Maybe a little translation is in order to clarify the original offer made to RABSM. Sometimes the oil field lingo is confusing.
Many leases are originally offered for a primary term-most often three years for a bonus and royalty option.
Various combinations are usually offered to start negotiations. In this case for this particular section, the offer was for three years and either $500/ac and 3/16th (18.75%) royalty or for $250/ac and and a 1/5th (20%) royalty. Included in the offer was a two year extension to the primary term of two additional years-which if it came into play three years from now would increase the bonus to either $625/ac and 3/16th or $312.50/ac and 1/5th royalty-only then in two years when the option is called into play-not now. (That was the 125%-essentially offering 25% more than now on a per acre basis.) What RABSM was asking was whether it was reasonable to use this 2 year option to try to get a lower per acre price, but perhaps get a 1/4th (25%) royalty instead. Good question. In other areas, one of the options is often $0/ac and 1/4th (25%).
My answer is that I do not recommend taking a two year option because it ties you down to five years and too much can change in five years (evidence-the last two months!). It is better to negotiate at the end of the three years because market conditions will change and success or failure in the area, prices, etc. will change. Also in this particular area a 1/4th royalty (25%) is very rare. You can ask for it, but you won't likely get it. If folks in the area have received that, then please share. The market can go up in five years or the market can go down-hard to predict! Given the market conditions right now, I would stick with the three year lease or even try for two.
If someone in the same section received a much higher offer, then folks on the forum would like to know to help them in their negotiations. Leta, If your offer is somewhere else in Hughes, then it might not be relevant to this discussion because the reservoir could be different, could be a major fault, could be oil instead of gas, etc. Offers can be quite different even if close by due to the geology and the play being developed. If you would like to share what section, township and range for the larger offer, then that would be helpful to other folks.
One thing that I have noticed over many years of handling leasing offers over many states and plays is that the very first offer from a company is likely to be one third to one half of what the final offers will be closer to the force pooling hearing. Not always, but in general. So it is better to be at the end of the leasing time frame than the first one out of the gate. I have learned the hard way! Also, the wording of the lease and the Exhibit A are even more important than the bonus/royalty pairs being offered. The bonus is tiny compared to the eventual royalty implications of the actual lease terms.
Also, this is a public mineral forum, so it is wise to be kind and limit discussion to facts and helpful items relating to minerals, understand oil & gas, etc. There are other forums on the web for opinion sorts of discussions.
