My family has mineral rights on 350 net acres from a gross 2000 acres in Sanpete county, Utah. It is currently under lease but expires in 2015. We have offers from Skyline Oil to renew and they say they are preparing to drill soon.
Does anyone have experience with Skyline or the managing director, Michael P Russon?
Any comments on the Central Utah Overthrust areas in central Utah?
What about option and royalty rates for this area.
Rulan,
Google Skyline and you will find that as of June 2012, it has some real skin in the game in Sanpete Co. through the purchase of Richfield Oil and Gas Properties.
As to your specific lease, check it to make sure you can "top lease" with out a legal issue. It is for your protection as well as Skylines. Also try not to trade one bad lease for another. Research lease issues on MRF and make up your own mind.
the overthrust belt can be awesome but expensive in terms of drilling and completion costs when compared to some of the big shale plays going on. I would cooperate with Skyline since they came to play but don't give the farm away.
Thanks Gary,
I am going to have to look into the 'top lease' issue.
Just as ballpark, is $30 first 5 year option, $100 second 5 year and 1/8 royalty giving away the farm?
Rulon
It would be to me, but I have no immediate need for the bonus. If you don't, I would wait until some wells are drilled nearby. You may not have enough acreage for a farmout and I haven't looked at the Skyline exploration plan for the area. Permits, completions, etc. Blind of specific area knowledge, I would ask $100 for 3 years @3/16 and $200/acre to extend and use my lease terms. They may not take it but if they do you may influence drilling near or on your acreage vs putting your acreage on the shelf at little cost to them. Talk to the neighbors in your sections. If they take the deal offered it will hurt all the neighbors eventually. Also check for any recent state or BLM auction results. The auctions may help you determine bonus prices on similar sized parcels Gary H
Rulon, 1/8 might be a good royalty if it were effective after deductions from your royalty and taxes but you might need a 20% royalty to achieve a 12.5% effective royalty after all deductions.
Much like insurance and hospitals, insurance companies decided they would only pay 85% so hospitals decide to charge 150% and the spiral up begins. 1/8 used to be the standard until taxes and the deduction of post production costs became major factors. I realize that one does not want to price themselves out of the market but if you don't have a massive amount of acreage, I would still want an effective royalty of 10% after all deductions and taxes. If I could not, I would consider that it is evidently not economic to produce yet. I would not assume that I will keep more than 60% of whatever royalty I contract for.
Rulon K England said:
Thanks Gary,
I am going to have to look into the 'top lease' issue.
Just as ballpark, is $30 first 5 year option, $100 second 5 year and 1/8 royalty giving away the farm?
Rulon