Lea County OGM Leases and Participation

[Rustic]

Hello,

I inherited OGM rights from my great-grandfather in Barstow, Texas. CE Nichols loaned money to various people in the area in exchange for some kind of security, from silverware and livestock to land and mineral rights. I recently have been nominated to be the point person for my siblings and their children and have discovered some of the arcane aspects of OGM rights. I am trying to educate myself and see that I lack significant knowledge, so bear with me. The first OGM leases I have come across are in 2017 for 25S 36E, the SW4 of S28 and the SE4 of S29 for $4500/NMA through Resonance Resources which Ameredev has taken over since. Since then in 2020, they changed it to the SW4 of S28 and E2SE4 of Sect 29 for $250/NMA, “due to current market”. In early 2021, they changed it to $1500/NMA for E2SE4 of S29. Now I have a new lease in hand for SW4 of Section 28 for $3000/NMA.

I see that often the question is, “is that a good price?” And that one should negotiate. But my interest (with siblings) has been 4.5 NMA, down to 2 or 1 depending on the lease parameters. Do I have any negotiating power? Should I just accept the offer? Doesn’t Ameredev need to be competitive? Is there a secondary lease market? Ameredev did a quiet deed on this but I do not have a record of the original OGM deed. I understand that that can be onerous to find. Would Ameredev give that to me? Is it worth finding? There is some interest on my sibling’s part to sell. Would the buyer do the search? Share? Could one employ a landman to explore the extent of OGM deeds? Would that be advisable?

Now the next wrinkle is that Ameredev wants me to participate in two wells in W2W2 S 28 and S32 and E2E2 of S29 and 32. I really do not want to participate due to the upfront costs, the long backend and the liabilities and risks. Ameredev says they may file for compulsory pooling.

I have seen suggestions that I should just ask for a lease but the last lease offer covers some of this area. I do not know what to ask here!!!

I currently am receiving royalties on two Ameredev wells in SWSE of S32 And a lot of these questions apply to my holdings in Ward Co, Texas

Rusty

[Rustic]

Boy, I would have thought this area in New Mexico would have generated some response. Oh Well

[NMoilboy]

You don’t want to participate. Or get forced pooled. Negotiate the best bonus they will give you on 25% royalty. But basically, yeah, after minor negotiations accept the lease offer for the SW/4 of 28 that you got earlier in 2020, IMO.

In regards to the delay in responding, I read your first post in March. The ten question marks in the 2nd paragraph kinda scared me off.

[Rustic]

There has already been a hearing, April 7th, on compulsory pooling. I do not have any experience or knowledge on this. I had read somewhere that in New Mexico on state land there is leniency to permit compulsory pooling. The proposed wells are Red Bud 107H and 118H. I am already leased. Where does it go from here? (one question mark! )

[NMoilboy]

They will very likely get pooling approved.

Oh,You say you are already leased? In that case, there is nothing for you to do. They will drill the wells at some point and force pool the unleased and you (the leased) will get paid your royalty on your % of those wells from day 1.

[BP11]

Agreed- ask for preferred terms on a royalty lease (25% royalty, no deductions, 3 yr term & best bonus they will give you). You do not need to participate in the well(s) as a working interest owner. Sometimes operators come to mineral holders requesting them to be working interest partners (i.e. share the costs month to month) and the costs can scare off owners leaving them unleased and subject to pooling. However, you can simply let them know that you do not wish to participate as a working interest owner but will participate in a royalty lease and then request your preferred terms and negotiate from there.

Good luck!