We just received this Top-Lease;
A. Lease Bonus of $750 per net mineral acre with 20% up front and the other 80% due within 30 days of vesting (should it vest).
B. 3/16 Royalty
C. 3 year term - term commencing on the expiration date of the “existing lease”
Said Top-Lease is to be paid with the initial 20% payment sent to Lesor, and the second payment is due within thirty days of the Top Lease vesting, provided said date is prior to June 22, 2011 (which is the date of the original lease). Should the “existing lease” be extended beyond June 22, 2011, the second payment is not due and the top lease will not take effect.
As I understand this, we will get this bonus and they will get an extension of 3 more years beyond 6/22/2011.…. With no more lease money??? What does “should it vest” mean? Would we be better off just waiting to re lease again when this existing lease expires. Altho, I suppose if they put a well in with this old lease, then they don’t have to lease anymore.
Dear Ms. Simons,
Company A has a lease that is valid until 6-22-2011.
Company A can extend that lease by operations, production, etc., as provided in that lease, which we call the “Bottom Lease.”
Company B wants to lease that property that Company A has under lease. However, they cannot lease it now, because it is under lease and they would slander the title of Company A as to the acreage under their bottom lease.
Company B offers to Top Lease your lands that are under lease, under these terms.
Company B will pay you 20% of $750.00 now.
If the bottom lease expires on schedule (6-22-2011), then Company B is obligated to pay the balance of 80% of $750.00 within 30 days of 6-22-2011. If the bottom lease is extended past its primary term, then Company B does not owe you any more money and has no right to pay dollars to own that acreage under the terms of the top lease. That is the vesting term they talk about – if the bottom lease expires on schedule, then the top lease will vest when they pay the second bonus payment.
The effective date of the bottom lease will be June 22, 2011 and the term will be three years from that date.
Actually, I personally see no advantage to the landowner to top lease in this case. I see it as a wonderful tool for operators. You have locked your price at $750 today. The price could be higher or lower next summer. Other scenarios would make sense to me – such as pay me all the $750 today (if that is today’s rate). I also would want a much higher royalty than 3/16ths.
I agree with buddy. Ask for all bonus money up front. If the operator is serious and really wants your acreage they will pay you in full.
If you are acreage is in north dakota, you can not get more than a 20% royalty due to state law. If your acreage is in mountrail county or some parts of dunn, mckenzie or williams i would ask for more money and the 20% royalty if you are in dire need of the money, or preferably just not toplease
Thanks for your information, Buddy and Eric. Just as I was receiving Philip’s comment, I was writing to say that I may just as well wait for this lease to run out and negotiate with who ever wants to lease it then. May get more and may get less???
Where does it say 20% royalty is the max in ND? Just wondering because I thought I could recall seeing a lease a few months ago with a 25% royalty.
Terry Petersen said:
Philip Mollner said:
If you are acreage is in north dakota, you can not get more than a 20% royalty due to state law. If your acreage is in mountrail county or some parts of dunn, mckenzie or williams i would ask for more money and the 20% royalty if you are in dire need of the money, or preferably just not toplease
I thought I saw that a few months ago, but I don’t remember where. I looked at a few places and couldn’t find anything so I was probably mistaken. Sorry about that. I will look into it a little more just to double check
I also have not heard of this law so would appreciate a follow-up on that one. When we have asked for more than 20%, it would be expected that the landmen or oil companies would quote a state law of that kind and none have done so.
North Dakota does not have a law that sets the royalty percent at a maximum of 20%. for oil and gas. (3/16 to 1/5 or 20% are more likely to be obtained than 25%, but it never hurts to ask for 25).
Hello,
That sounds like a good lease, what area is it in? Anywhere near Converse County, Wyoming? Will yhet pay you the royalty at the well-head?
Hope to hear from you,
Ray A. von Proctor
Acutally, it is in McKenzie County, ND. What does that mean, pay royalty at the well head? We have received royalty checks on other wells, but don’t remember that term. Maybe it is something I should look for on the lease??
Thanks for your answer.br/>
Ray A. von Proctor said:
Hello,
That sounds like a good lease, what area is it in? Anywhere near Converse County, Wyoming? Will yhet pay you the royalty at the well-head?
Hope to hear from you,
Ray A. von Proctor
Hello,
Thank you for writing. We have, in the past had problems with producers charging back transportation and processing fees on gas production from old wells. Often, these fees have “eaten up” 40+ % of the royalties. So, I have implemented language making the royalty based on volumes produced at the well head. Hope to hear from you in the future.
Ray
Bonnie Simons said:
Acutally, it is in McKenzie County, ND. What does that mean, pay royalty at the well head? We have received royalty checks on other wells, but don’t remember that term. Maybe it is something I should look for on the lease??
Thanks for your answer.br/>
Ray A. von Proctor said:
Hello,
That sounds like a good lease, what area is it in? Anywhere near Converse County, Wyoming? Will yhet pay you the royalty at the well-head?
Hope to hear from you,
Ray A. von Proctor
just fyi, a group of mineral owners took an oil company to court in North Dakota to enforce lease clauses regarding price at the well head, no transportation or processing charges, etc. The court sided with the oil company and allowed them to deduct reasonable expenses despite what was written in the leases. It is still a good idea to include them if you can get it into the lease. In ND however, it probably doesn’t make any difference unless another court decision reverses the prior decision. Of course, one can always hope the oil company will honor the clause in the lease agreement… 
Fortunately, Wyoming courts have been ruling much more in favour of the mineral owner and even gone so far as to strike our clauses in existing leases that would have allowed the deductions.
The courts there probably considered the decision in Heritage vs NationsBank in the Texas Supreme Court, dealing with such an issue. The better idea is to include language to avoid that unfortunate result that an experienced oil and gas attorney should have available for inclusion in a lease.
Dorothy Johnson said:
just fyi, a group of mineral owners took an oil company to court in North Dakota to enforce lease clauses regarding price at the well head, no transportation or processing charges, etc. The court sided with the oil company and allowed them to deduct reasonable expenses despite what was written in the leases. It is still a good idea to include them if you can get it into the lease. In ND however, it probably doesn’t make any difference unless another court decision reverses the prior decision. Of course, one can always hope the oil company will honor the clause in the lease agreement…
Yes, that was one of the cases considered and relates to a difference in interpretation of what price at the wellhead means. There are multiple websites that explain it much better than I ever could. For those who are interested, do a google search on ‘Bice v Petro-Hunt’ and take your choice.
Buddy Cotten said:
The courts there probably considered the decision in Heritage vs NationsBank in the Texas Supreme Court, dealing with such an issue. The better idea is to include language to avoid that unfortunate result that an experienced oil and gas attorney should have available for inclusion in a lease.
Best,
Buddy Cotten
www.cottenoilproperties.com
Dorothy Johnson said:
just fyi, a group of mineral owners took an oil company to court in North Dakota to enforce lease clauses regarding price at the well head, no transportation or processing charges, etc. The court sided with the oil company and allowed them to deduct reasonable expenses despite what was written in the leases. It is still a good idea to include them if you can get it into the lease. In ND however, it probably doesn’t make any difference unless another court decision reverses the prior decision. Of course, one can always hope the oil company will honor the clause in the lease agreement…