Shut in Royalty Payment

We are negotiating a lease in T7N60W. The proposed lease has a shut-in provision of $1 per acre. We countered by asking for $20/acre/year but were told this was a non starter and not industry standard. What is industry standard in this area? Thank you.


The only industry standard is convincing the mineral owner that leasing is in the owner's best interest in order to get a signature. Your minerals are located in an area where the Niobrara/Codell oil is known to exist and the most desirable lessees know how to get the oil out at a profit. Its a new world for mineral owners in some areas so take advantage of your position and make all of the demands you think you need in a lease.

As I recall you control a lot of acreage. If you lease more than one section at a time, be sure that the acreage can not be HBP with an old, or small Codell well drilled vertically. The next lease you sign will most likely be the last you ever get a bonus on. Make it count. Quibbling over a shut in royalty is like picking up pennies while the dollars float away on the wind.

If you are not dealing with an operator/lessee with production in an adjacent section, you are just lining the pockets of the leasing company at your expense.

Gary L Hutchinson