Is this oil & gas lease offer fair?

Katrina,

I am a Landman with over 30 years experience, an active mineral owner and a Mineral Manager with clients who's interest I represent in negotiations with E&P companies, so I have experience on both sides of this fence. My first word of advice is "do not accept a lease form with a two (2) year option". This is never in the best interest of the mineral owner as chances are extremely high that three years from now should your acreage become open it will be worth much more than the Bonus you will be paid today so why lock yourself into a Bonus rate below the market rate at a later date. Moving on, as to whether this is a fair offer a number of the people on this board have given you some good advice and tips as to how to research the value, but unless you wait until your interest is Force Pooled and the Landman handling the area has to testify as to "the best terms given in the area" you may not really know for sure. The Landman who contacted you is probably being truthful when he told you he could not say who he was leasing for in this area. This is could be for several reasons, first, many companies want to keep their names quiet so as not to attract unwanted competition in the area and second, larger companies realize that should their name become known many mineral owners will assume that they can get a better offer (bonus amount, royalty ...) simply because the company has deep pockets. Your best course of action is to continue to ask questions as you are doing and use the OCC and other websites to investigate as best you can what recent drilling and production activity has taken place in the near vicinity. If you can access recent Force Pooling Orders in the area they will give you a very good idea as to what terms are reasonable for your acreage as well. More than likely the Landman who contacted you is a Field Broker hired by the Company who will actually drill the well(s) and he has been given the parameters under which he can take a lease from any mineral owner, that is to say he has no authority to negotiate the Bonus, royalty or lease form with you without first gaining permission from the company Landman who hired him or his company. The more knowledgeable you are and the more informed the kind of questions you ask him will put you in a better position to actually talk with someone who can negotiate directly with you. There is no hurry to make a decision to lease or not regardless of the terms being offered, however you do run the risk of the company "pulling back" due to internal budget considerations, having drilled recent dry holes or just disappointing well results which may cause them to withdraw from the area and rescind their offer to lease your interest. In which case you would be out the bonus money and have to wait some unknown period of time before the area becomes active again by this company or someone else. I would also say that in most situations in Oklahoma I believe it to be in your best interest to lease versus being Force Pooled. You can control more parameters in a lease form (such as a depth severance) that are not addressed or ambiguous under current Force Pooling statutes. Some will debate me on this particular issue, but that is my opinion based on experiences good and bad. I hope this has been helpful and answered a few of your questions.

Good luck.



MAX A CAREY said:

Katrina,

I am a Landman with over 30 years experience, an active mineral owner and a Mineral Manager with clients who's interest I represent in negotiations with E&P companies, so I have experience on both sides of this fence. My first word of advice is "do not accept a lease form with a two (2) year option". This is never in the best interest of the mineral owner as chances are extremely high that three years from now should your acreage become open it will be worth much more than the Bonus you will be paid today so why lock yourself into a Bonus rate below the market rate at a later date. Moving on, as to whether this is a fair offer a number of the people on this board have given you some good advice and tips as to how to research the value, but unless you wait until your interest is Force Pooled and the Landman handling the area has to testify as to "the best terms given in the area" you may not really know for sure. The Landman who contacted you is probably being truthful when he told you he could not say who he was leasing for in this area. This is could be for several reasons, first, many companies want to keep their names quiet so as not to attract unwanted competition in the area and second, larger companies realize that should their name become known many mineral owners will assume that they can get a better offer (bonus amount, royalty ...) simply because the company has deep pockets. Your best course of action is to continue to ask questions as you are doing and use the OCC and other websites to investigate as best you can what recent drilling and production activity has taken place in the near vicinity. If you can access recent Force Pooling Orders in the area they will give you a very good idea as to what terms are reasonable for your acreage as well. More than likely the Landman who contacted you is a Field Broker hired by the Company who will actually drill the well(s) and he has been given the parameters under which he can take a lease from any mineral owner, that is to say he has no authority to negotiate the Bonus, royalty or lease form with you without first gaining permission from the company Landman who hired him or his company. The more knowledgeable you are and the more informed the kind of questions you ask him will put you in a better position to actually talk with someone who can negotiate directly with you. There is no hurry to make a decision to lease or not regardless of the terms being offered, however you do run the risk of the company "pulling back" due to internal budget considerations, having drilled recent dry holes or just disappointing well results which may cause them to withdraw from the area and rescind their offer to lease your interest. In which case you would be out the bonus money and have to wait some unknown period of time before the area becomes active again by this company or someone else. I would also say that in most situations in Oklahoma I believe it to be in your best interest to lease versus being Force Pooled. You can control more parameters in a lease form (such as a depth severance) that are not addressed or ambiguous under current Force Pooling statutes. Some will debate me on this particular issue, but that is my opinion based on experiences good and bad. I hope this has been helpful and answered a few of your questions.

Good luck.

I think your advice is on target- I am quickly learning a little about mineral leases - thank you all so much for taking so much time to respond. I've been a re broker since 1980 which is a commodity just like oil so same principles apply although clearly I have a bigger market and access to a market for my house than my 6 acres in OK - from what I'm gleaning is that the offer is fair and if not it's close to fair- w the exemption of the 2 yr renewal- which would be the same discussion if it were a rental in NY- would a landlord tie themselves up to a price three yrs down the road- could be good if the market goes down- but of course if the market goes down the offer would too- it's only an "option" to renew- not a committal. Very easy here on LI to negotiate if I can get my client multiple offers and play them against each other since offers are unknown - or to negotiate higher prices because I have access to the selling prices of every house on the block- and easy to negotiate because I know how many buyers are out there- but in OK- you're so right- with just one offer- much more difficult- it would be a much harder decision if I had 600 acres instead of 6- not a huge difference in bonus $ when it's only 6, right?:)



Katrina Clifford said:

That was very nice of you Susan to take the time to fax your docs to me. You're in CA? How do people come to own mineral interests in OK anyway?! My Grandmother left me and 5 other heirs interests. It wasn't until yrs after her death that the attorneys discovered it. I've gotten a few letters over the yrs that I ignored- guess I shouldn't have ignored them.

I received their proposed lease - "oil and gas lease paid-up". The cover letter states that the lease was prepared using the following terms: 1. $500 per net mineral acre 2. 3/16ths royalty on production and 3. three yr primary term and 2 yr option term. The cover letter also states how many net mineral acres under the above captioned lands. BUT the lease doesn't contain the same language. No where does it state how many specific acres or the $500 per net mineral acre. It only talks about the 3/16th royalty and length of lease.

Shouldn't it say how much they're paying per net mineral acre and how many acres????

It just says in consideration of Ten or more dollars and that sec 30 18N 16W contains 160 acres, more or less.

help?

Call Energy Land Consultants, Edmund, OK. and ask for a Landman, they are specialist attorneys specifically for mineral rights just do it, you'll be glad you did! In your business you know the value of consulting an expert prior to signing anything. They took good care of me. Honestly I could have never done what it did without them! ....and they know where the county records office is and knows everybody that works there .,,, priceless right, tell them I sent you.

Hey, Katrina do you want to see my first check from "Continential" and the supporting detail of payment? If you do, send me a email with your fax number again. Its like reading Chinese at first.

* my email address is sasuzer@aol .com if so I don't have to send it through "The Mineral Forum". I don't know if does but ........... .ya know , I don't know
Katrina Clifford said:

I received their proposed lease - "oil and gas lease paid-up". The cover letter states that the lease was prepared using the following terms: 1. $500 per net mineral acre 2. 3/16ths royalty on production and 3. three yr primary term and 2 yr option term. The cover letter also states how many net mineral acres under the above captioned lands. BUT the lease doesn't contain the same language. No where does it state how many specific acres or the $500 per net mineral acre. It only talks about the 3/16th royalty and length of lease.

Shouldn't it say how much they're paying per net mineral acre and how many acres????

It just says in consideration of Ten or more dollars and that sec 30 18N 16W contains 160 acres, more or less.

help?

Same for me. I've signed 5 leases in the last 20 years in Custer and Dewey counties. The recorded lease never states the lease amount. Only the royalty and other terms. The lease amount is only in the cover letter.

Any recorded document since 1998 at the dewey courthouse can be accessed and printed on line for around .50 per view or $1 per print at OKCountyrecords.com

You can compare your lease with others.

I would contact https://open-lease-auction.com/ to get the best deal possible for your minerals as I did.

I would like to know if you are successful with the deductions. We just inherited in Dewey Co. And after deductions these companies are paying VERY little for what they are making.

Kelly Hudson