Hello all. I receive a “Paid Up Oil, Gas and Mineral Lease. 3 year term, 10k bonus and 25% royalty. Have not read about a Paid Up lease before. From what I can find, a paid-up lease means I wouldn’t receive any royalties. Is that correct? If that is the case, why list out a royalty term?
Also, they are giving me the option of selling my interest completely. Has anyone done this before? What would you base your asking price on?
TIA!
Emily
Please consider an oil and gas attorney to negotiate for you. Those oil and gas companies sure do an about face when they know a certified oil and gas attorney is involved
I know you’re right - I’m ripping through as many educational videos as I can find on the NARO website, and somewhere heard that a ‘paid up lease’ can be a good or bad thing depending on the circumstances.
A paid-up lease means that the bonus is for the entire primary term, usually three years. Traditionally leases had a bonus plus a delay rental payment due at the end of each year if the oil company had not drilled a well. Delay rental was usually $1 per acre. If the oil company failed to pay the delay rental, or paid late, then the lease expired. All of the lease I see are paid-up.
And royalties will be paid whether it is a lease with delay rentals or a paid-up lease.
Most leases today are “Paid Up” leases. All that means is that all the compensation for the lease (for the primary term) is paid up front usually in the form of a lease “bonus”. Thus the operator/developer does not need to make annual payments (called delay rentals) to keep the lease open. That is all it means. Was the $10,000 the total bonus or was it per acre (mineral acre or net royalty acre). Based on your other comments, and the fact that your acres are in Loving County, I would strongly suggest you engage the services of an Oil & Gas Attorney for this lease. That alone will make you money.
Hi EmilyJ -
There are “Rental” Lease Forms and “Paid-Up” Lease Forms.
A “Rental” Lease Form provides for the mineral owner (you) to receive an Annual Rental payment per net mineral acre on or before each anniversary of the effective date of your lease in addition to the one time Signing Bonus.
A “Paid-Up” Lease Form is one where the Annual Rentals are included in the one time Signing Bonus.
Although Annual Rentals are negotiable, the older, original, standardized printed lease forms were set for the annual rentals to be $1.00 per net mineral acre.
Over time, paying Annual Rentals became quite cumbersome for the companies, especially for smaller mineral interests. The paperwork and postage costs and expenses ended up being greater than the annual rentals themselves, so today the companies use “Paid-Up” Lease Forms.
None of that has anything to do with the Royalty being offered, but TC_Smythe brought up a very valid issue.
Are your mineral interests currently under lease or under production? Check your last lease and see if it’s Primary Term is still running. Are you presently receiving royalty payments?
You need to be careful about signing anything when your mineral interests are already under lease or under production, because some unscrupulous parties will try and “lease” the royalties you are already receiving, which under the terms offered that you described will reduce your present royalty income to 25% of what you are receiving now.
Either way, $10k for anything in Loving County, Texas is waay too low, unless you own substantially less than one net mineral acre.
Never sign anything without it being reviewed by an experienced Oil and Gas Attorney. I promise you, it will always be worth the expense.
Hope this helps!
Charles makes an excellent point about reviewing the lease status of your minerals. If they are inherited, the lease signed by your predecessor will not have expired on death, but will continue as long as there is production. You need to review the signed lease, not just a recorded memorandum of lease. If you do not have a copy, then you should ask the operator for it. If an older lease is in effect, it may have a clause that the deeper depths below the producing formation expire and are open. Some companies are leasing depths below the Wolfcamp, and the bonus per acre is significantly lower than where all depths are open. As you seem unfamiliar with oil and gas leases, you would benefit from having an oil and gas attorney review the lease terms. Most lease forms presented by landmen are weighted heavily in favor of the oil company and need changes.
Just to clarify here, I have been receiving payments as an unleased joint owner since 2022. I have JIB and receive revenue checks regularly. I started to think about what happens when the well dries up and who pays for those expenses so I called Matador and spoke with a landman who seemed not to understand my particular situation. It does seem to be a lessor known situation. I never had a lease but I did have a division order. Fast forward to today and I have received a Paid Up lease now and the terms are a bonus (for less than 1 total NMA approx. .67) and then the 25% royalty. That initial landman told me that a well in this area could potentially go on for 20-30 years. (I find that hard to believe but ok…) It is producing both oil and natural gas since 2019.
When I asked if I would be held jointly responsible for the expenses when the well is completed, he said yes and that my share could be roughly $20-30 grand. THAT SCARED ME!
That is why I asked if a lease would be a possibility at this time and here we are with a lease now…
Hope this clarifies some. Thank you all for your insights!
Still have royalties, just no annual delay rentals during the primary term of the lease … standard practice.
“Paid up” refers to the bonus timing. It means the total bonus will be paid in one lump sum, not dragged out over several years.
The lease clauses will determine the royalty percentage. It is very wise to get a good oil and gas attorney to help negotiate the lease. The draft lease will usually be in the operator’s favor, so mineral owners need professional help to get a better lease. Several good Texas attorneys are listed in the Directories tab above.