What is Fair v. What Companies Offer

I've been running some numbers and while my sample is not 100% of all integration offers, it is clear. If integrated by SEECO you will be offered lower royalty and less bonus money than if you are integrated by BHP BILLITON OR XTO. While XTO isn't must higher than SEECO offers ($40 more on average) their royalty offers are also higher by about 1%. BHP however, who has a better land position (geologically speaking) than XTO, is also paying better royalty and a whopping $700 more per acre in my sample.

To explain integration (pooling or unitization), unleased mineral owners are given an option to lease at rates approved by the Arkansas Oil & Gas Commission upon application for integration when an operator proposes a well. A landman, in sworn testimony, claims that this bonus offer is as high or higher than any other lease in that section (unit). Obviously, that is a flawed system. If no one has leased in years, it can be unrealistically low. And that presumes the landman has knowledge of all the leases. The bonus is NOT recorded in the courthouse. The royalty is recorded, therefore, the difference between the royalty offers are much closer than the spread between offers of bonus money. The landman is dependent upon his own leasing for those prices, or landowners and other landmen working for other companies to disclose that information.

But that does not explain the clear distinction between the offers by SEECO and BHP who are competing in the same area of Cleburne and west White Counties in what is clearly the "Sweet spot". XTO is pecking around the edges, you would expect them to have lower offers as their production suggests the areas they are developing are not nearly as good as those in that sweet spot of Van Buren/Cleburne/White Counties.

With low product prices and high post-production expenses, the bonus may in fact be a very substantial part of the whole banana. Clearly, a lot of royalty owners are not getting the top dollar despite these sworn testimonies.

Also, the old landman saw about the value of a mineral right being three times the bonus, is stood on its head. In many of the sections where integration offers are $1,000, sales (actual deeded mineral sales) may be $3,500 to $4,500 per acre, and in some areas sales are $2,400 or lower where lease bonus monies offered may be $1,500 to $2,200 an acre. That old 3x multiple is pretty meaningless.

Additionally, I charted the 60 or so integrations I looked at between 2011 and 2015. As the price of gas has dropped, the average offering of a bonus is now about $1,000 per acre whereas the average in 2011 was $1,400 per acre, a drop of almost 30%. That chart attached below