My family of 6 owns mineral rights in equal shares to 160 acres in Converse County. We signed a lease with Chesapeake in May 2012. We were paid approximately $210 each. It took us 3 years to receive our first royalty checks of $255 each. They have 1 well on 1 of our 4 lots (all leased to Chesapeake under 1 lease). Before we received our royalties they sent us a ratification document to sign. The first term of the lease (3 yrs) expired May 2015. They are still drilling but have not exercised an option for the additional 2 yr term.
We have recently been contacted by mineral rights buyers wanting to purchase. They offered $2,000 per acre, then dropped it to $1,500 per acre the next day because of the Pugh law. They also stated we would never be able to lease the land again.
My questions are …
Should we contact Chesapeake to renew the lease?
Why would someone want to purchase mineral rights that can never be leased again?
And what is the Pugh law?
Appreciate any help from the members.
Did you contact a Certified Professional Landman or an attorney before exercising the lease and later the ratification?
It sound that you know nothing regarding oil properties. You should have attached an "Exhibit A" to cover the Pugh Clause, Depth Clause and non warranty of the title, etc.
Roger,
Some Comments:
- Lease: As long as CPK continues to drill, the Pugh clause, if you have one, will remain a mute point. CPK is well financed in Converse County and I expect that development will continue.
- Lease Renewal: Read the lease and you will find that there will be no more bonus payments or renewal payments as long as there are production payments. From a practical standpoint, your production payments and/control of your minerals by the operator will continue for 30 years or more assuming you are involved in more than one well.
- Mineral sales: That depends on the desires and needs of the royalty owner. If you are in an active area, which it appears that you are, $2000/acre is most likely an initial offer and most likely a fraction of fair value. The fact that your lease has a Pugh Clause should make it more valuable to a legitimate buyer investing for the long term. Regardless of their business model, it is the obligation of the buyer's reps to beat the sellers down. It is there job and has little to do with the fair value of your mineral rights.
It is unfortunate that your family split up the ownership however, if all or a part of your family wants to consider selling, it is worthwhile to get some professional help and determine a fair market value before entering into a purchase agreement.
In my experience, aggressive buyers in Converse (and many other places) will try to get sellers under contract then discount the price significantly for "title" problems. More reason to know what is a fair price before signing any one sided sale agreements.
Gary L Hutchinson
Minerals Managment
Roger,
Your best bet would be to contact an attorney who handles Oil & Minerals Rights to get this taken care of for you. At least you will get a straight answer and even if you have to pay them it is worth finding
out what your options are. Not all mineral rights buyers are what they seem. I am not
a professional by any means , I can tell you by experience that sometimes it's best &
quicker just to go to them because you are going to need them at the end anyway.
. Good Luck I hope it works out to your benefit
Thank you for your input.
Thanks for your advice. I appreciate your time.
Gary:
Thanks for your advice. I'm still not clear as to whether I actually have a Pugh clause or not. I don't know what wording I'm supposed to be looking for in the lease.
We're only involved in 1 well at this time. My family inherited the mineral rights ... that's why they're split up. We are all in agreement to sell.
I think it's probably best if we do hire an attorney. Would you suggest hiring one in Wyoming or here in California.
Again, thanks for your help on this. It is very much appreciated.
Roger
Dear Mr. Cortright,
The Pugh Law is this:
N.D.C.C. §38-08-09.8 provides “[t]hat any lease committed to a compulsory unitization, … when an oil and gas lease covers and affects lands partially within and partially without the unit area, unit operations and unit production allocated to the lease may not be deemed operations on or production from the lease as to the lands covered by the lease lying outside the unit area after two years from the effective date of the order of the commission creating and approving the unit or the expiration of the primary term of the lease, whichever is the later date. After the later date, the lease as to lands outside the unit area may be maintained in force and effect only in accordance with the terms and provisions contained in the lease.”
I have working interests in Converse County. I was offered $800 per net mineral acre. I suggested that they come back when they had a lot more money. My sister had a like interest and she wanted to sell. I did not want to buy her interest and make money off of her, so I let her deal with the company and make her own deal.
She ended up declining.
Actually the pugh law is to the purchaser's benefit. That gives them a potential leasing opportunity.
If you want to sell, sell the well bores only that are producing. Or, retain the producing wellbores and sell everything else. Deals can be structured in many ways.
All in all, I think that they are bottom feeding and the price is a bit modest.
Buddy Cotten