Hello all!
Does anyone have any information on Compass Land Resources or Circle 9 Resources? I just received a proposal letter from Compass Land Resources asking me to lease my mineral interests to Circle 9 Resources for the purpose of drilling a test well.
Also, what is a reasonable offer on this section? Seems to me the proposal is unusually low and for an unusually longer time period. Here are the details:
1. 1/8 royalty, bonus of $125 nma for a 3 year term with a 2 year extension option
2. 3/16 royalty, bonus of $75 nma for a 3 year term with a 2 year extension option
3. Participation on a per-share basis
I am not inclined to accept such a long-term offer for a test well. Thoughts?
I can't speak to activity in the area or the fairness of the offer, but 3 years is the "normal" term for oil and gas leases. I decline optional extensions unless some additional conditions are met (payment of 150% of initial bonus and filing of record of the extension). On all but one occasion since I started this practice, the lessee has stricken the clause; on that one occasion, my terms were agreed to. They'll almost certainly just strike the clause if you request it, and that reduces the term to 3 years, which you're perhaps more comfortable with.
You should also familiarize yourself with the sorts of terms that should be in your "Exhibit A", a set of additional contract terms that protect you in various ways and are incorporated by reference in the original lease document. This is a document that you provide. Others here have provided good starter documents for this purpose, and I think that such a document is also available online from the National Associate of Royalty Owners. You'll have to negotiate these with the lessee, and may not get all of your clauses in, but you'll wind up with a much more satisfactory lease if you go this route. The original lease document always heavily favors the oil company, not the mineral owner, but that's correctible.