I had hoped to learn what has recently been paid as a Lease Bonus per NMA for areas in Ward County, but haven’t gotten any feedback. We now have several parties expressing interest in us extending our lease in Blk 34 Section 75 which expires in June 2020.
It’s been commented on that while there are producing wells nearby ( as in sections next door ), we are on the fringe of the play. Given the current activity and our speculative location, I’d be interested hearing from someone more “in the know”, how to proceed? Our current lease does not contain the “Option to Extend”. One offer to extend 2 years is for $1,000 for each of our 80 NMA.
Your lease does not expired for six months. Why would you either extend or sign a top lease now rather than waiting until June? Generally you get better terms for open minerals. In the meantime, you should consider negotiating a new lease form with better provisions such as cost-free royalties. CJM and Jagged Peak took a lot of leases in 2018 which will go to 2021. As to whether this is totally “fringe” area, that may be open to interpretation. Your section is surrounded on three sides by acreage held by XTO / Exxon under 1970’s deep gas wells. These wells do not produce much gas, but they enable XTO to hold 1,000’s of acres. It is looking like 2020 will be a slower year for drilling, but that depends on the price of oil.
My experience as a division order analyst has taught me that putting drilling deals together can be a complicated, lengthy process for the operator trying to get a well drilled. It’s not unlike herding cats: leases start to expire while verbal agreements to farmout acreage linger without a signed Farmout Agreement, and on and on. Often, a company owns only a large portion, but not all, of the leased acreage inside a pooled unit they want to propose for drilling an initial well. They have to contact the outside owners of the remaining leases covering those other lands, before negotiating and drawing up a Joint Operating Agreement or Farmout Agreement (depending on what gets negotiated). Those things take time.
If you are being approached for an option to extend, it means that the current Lessee (holder of your lease) is anxious to get a well drilled, which means you can expect to begin receiving royalties in the foreseeable future. Before an outside company will sign a JOA or Farmout, they usually require proof that the company proposing the well has a specific number of gross acres locked under lease.
The earlier the Lessee can get you to sign an extension, the sooner they can get outside leasehold owners to sign a JOA and get a drilling rig contracted. And they might actually be trying to put together a series of contiguous PUDs (perhaps step-out wells?) so if the first well is a barn-burner they can quickly drill density wells and also form new units. Possible bottom line here is that you could have decent royalty checks coming in sometime in the near future, especially with 80 NMA.
Thank you Marsha. I really appreciate your insights, experience and willingness to share your thoughts. It’s been a real learning experience the past 20 years having inherited minerals and I find the whole leasing process to be very interesting.
$1K/NMA on 80 NMA to extend doesn’t really make it seem like the current lessee is too anxious to drill. If they were, they’d offer a fair market price right off the bat to show that they are serious. This is the internet after all, so everything needs to be taken with a grain of salt.