Just received an offer for a 20% royalty and a $350/acre bonus in Terry Texas. I have 20 acres of a 640 acre parcel of land. I’d like to get a 25% royalty and at least $500 per acre, if not more. Has anyone had experience negotiating in this county recently? Does the fact that I only have 20 acres and 90% of the plot is already leased reduce my leverage here?
Spencer:
The fact that you have only 20 acres should not hamper your negotiations and the 20% royalty sounds like a fair figure (at least for my area in North Dakota/Montana). Since I am not familiar with the Terry County area, I can't advise you on the bonus amount but you could post your question under the "County Group" section of this forum; just scroll down to Texas and find Terry County. This section has several members thus someone might advise you on the going rates for bonuses in that area.
Dear Mr. Pollack,
They will try to use this against you. "Gosh, this is what we paid everybody else. We want to treat everybody the same."
Your response will be to send a letter to the Exploration Manager. Write a good letter. Make it sound as professional as possible, but here is the point:
"OK. First, these are my minerals and I get to set the price for my assets. Here is how easy it will be to stay within your budget and give me what I need in order to lease.
You bought 640-64 acres = 575acres @ 350 per acre.
I want $500 an acre for my 20 acres. Now you will have 595 acres leased.
Your weighted average bonus will be $355.63 for 595 acres. Do the same exercise for the royalty and assuming they lease everybody but you at 1/5, the average net weighted royalty figure will be 20.15625%.
Just as importantly, have you a lease form that they are prepared to accept? If not, tell the field landman that let's just set the dollars and royalty aside for the time being and get the lease form hammered out. That way, when you write your letter (or have someone write it for you) you can deliver to him a signed, sealed and delivered transaction.
This is what good negotiation is all about.
I leased 91 acres and got $625 per acre with 25% and no deductions (