We have companies wanting to do a top lease. At what point do you think they will think it will no longer be desirable to do a top lease? i.e. should we hurry up and sign now? our concern is that possibly they will drill on our land before the current lease expiration and at least we could get the 10% down....
Amy,
Acting in haste on an O&G Lease is almost always a bad move. If you have a large amount of minerals then your expiring lease may dictate if they drill within the next five months. Yet if you have 10, 20, 30 net acres it's unlikely your lease expiring soon will push them to drill. You can't really control this.
Yes they may drill soon. Picking up 10% of the extra bonus dollars would be nice. However, I'd focus more on if/how the top lease terms are superior to your existing lease terms. This is more important than a possibility of picking up 10% of the top lease bonus dollars. What I mean is; If your old lease was for 15% royalty, and the top lease offers 20%, then gaining the extra 5% royalty rate is a reason to sign soon. However, if the terms of the top lease are the same/similar to the existing one don't feel pressured to rush to sign. If necessary, take your time to secure better terms. Hope this helps.
Depends on what your lease says. If your lease doesn’t spell out specifically what action needs to be taken, such as a well spuded with a rig on site capable of reaching target depth at the end of the primary term, a road and a pad could arguably extend the primary term of the lease under the continuous operations clause. I have no way to judge your operators equipment and manpower, but a road and pad could be built fairly quickly after the ground firms up. The runoff from 100 inches of snow along with the rain, has to be slowing them down for the moment. I think you will have toplease offers to the last day of your present lease as long as “operations” have not begun. Good luck with your descision.
Of course there is the chance that a well drilled near us that is not producing alot of oil could influence the price on our land… and maybe a reason to lock in prices earlier?
Amy:
What is the location of the minerals? I was wondering what areas companies are beginning to top lease. Also, your statement above is true to a certain extent, but I have seen wells drilled that had fair production while in the same area, a well with great production occurred. As earlier posted, be sure to watch the terms of the new lease as this is where the actual money will be made in the long run.
Amy,
My advice is that you are probably in a stronger negotiation stance than you realize. I have taken many top leases in the past more often than not, the company wanting to purchase the lease will pay 100% of the bonus upon execution of the top lease. If the bottom lease is perpetuated by operations, then the company that took the risk of the top lease simply made a bad investment, you should be allowed to keep whatever they agreed to pay you for the toplease. Of course, your current bottom lease may have some restrictions against top leasing, and you should make sure to read it carefully. Keep in mind, there would be no interest from any company in top leasing your acreage unless there were indications that the area continues to be prospective. Don't sell yourself short.
Good Luck
Ed