We have 5 scattered quarters in western Kansas within 4 miles. All is leased and have one well pumping about 100 barrels a day since late August. Was just offered a top lease on land a mile from pumping well, the existing lease expires Aug. 2011. The offer was for $2/acre now then $13/acre next Aug. I refused the offer thinking that is a terrible offer since a well is producing a mile away. $15/acre is what we got before oil was found. What should lease offers be when a producer is that close? I would suspect there will be some interest by other companies before next Aug. It would seem wise to pick a company that is already drilling in that county. Where is my thinking wrong and what else should we be watching for??
thanks for help, we are new at this very interesting venture,
Ron
Dear Mr. Bahm,
Geologically speaking, a well located a mile away has no bearing. It could be located 10 miles away and have the same geologic risk.
The discovery well (the Lucas No. 1) for the Spindletop Dome in gulf coast texas, which started the modern oil boom and created many major oil companies, would have been a dry hole if it were located 53 feet to the south. Proximity is not everything, obviously.
I think that you have a crummy offer and I would tell them to come back when they have more money.
Thanks for the geology explanation. That is pretty well what I told them for the offer and they said they would be back. We have until next Aug. so there is no rush.
I agree with Buddy. Is that really an offer? What is the production potential in your area? There may be a place for “Top Lease” offers but my advisors say shy away from them. The prevailing argument is that an Operator is privy to some geologic information on production potential and wants to lock in terms at a minimum level. That appears to be what is happening in your case. Leasing in Texas, from some of my observations appear to be averaging several hundred dollars per acre and a 20% royalty interest rate. It sure helps to have some competition to get good equitable terms.
Ron,
Have you decided on a top-lease yet? What county in Kansas is your acreage located?
I sure appreciate the info in all the replies.
Yes, we have agreed to top lease another quarter within 1 mile of our producing well. They are paying total of $20/acre, the existing lease expires July 31.
We are located in SE part of Lane Co. of western KS. The new leasing co. is the one most active in this immediate area and probably the main reason we agreed to the new top lease. I can sure agree that any drilling co. has privy to info and wants the low lease BUT all of us know that the lease money is "peanuts" compared to an oil check every month. We do not have the competition as in TX yet but there has been a lot of activity in this county.
This same lease co. just put pipe down a well within 1/2 mile of our producer in opposite direction of top lease land.
All this is very interesting and this forum is great to get the thinking of many in an easy manner. These wells are on land our grandfather homesteaded in 1917! Little did they know!
Ron
Ron,
Have you decided on a top-lease yet? What county in Kansas is your acreage located?
Ron ,
A buddy of mine that is a landman is looking for some unleased acreage in Lane County. Do you know of any unleased?
Ron Bahm said:
Thanks for the geology explanation. That is pretty well what I told them for the offer and they said they would be back. We have until next Aug. so there is no rush.
Yes, we have 3 quarters available for lease. Have him email me at RDBACB@juno.com
Eric Wayneright said:
Ron ,
A buddy of mine that is a landman is looking for some unleased acreage in Lane County. Do you know of any unleased?
Ron Bahm said:Thanks for the geology explanation. That is pretty well what I told them for the offer and they said they would be back. We have until next Aug. so there is no rush.