What is reasonable compensation for a "shut-in" well in an O&G lease? In a pending lease covering acreage in SE Colorado, wildcat area, I have been offered $100 per well per year which seems very low.
Mr. Park, it sounds very low to me also. I hope they are offering you alot of money to lease the acreage because they may intend holding it by production with those $100 per year shut in payments. If it were mine I wouldn't see the point of having a well if I were not receiving some decent royalty from it. If they intend to drill and hold your acres with shut in payments then your appreciating asset would become their appreciating asset. If you do have to go for the $100 per well/ year shut in payments I think you should add a term limit of 2 or 3 years cumulative that if the well does not produce in paying quantities, which should be defined, that the lease will terminate.
Thanks RW,
It is my intent to limit the shut -in extension to a max of 2 years and for the lease to terminate at the end of that period with no start of production. I am also planning to ask for $2000/year/well.
r w kennedy said:
Mr. Park, it sounds very low to me also. I hope they are offering you alot of money to lease the acreage because they may intend holding it by production with those $100 per year shut in payments. If it were mine I wouldn't see the point of having a well if I were not receiving some decent royalty from it. If they intend to drill and hold your acres with shut in payments then your appreciating asset would become their appreciating asset. If you do have to go for the $100 per well/ year shut in payments I think you should add a term limit of 2 or 3 years cumulative that if the well does not produce in paying quantities, which should be defined, that the lease will terminate.