Extend lease or accept new top lease offer?

Texas Mineral Rights
1

Our land was leased 5 years ago and has recently been sold to Hunt. They have until Jan 2021 but have yet to attain permits. They want to extend the lease at $1000 an acre (way too little).

Another company reached out and want a top lease at $10000 an acre for 3 years at 25% oil Royalties.

They are offering an escrow of 10% of the projected lease. I have requested a written contract to look over and to be looked over by a lawyer.

Anyone hears of Nickel River Royalties? Any suggestions?

2

A small middleman operation. What value could they bring you? I’d steer clear.

3

NOOOOOOO! Top Lease is a way for them to lock up your land for X years by only paying you 10% while they try to flip it at a higher rate. Under a Top Lease, they have no obligation to pay you the remaining 90% if they can’t flip it… bad deal

4

Is that 10% non-refundable? If so, seems reasonable as you’d essentially get $1000/ac for the duration of your current lease (9 months) with upside of $9000/ac upon expiration.

Or just use that top lease offer as leverage to bump up the extension offer amount from the current operator.

5

Yes, it is non refundable. We also considered using this as leverage with the other company. Thank you.

6

Kit- a top lease only ties your minerals for the remainder of the current lease. 10% down. If at the end of the current lease, for the top lease to vest the remaining 90% must be paid. Personally I would jump all over that considering current environment.

7

I’m not a fan of a Top Lease under most circumstances (from the Lessor’s perspective) but “current environment” is a valid point.

HOWEVER, payment of the 90% is always at the discretion of the Top Lessee… they can say “the deal’s off” at any time… or just not pay the balance and the Top Lease will not vest (which is worse from a curative standpoint because now it is the Lessor’s burden to get an affidavit filed stating that the Top Lease is dead)

I’m just not a fan of fly-by-night flippers/speculators… Realistically, it’s a gamble either way…

  1. wait and see if the market is >$10k/nma at the end of the bottom lease or
  2. take the 10% now and hope they pay the 90% later.

Another factor to consider is that many Top Lease offers include language similar to “upon verification of ownership” and “90 BUSINESS days to pay the 10%”. both of these are stall tactics for paying the 10% which gives the flipper time to find a buyer.

“upon verification of ownership” is nonsense … they should already have that answer or be willing to take the business risk.

“90 BUSINESS days to pay the 10% down” is actually >4months which is also nonsense… eg: Sunday, March 29, 2020 + 90 business days = Monday, August 10, 2020 Just another stall tactic to find a buyer.

There’s really only 2 categories of people who solicit for a Top Lease.

  1. flippers/speculators who have no intention of developing the land themselves and
  2. developers who think the Bottom Lease will not go into the secondary term and want to lock it down now.

Again, it’s a gamble either way but if you opt to Top Lease, I’d demand

  1. payment of the 10% down upon receipt of the fully executed Top Lease and
  2. include language that the Lessor can file an Affidavit without joinder of the Top Lease Lessee stating that the balance owed for the Top Lease was not paid and the Top Lease is therefore dead.

Just 2¢ from a >17yr Petroleum Landman

1 Like
8

The entire industry is a gamble. Always has been-always will be. About to start year 36 as a landman although I kinda retired 6 years ago. By the way, careful on not liking “flippers”! You are flipping your time for someone else’s money and you have lots of flipper friends. Buddies who flipped their wives for a different one. :rofl:

9

Forum member M Barnes shared an informative paper on top leasing in this post in another thread.

10

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