Hi everyone. Before I decided to post here I spent several hours researching information. Sorry if I still am very much of a newbie. I recently was contacted by a small oil and gas company that wants to lease my mineral rights in Wood County, Texas. I have contacted the group leader for that county on these forums, but have not gotten a reply yet. I have to give the company a call back in the next couple of days; so, I'm unfortunately bugging you very knowledgeable members for some advice. The company wants to go back into an old well that exists that over the past 5+ years has been not producing. They are hoping to get the well producing again, I think, by changing its depth. The company has offered me the following:
25% royalty (I think I am more than ok with that, they said it's what was on th previous lease)
$50/per nma bonus for 20NMA
(the company has stated that because they are small they can only offer a small bonus and that they try to get their mineral owners to see that mineral owner's profits lie in their potential royalty)
3 year lease (I've read this is typical, I don't think there is an option to extend in the lease)
I own a small interest overall and am just trying to gather information to make a good decision. The company has stated that they hold enough interest to go ahead and work on the well even without the few of us left that hold small interests.
The well that they are talking about has been worked over several times in the past with short lived production increases. I'm not sure that it will end up producing anything. I also get the impression that at $2/MCF for gas, the company isn't that interested in the gas production, or at least that was implied. According to TRRC, there are several wells within a couple of miles of the well in question that have been plugged as well as several that are producing all at different depths at an average it appears of 150BBL/month. The producers are definitely giving me the "this is small time, don't expect much" which I don't. It's interesting to note I did receive an offer to purchase my mineral rights out of the blue a few months before I received this lease offer.
Also when the well was producing and even when it wasn't but it was still leased and occasionally producing gas, my taxes were significantly higher than in the last few years with no production reported on the well.
I suppose I am mostly concerned about these few things:
1. on a well that has produced, but now has declining production is $50 or less a NMA for a bonus fair and appropriate.
2. Should I be concerned with potential for my taxes to increase again now that a new lease is signed? There is a strong possibility that even with royalties the lease may end up costing me more in taxes than in profits.
3. I've read a little about warranty to title and such and I think people say to have it taken out of the lease. If someone wouldn't mind explaining it and how's you can have it removed that would be appreciated. Odds are I've misunderstood this and actually have no idea about what I've read.
4. I was also under the impression that production costs of working on the well and any back taxes I might owe on the land etc can come out of my royalties before I actually see anything come my way. Is this correct?
I would be very thankful for any and all advice. I just have a suspicious feeling about this lease. It may just be my ignorance about oil leases in general making me anxious. A few years back though my family entered into a very shady and unfortunate timber contract without my knowledge that costs us thousands of dollars in profits.
I don't imagine I'm looking at much gain overall in the lease, I'm just trying to be as personally diligent as possible so there aren't any "unfortunate" surprises this go round.
Thanks for you time