Here is a question I haven’t seen addressed yet and that is what percentage do leasing companies make on a lease, i.e., a 3-year lease is signed with 3/16 royalties and a well is drilled and production is started. I assume these companies want to regain bonus monies spent and then some.
Good question.
I guess it depends on the fact scenario but if I leased your property for $500/acre bonus and 3/16th royalty then I’m going to sell that lease to a driller for a higher $/acre bonus, assign it to operator for 20-25% and keep an overriding royalty.
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I guess that’s what I was wondering was what happens with a lease. I have a lease in 12-10-10 due to expire in June but also Duncan is going to drill a 3 section horizontal there and the leasing company is beating my door down trying to resign. I think I would rather be pooled for a higher royalty.
Since your OGL is still under term and has orders on it, the leasing companies calling you won’t be able to lease it. So to date, they are in the hole and made $0. If they “flipped” your lease, that’s impossible to determine, but after paying employees and expenses, it’s less than you would think. If they still hold the OGL, then it’s 81.25% of production on the well minus the costs they have to pay to drill it and employees they have to pay.
Thank you Bob I’m learning a little more each day.
I’ve wondered this as well but what if a well isn’t drilled on the lease? How do they recoup the monies they spent for the lease?
If they do not drill a well, they do not make any money for that lease. They take that chance in their whole inventory portfolio planning.