We have been approached about leasing in this area of Grady County. The initial proposal has been a bonus of $500/NMA and 3/16 royalty. I am new to this and would like to know if this sounds reasonable based upon activity in the area?
Todco has most of the leases in 30 and gave a 1/4 royalty on one . The terms of lease are as inportant as the bonus . I would like to see gross proceeds clause , time limit on shut in royalty clause, depth clause , and no warranty of title for a few .
Thanks for the input Ron.
After reading many of the posts on this site, I asked the landman a number of questions. However, can someone help me with a few more questions I have?
Is it normal for a landman's client to want to remain anonymous?
I have read that you should not agree to more than a 3 year lease. In this case the landman is proposing a 3 year primary lease with 2 option years. The 2 option years has the same bonus and royalty as the primary term. Should you normally agree to the 2 option years?
I asked about force pooling and the landman said he did not know if Restricted Indian Land could be force pooled? I find it strange he would not know. Can anyone offer any input on this?
The surface is currently leased pasture land. I asked how we would be compensated for damages to land from roads, pipelines, etc. He said the amounts would be negotiated separately after the lease was signed. Is that normal?
Below are the clauses he proposed for inclusion in the lease. Could anyone offer their thoughts on these clauses?
Depth Clause- It is agreed and understood that this lease shall expire at the end of the primary term as to all depths from one hundred (100) feet below the stratigraphic equivalent of the base of the deepest producing formation from any well drilled during the term of the lease or any extension thereto or in any land that was spaced, unitized or pooled during the primary term.
Non-Deduct Clause- It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil, gas and other proceeds accruing to the Lessor under this lease or by state law shall be without deduction for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting and marketing the oil, gas and other products produced hereunder to transform the product into marketable form; however, any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as they are based on Lessee’s actual cost of such enhancements. In no event shall Lessor receive a price that is less than, or more than, the price received by Lessee.
Shut-In Clause- Notwithstanding anything to the contrary herein, it is understood and agreed that, at the end of the primary term of this lease, this lease cannot be maintained in force solely by the payment of shut-in gas well royalty in excess of two (2) consecutive years.
Replace Warranty of title with - Lessor hereby warrants title only to the amount of bonus paid under this lease.
Any help and advice would be appreciated.
I don't like your shut in clause. They could theoretically produce for 1 day every 2 years and hold you forever. Of course they would not produce for one day but it isn't too hard for them to send you a check for one days production and make you prove that the well never produced. The word you are looking for is CUMULATIVE and not consecutive.
Thanks RW.
Good luck exchanging cumulative for consecutive in that clause. You might have a better chance of adding or four (4) cumulative years.
Either way, I don't think it will happen, easily.
FWIW,
1) Those appear to be standard CLR (Continental) clauses word for word.
2) No applications have been filed in 9N-5W or 9N-6W. CLR has filed several in 8N-6W. In the last year, they poolings in that township about 3-5 miles SouthWest of your property went for $800 to $1500 NMA for 3/16 RI
Thanks Rick.
I own in sec 19, 7n 6w Grady Co. I negotiated with Drover’s trail for $400 per acre and 1/4 royalty.