Is there a way to find out average lease bonus and royalty percentage realized in Haskell County, TX? Have received a lease offer for oil, gas, and all minerals on our share of 320 acres in Haskell County. The two others who own mineral shares have already signed. Bonus and royalty percentage is really low. The landman said “this is not the Barnett Shale” and refuses to negotiate. Landman’s company has production shown on RRC website, but the lease says he’s negotiating for another company. We’ve been sitting on the offer since about Oct 2009. How can I find out the “going rate” for leases, and get opinions on the landman’s company from mineral owners who have dealt with them. I can’t find anything about the company that is supposedly interested in leasing.
NOT LEGAL ADVICE
Dear DB,
With that much acreage, insist on a Pugh Clause, especially if encountering some “attitude” from the landman. It basically says that they cannot put a small piece of your land in the drilling unit, pay you royalties only for the small piece, and hold the rest of your acreage for as long as there is production from the unit. Consult an attorney for exact language.
Sincerely,
Philip Wynne
Phillip, Thank you for the advice. It looks like we’re not going to be able to find neutral ground on this. I think you are correct, we would need to hire an attorney…if the oil man was willing to negotiate anything. He refuses. He offered us $50 an acre and very smugly informed me that he was leasing land in that area for even less than he offered us. As low as $40 per acre and 1/16th! He said it’s not a gas area (although the RRC shows that he has gas wells in that county). I proposed an Oil Lease with Gas Option, which would give him the right to drill for gas, but would require him to pay a bonus in order to extract & sell gas. He said they’ve never split the minerals up and will not They use the Producer’s 88 and will not vary from that. Gas is gas right? I’m not expecting a bonus anything like what I got in the Barnett, but if he finds gas will he not be selling at the same price as those in the Shales? So, it looks to me like he is only paying for the Oil Lease, would be getting a Gas Lease bonus free and for the same low royalty as oil. In North TX oil producers pay about $100 per acre for oil only.
Correct me if I’m wrong, but it’s my understanding that once an oil company has a lease, they can shut-in the well for a variety of reasons & the lease remains in effect. I found shut-in oil wells on the RRC website, which were drilled by this company within the last two years…NOT dry holes, but wells capable of producing oil. I was told that petroleum companies are showing some interest in West TX and small companies are going out there leasing up the minerals in anticipation of selling those leases later for a profit.
I can’t find any evidence of mineral owners talking to one another in or near Haskell County. Apparently, they are just accepting whatever is offered. I don’t live there, never have and I am about 2 hours away. It was family property & they kept 1/2 minerals when they sold. I have 1/4 interest & the people who own the other 3/4 have already signed. So unless someone buys the leases covering the other 3/4 all I can do is wait until the 5 YEAR lease they signed expires. But I cringe when I think of people signing away such a valuable asset for next to nothing…6% !!! Any suggestions?
Philip Wynne said:
NOT LEGAL ADVICE
Dear DB,
With that much acreage, insist on a Pugh Clause, especially if encountering some “attitude” from the landman. It basically says that they cannot put a small piece of your land in the drilling unit, pay you royalties only for the small piece, and hold the rest of your acreage for as long as there is production from the unit. Consult an attorney for exact language.
Sincerely,
Philip Wynne
DB, I was just wondering if you ever finished negotiating the lease terms? I am reviewing a lease that a fellow co-workers mother received covering 80 acres in Haskell County. The terms proposed are for a 3 year term, 1/6th royalty, and $40 per NMA.
I also wanted to address a few of your comments and hopefully answer some of your questions. Please keep in mind that while I am an In-house landman I am also a mineral owner and can see things from both sides. I can understand that you might be frustrated with the “oil man” and his smug attitude towards leasing your interest. Please keep in mind that not all of us are that way!
In general it takes years to see a prospect in any area get to the drilling stage. His comments about about the area not being a gas play could be true, however I have personally seen areas that we thought were going to be oil plays turn into gas plays with no oil production at all and vice versa. You never know until you drill and keep in mind that the Lessee is ultimately taking all the risk in drilling the well.
You are correct about shut-in wells, however a very simple clause added to an addendum page of the lease can cure the issues that the Producers 88 presents. Most operators are not opposed to have special language that limits the shut-in to 2 years. The language can be very specific and only cover gas or can be very general. Most lawyers will have very specific language that would cover both oil and gas and exactly what acreage can be retained or held. The main reason that a gas well would be shut-in is due to the lack of pipelines and/or market.
I can assure you that at the coffee shop in Haskell mineral owners are talking. It is always a challenge when you are an absentee owner to know what is going on and can sometimes put you at a disadvantage. Please consult an attorney if you have any questions. I have attached a link to the Real Estate Center at Texas A&M that has some tips and hints on negotiating leases. http://recenter.tamu.edu/pdf/229.pdf
Keep in mind that if an operator decided to drill a location off of the tract that you own minerals under AND pool a portion of the acreage where you do own minerals and they have leases…you could be left out of the well if you are unleased. A 1/6th royalty would be much better than none at all! That’s a whole other topic…
I would never sign a 5 year lease, try to get a pugh clause or a continuous development clause, remember that the bonus is all you can ever hope for (every well is a dry hole…until it produces) but the royalty is where you make your money. There are so many different ways to skin a cat…so be smart.
Brady Watson
Brady,
Thank you for the information. The landman will not negotiate the terms AT ALL. My options are to sign the 5 year lease as is, or don’t sign. I walked away.
At the risk of sounding sarcastic myself, I’ll tell you my thoughts and reasons why:
Accepting his terms, and threats, are an attempt to bully out of something that I own. Attempting to force me to lease when the price is low shows a lack of integrity and my days end much better when I don’t have to deal with such a person. He said he will drill right next to me and I’ll get nothing. Since his terms are next to nothing, then I don’t see any difference other than in the end I still own the mineral rights. I’ll not GIVE it to him.
I have signed mineral contracts and own minerals in other counties, have family with mineral contracts, have a few friends in the petroleum business and based on my limited knowledge, I just don’t believe the above reference landman is on the level. The FIRST page of his contract was enough to deter me. He has already leased from the other owners. Since he has 3/4 wrapped up, and has already invested money in the acreage, why would he not consider a 3 year lease? It’s a reasonable request. I offered a “gas option”, he refused that. He wouldn’t negotiate the royalty even a tiny fraction. Transportation cost, etc., also non-negotiable. Pugh Clause, out of the question. I believe his true intentions are to resell the lease. No amendments or clauses of any kind for any reason. Buy when it’s low, tell the owners that their minerals aren’t worth much anyway, then sell when it’s high. Not only will he profit more because he sells when the price is high, but the lease terms will be good for the purchasing company.
However, as you pointed out, the coffee shop is buzzing with mineral rights talk. Just because I’m out of the picture doesn’t mean that I sit around and allow other people to be taken advantage of. Publishing a few facts could prevent someone from giving away their rights for nothing.
Thank you again for the information. I know there are a lot of good people in the oil/gas business, but think this landman is one of those who gives petroleum companies a bad reputation. DB
Brady Franklin Watson said:
DB,
I was just wondering if you ever finished negotiating the lease terms? I am reviewing a lease that a fellow co-workers mother received covering 80 acres in Haskell County. The terms proposed are for a 3 year term, 1/6th royalty, and $40 per NMA.
I also wanted to address a few of your comments and hopefully answer some of your questions. Please keep in mind that while I am an In-house landman I am also a mineral owner and can see things from both sides. I can understand that you might be frustrated with the “oil man” and his smug attitude towards leasing your interest. Please keep in mind that not all of us are that way!
In general it takes years to see a prospect in any area get to the drilling stage. His comments about about the area not being a gas play could be true, however I have personally seen areas that we thought were going to be oil plays turn into gas plays with no oil production at all and vice versa. You never know until you drill and keep in mind that the Lessee is ultimately taking all the risk in drilling the well.
You are correct about shut-in wells, however a very simple clause added to an addendum page of the lease can cure the issues that the Producers 88 presents. Most operators are not opposed to have special language that limits the shut-in to 2 years. The language can be very specific and only cover gas or can be very general. Most lawyers will have very specific language that would cover both oil and gas and exactly what acreage can be retained or held. The main reason that a gas well would be shut-in is due to the lack of pipelines and/or market.
I can assure you that at the coffee shop in Haskell mineral owners are talking. It is always a challenge when you are an absentee owner to know what is going on and can sometimes put you at a disadvantage. Please consult an attorney if you have any questions. I have attached a link to the Real Estate Center at Texas A&M that has some tips and hints on negotiating leases. http://recenter.tamu.edu/pdf/229.pdf
Keep in mind that if an operator decided to drill a location off of the tract that you own minerals under AND pool a portion of the acreage where you do own minerals and they have leases…you could be left out of the well if you are unleased. A 1/6th royalty would be much better than none at all! That’s a whole other topic…
I would never sign a 5 year lease, try to get a pugh clause or a continuous development clause, remember that the bonus is all you can ever hope for (every well is a dry hole…until it produces) but the royalty is where you make your money. There are so many different ways to skin a cat…so be smart.
Brady Watson