Hi Bill…9years is a long time to tie you up. Many are negotiating a 3yr lease with option to renew for 2 yrs. take a look at the many informative comments made by Jordan Frazier.
What’s the name of the landsman you’re dealing with? Do you have the exact property description of your mineral location?
Tracy, we are at 34-16-42 and 6-17-41. Jeff Boyce with McDonald is the landman we have talked to.
What does 15% royalty mean?
The mineral owner would get 15% of the value of the oil and/or gas (usually market value at the well head, sometimes net of some expenses) produced by the well if your property is within the unit of where the well is located, ie the well does not have to be physically located on your property. Mineral owner royalties typically range from 12.5 to 25%
Much depends on the productive properties of your property, where you are and how good your lawyers are.
15% royalty after state and federal taxes ? I call that slightly more than nothing. I personally would tather not have my minerals be produced at that rate. Might be worth your efforts if you have thousands of acres though.
RW - As an example, I have a small acerage in NM, (90 net mineral ac) at a 3/16 royalty ( 18.75%) that has been prioducing for the last 2 yrs. Average check I get is about $2,600 each month. That is net after taking out $250 for federal and other taxes, then (unfortuantly) NM has state income tax so another $150 is taken out. Then there is the 'cost of production' expenses are taken out... luckly that is only $0.60 less than a dollar. So of my '$3,000' $400 in taxes are paid and I get $2,600. If the royalty were 15% instead of 3/16 then I'd be getting about $2,080 net. For me $2,000+ each month of what I consider 'free' money is better than having not gotten a lease at all. Then the bonus money is just icing on the cake (if you get a producing well, otherwise it's the whole cake!)
N Case, as you tell me you are in the free money camp, I doubt I could say anything to make you change your mind. I don't consider royalty to be free money. Real property is being removed from your acres to be sold, property no less real than a house you might live in. When the oil is gone, it won't be back soon. I think everyone should consider that if you lease and the operator drills and produces the percentage is set. I am glad that N Case has what sounds like a decent well on 90 NMA, I hope for him that his well has a long stable life. I am curious if N Case negotiated his lease or if he just signed the first offer as written ? After all, it's free money, isn't it ? I also wonder if N Cases mineral rights fell from the sky ? I think it likely that someone paid for the mineral rights although it may not have been N Case. For anyone who didn't have their mineral rights fall from the sky I recommend you make the absolute most of them.
I hold only a small interest (26+acres) and McDonald has increased their offer to $150/15% in line with others. Is it worth retaining an attorney to negotiate, and if so, can anyone recommend one? Thanks,
J. Wade
Glenview, IL
If I had held out for the 25%, that I would have like to have gotten, on that lease, then I would not have a lease at all and likely would end up with a small working interest which I would have gotten no bonus money and still not likely be seeing any money from yet (until my share of costs have been paid). Yes, I negiotiated about 6 weeks to get higher royalty (1/8 was the initial offer), higher bonus, better shut-in clause and several other terms of the lease improved. Yes, the royalty money is 'free' (after FIT) but that does not mean I don't want to maximize it.
I have about 30 different mineral interests throughout the midwest. My grandfather purchased them at tax sales in the 1920-1950's all for less than $500 total, then I inherited them about 35 yrs ago (yes, fell from the sky). In that time I have had about 25 leases, only two have resulted in producing wells, making the bonus money very significant. Especially considering some of the same properties I have leased several times. In each lease I consider, I always negotiate for a period of time for the best possible terms, including the royalty. Another lease I did on NM last year I was able to get 22.5% (it is not producing), it all depends on the landman, their client and how expensive it is going to be to get the oil out and other factors.
Bottom line, I agree with you to get the best terms possible including the royalty, but I believe it is possible in some situations where 15% is the best that can be gotten and is a fair amount for everyone involved. I don't think just because a lease royalty is at 15% that is an automatic 'no-go' situation. Yes, make the absolute most of your mineral rights no matter how you originally aquired them, always.
In my previous 2 posts, 'free' is probably not the best way to describe how I feel about the money I get from O&G leases. Better would be 'extra', since it is not money I depend on and is in addition to my regular income. I don't want to become dependant on income from mineral property, it can be too uncertian.
I had a lawyer review my lease; I found out that McDonald is a shell co of Chespeake Energy Corp out of Oklahoma. Has anyone signed a lease with McDonald and been paid the bonus i.e. X #of $/acre. Here is a link you may find interesting.
http://www.reuters.com/article/2011/12/28/us-energy-giant-idUSTRE7BR0G420111228
Richard, I lived the Chesapeake shell game in MI that Reuters is reporting about. The thing is, it isn't unusual for the big gas/oil exploration companies to use a front company to do their leasing. But CHK has a history, so everyone needs to be careful. What I would suggest is to check see that the company is registered in CO to do business there. When investigating McDonald, be sure you are using their entire and exact name paying special attention to LLC, Inc, Co. etc. I would Google the name, Google the landman's name and even Google any phone numbers you have. Also, check BBB in CO and in the state where you determine the shell is registered. When checking out the business registration look at the year formed (a shell will be just formed).
Don't rush, be careful and thoroughly investigate the opportunity. Also, regardless of who you lease to do not provide your signed lease until you have been paid. Accept payment by company check or cashiers check; do not accept bank draft, sight draft, Order For Payment or other similar things. You can use an escrow arrangement with the bank or your attorney which would forward the signed original once the payment has cleared your account and you have "cash in hand".
Wilson
Richard is correct. Also FYI McDonald Land Services, LLC is owned by the same people that own Martin Oil & Gas, LLC and KDM Oil and Gas, LLC, These two companies leased over 20,000ac in Kiowa and Prowers counties by having the winning bids at the November 2011 state auction.
Also in McDonald's standard lease "Order of Payment' it has a clause that states:
"McDonald Land Services, LLC retains the right to surrender the Lease associated with the Order of Payment at any time and for any reason. If the Lease is surrendered before payment is due under this Order of Payment, the Lessor may retain any consideration paid at the time of signing the Lease, but Lessor is not entitled to any additional amount. If the Lease has not been surrendered or payment made by the specified due date, then Lessor shall notify Lessee in writing and Lessee shall have 30 days from receipt of such written notice to make payment or surrender the Lease without any liability."
This essentially makes it an option to lease for 60 days, with no compensation to the lessor if they unilaterally decide not to lease for any reason. Obviously not acceptable.
I ended up leasing with Diamond Resources in January and I have been paid my bonus money.
From what I have learned, Diamond is now only leasing west of T48. And, as has been mentioned by others, they are leasing for Pioneer Natural Resources. Like Richard says, it is very common for the big oil drilling companies to use landmen to do the actually leasing. A lease I did last year in NM I dealt/negotiated directly with Cheaspeake, yet they still used a land company to handle the actual lease and bonus payment etc.
N Case, thanks for sharing the OFP clause now used by the CHK shell (they weren't specific like that in the MI lease cancellation activity). If people are not paying attention, it is precisely this type of clause that will get a MO hung out to dry. and will tie up your minerals for months so that you can't lease to anyone else. Then in the meantime, the CHK machinery is locking up a lot of acreage and they are likely doing test wells somewhere. Right now they would be looking for wet gas or oil. Then with some successful wells they will search out a lucrative JV. The is their business model.
Like in MI, they have leased a lot of acreage through the CO state auction anonymously; how much per acre did they pay N Case? Are you saying that McDonald, Martin and KDM are all CHK Shell LLCs?
People, don't agree to these kind of leases where the MO is the only one that is committed. In the lease example N Case is giving, the MO can't get out, but the Lessee CAN!
As I mentioned previously - DO NOT ACCEPT OFP, SIGHT DRAFTS, BANK DRAFTS OR SIMILAR. These methods give the lessee a way out. Then have your attorney bullet proof the lease so that their isn't other "back door" ways they can get out and call back the bonus.
Good luck. But be careful and thorough - take no chances. The lease deal can only be as good as the effort you put into knowing what is happening.
Has anyone seen this 2012 map of leases in Kiowa County. I just stumbled on it while looking up McDonald Land Services, LLC.
Thanks for the map Wilsontownship. Very interesting. We did sign with McDonald land service. Received our bonus check in about 7-8 weeks. Cashed it without a problem. We are outside the sweet spot areas so we don't expect a whole lot of drilling activity in our area. This happened many years ago also and no drilling. We'll see? Who knows what the future holds??? As for the oil companies. They are not in this to lose money. Keep a close eye on your wallet.
Bob, What kind of check did you receive and how was it provided? I mean did they give you a company check at the time of lease signing or did you have to wait? If you haven't already, would you mind sharing the basic terms of your lease; bonus, royalty, term. does your lease have a renewal option to extend?
Wilson
Bob Bliss, Do you mean you dealt with McDonald recently or long agao?
I know a group who's leasing in parts of Kiowa County for better terms than those offered by any of Chesapeake's brokers. Please email me directly or call me at (405) 420-3071 to discuss further. Thanks!