We are in Sask. and have the following to consider. What is the option consideration, and lump sum rental. Is it only one time paid? This whole things seams quite bad to me. What is cap on deductions? Some companies charge a fee for infrastructure costs and such?
RE: Offer to Option Lease Petroleum and Natural Gas Rights
Registered Owner: each as to an undivided 1/3 interest
We are forwarding this offer letter for your review. On behalf of our client we are offering the following for a 1 year option to lease on the subject rights:
Option Consideration: $1000.00 (Canadian funds)
Lease:
CAPL 88
Bonus Consideration:
320 acres X $35/acre = $11, 200.00 (Canadian funds)
Lori, it seems plain to me that they are offering $1,000 for a 1 year option, to tie up your minera;s for 1 year at a low rate. It is not a lease, but an option to lease and all that follows is the terms of the lease, should they decide to actually lease you. The offer is not to lease but for the option to lease at set terms.
The terms seem to be for if you had the entire 320 acres. I presume that if you had less than the whole 320 acres that the amount would be proportionately reduced, probably to the lump sum amount shown of $320. If I knew your net acres I could probably determine their intent by doing some math.
Lori, I have alot of supposition in mind that requires one more bit of information and I could go on a bit more. If you would please satisfy my curiousity and confirm that you have a 1/35th share, or put another way approximately 9.5 acres in the 320 gross acres, I will go on.
We own all 320. I will split it with two brothers. We own the top half of a township. Two individual quarter sections that are side by side so quite a large acreage. 320 acres.
Lori, the term lump sum rental is throwing me, since the amount matches the net acres, I wonder if it's a term for shut in royalty? I would have thought that the $11,200 would have been the lump sum rental.
In your place I would not find this deal attractive, especially the option, unless I very badly needed $1,000. The prospective lease offer looks low also. I know little about oil business in Canada but it looks strangely similar to someone wanting to speculate on acres here in the states with very little of their own money involved. I don't think they are serious enough, if they were, they would offer to lease outright and not flim-flam with a low option payment. I myself have $1,000 and if I could option such a property at that rate I would be on the phone to find someone to assign it to for $60 an acre and 16.5% royalty and I think that within one year I could probably find someone for a 320 acre block that could be considered a drill spacing in itself, very tidy.
Lori, you mentioned the government incentives elsewhere. These incentives can disappear quite rapidly when the government thinks they have had the appropriate effect and are ready to rake in some serious revenue again.
Thank you for all the insights. Might add I have the scale wrong. We own top half of a quarter section of a township...
So my brother tells him :
"Good Morning (landmans name removed)………after discussions this weekend with my brother and sister regarding the lease you sent, we are going to have to either propose amendments to it to be more favorable to us or use another lease entirely. In addition, we already know we also will require separate leases for each quarter section. As background, about 6 years ago we went through this process with another mineral rights offer, so we know amendments can be made without much problem. But, we were never able to get the final detail items we required, to feel our interests were truly protected based on FHOA meetings and feedback we have gotten over many years. Do you have another lease agreement you can offer besides the first one you sent ? My sister said there is a Freehold Friendly Lease used by Just Energy. If you can you use the one Just Energy uses it will save us both a lot of time going back and forth. Please advise what you are authorized to do and how you would like to proceed."
And the land man responded :
"Good Morning (my brother), The exploratory nature of this area doesn’t allow us much movement for amendments, we are looking at a very large area and have been very successful based on the offer we have presented. That being said I can sure review anything you might propose, or if you prefer you might give me a call and we can discuss them, I believe that might be more time efficient. Thanks,"
Lori, even with the diminished net acres it still sounds like speculation. $1,000 CAD split 3 ways is a sparrow in the hand that probably wouldn't be memorable. If I were intent on leasing, I would press towards that, hopefully at better terms. Options are so often not in the mineral owners best interest that I would be inclined to dismiss them out of hand unless the payment would be memorable.
Lori, you may be aware that North Dakota offered incentives of greatly reduced production tax on the first 75,000 barrels of oil for wells spud between mid 2007 and mid 2008. It had exactly the effect intended and was not extended. Canada may be totally different but I doubt it, government likes to give incentives to get activities rolling along and then they tax them, seemingly with a vengeance, as if to make up for lost time or revenue. If I were in your position, I wouldn't expect the minerals market to be depressed by the incentives for long. I think the greater the activity the sooner the incentives will end.
Thank you so much for the advice. It's hard to find people in my area to compare rates to, so we are on our own , except for what we can learn from others in the USA. Im trying to look on a map at the geology. I feel like we are on the fringe of the bakken, as in only 8-10 meters of material under our area. I agree it's not worth the time.
I looked at our technical report. We own 2 legal subdivisions. 320 acres. Im not sure what a spaceing unit is...
Lori B said:
We own all 320. I will split it with two brothers. We own the top half of a township. Two individual quarter sections that are side by side so quite a large acreage. 320 acres.
I learned what this 320 is for... I think, from FHOA websight it says "Rentals - is it fair that the $1 per acre per year delay rental payment required to be paid to a freeholder by an energy company-lessee to maintain a freehold lease if no well has been drilled after the first year has not increased for more than half a century"