if I'm right about that. Anyway, will the TRC (thinking the TRC determines units.. once again, not sure that's right) determine the unit for the new permit to include only those leased to the company getting the permit or can the unit include multiple lessees? Hope my question makes sense.
Gary L. Hutchinson said:
You will benefit whenever your mineral rights are included in a successfully drilled and completed unit regardless of who holds your lease. Your benefit will generally be proportionate to your acreage in the unit to the total competed unit. With horizontal drilling criteria other than acreage are sometimes used. Texas is the only place where I have personally experienced other revenue distribution criteria but I think we will see more of it.
Its a complicated, site specific issue but remember that once you sign a lease, you loose 100% of sayso and control of your minerals. Another reason to choose your lessee wisely and work a deal that is best for your goals.
If you have a lot of acreage, your options for leasing expand exponentially.
Gary L Hutchinson
Minerals Management
Deborah Fleischer said:These are very helpful. Thanks. Another question: If you choose one lessee does that preclude you from benefitting from any other company that successfully drills and produces in the area. You see, I do not understand how these units are established and how they work. Thank you all for your input.
It often makes good sense for good companies working in an area to "joint venture" exploration efforts. After all, they are in the business of making money. It also spreads risk and conserves talent. Demonstrated talent is what the mineral owner wants on his side. Talk is cheap. Performance pays the bills and creates a strong balance sheet. GLH
Deborah Fleischer said:
Well, now that I've had a good chuckle I have another question. I do appreciate the help and don't want to be a pest but here it is: Say we lease to one company and another company gets a permit to drill nearby (within unit distance). I'm assuming the units are determined when permits are issued.. don't know if I'm right about that. Anyway, will the TRC (thinking the TRC determines units.. once again, not sure that's right) determine the unit for the new permit to include only those leased to the company getting the permit or can the unit include multiple lessees? Hope my question makes sense.
Gary L. Hutchinson said:You will benefit whenever your mineral rights are included in a successfully drilled and completed unit regardless of who holds your lease. Your benefit will generally be proportionate to your acreage in the unit to the total competed unit. With horizontal drilling criteria other than acreage are sometimes used. Texas is the only place where I have personally experienced other revenue distribution criteria but I think we will see more of it.
Its a complicated, site specific issue but remember that once you sign a lease, you loose 100% of sayso and control of your minerals. Another reason to choose your lessee wisely and work a deal that is best for your goals.
If you have a lot of acreage, your options for leasing expand exponentially.
Deborah Fleischer said:These are very helpful. Thanks. Another question: If you choose one lessee does that preclude you from benefitting from any other company that successfully drills and produces in the area. You see, I do not understand how these units are established and how they work. Thank you all for your input.