Our well location plat is S.F. Austin Survey, Abstract 63, Burleson County. July 2011, we originally signed a lease agreement with H.H, Howell, Inc.; May 2013, AusCo Texas Exploration purchased it from H.H. Howell, Inc.; and now Halcon Resources is the current owner. And, at this time only nine months remain on our lease agreement that terminates July 2015.
Fall 2014 a drilling permit was approved and the pad site has been completed. We were told the expected drill date would be November 2014. However, yesterday a few mineral owners in this pool received phone calls from Halcon asking for a one year lease extension offering $500 per acre. Their reason given is there is a current shortage of available drilling rigs.
My questions/concerns are:
1) Is their offer of $500 per net mineral acre reasonable?
2) The current royalties state we will receive one-fifth of such production. Should we negotiate the production royalties?
3) Do we renew for one year and wait this out or do we decline?
I would appreciate your feedback and comments.
If you actually have the opportunity to re-negotiate the terms of the lease after the oil company has gone to the expense of putting a pad in--wow! That's a nice spot to be in.
In my experience, the lease will usually specify whatever actions the oil company must take to keep the lease from expiring if there's no production. You must have a nice lease and/or that pad has been sitting there doing nothing for a long time.
Anyway, I think you can get a fourth. Ask for 5/16! I hear things are going pretty well in Burleson County.
If you do the math on the Halcon deal with Ausco to acquire this acreage, it worked out to over $5000 per net acre when you combine the cash paid plus the drilling carry for Ausco.
Clayton Williams paid over $7000 per net acre for the Sheridan Production acreage in Burleson County.
If you go back through releases on other Burleson County deals (e.g. Comstock and Ursa), you will see similar high $$$ per acre metrics.
With all this being said, the $500 seems low and the 20% royalty is sure low.
You can deal with Halcon and grant them an extension or tell them "no deal" and put yourself on the open market for a brand new lease after yours expires.
Tough decisions to make and I am sure that Halcon can do some things on your lease that may end up perpetuating the lease beyond the expiration date if you play "hard ball" with them.
You may want to consider some legal advice for a qualified O&G attorney on this whole issue too.
One last point - Halcon has been very successful so far chasing the Eagle Ford in Brazos and Burleson Counties. As of July 2014, they have 86 wells producing from the Eagle Ford - these wells are making about 300,000 BO and 200,000 MCF per month.
The attached PDF shows a list of these wells - note the cumulative production numbers as well as the time frame for this production (note first production dates).
1515-HalconEFProductionBurlesonandBrazosCounties.pdf (25.9 KB)
Yes, we are leaning towards re-negotiating the lease terms and 5/16 would be a good starting point. I appreciate your input and quick reply because the pressure is on.
Cape Porter said:
If you actually have the opportunity to re-negotiate the terms of the lease after the oil company has gone to the expense of putting a pad in--wow! That's a nice spot to be in.
In my experience, the lease will usually specify whatever actions the oil company must take to keep the lease from expiring if there's no production. You must have a nice lease and/or that pad has been sitting there doing nothing for a long time.
Anyway, I think you can get a fourth. Ask for 5/16! I hear things are going pretty well in Burleson County.
Thanks Rock Man - all very good info. Yes, its a tough decision and I appreciate your quick response and knowledge. Can you share the link to the PDF for future tracking?
Rock Man said:
If you do the math on the Halcon deal with Ausco to acquire this acreage, it worked out to over $5000 per net acre when you combine the cash paid plus the drilling carry for Ausco.
Clayton Williams paid over $7000 per net acre for the Sheridan Production acreage in Burleson County.
If you go back through releases on other Burleson County deals (e.g. Comstock and Ursa), you will see similar high $$$ per acre metrics.
With all this being said, the $500 seems low and the 20% royalty is sure low.
You can deal with Halcon and grant them an extension or tell them "no deal" and put yourself on the open market for a brand new lease after yours expires.
Tough decisions to make and I am sure that Halcon can do some things on your lease that may end up perpetuating the lease beyond the expiration date if you play "hard ball" with them.
You may want to consider some legal advice for a qualified O&G attorney on this whole issue too.
One last point - Halcon has been very successful so far chasing the Eagle Ford in Brazos and Burleson Counties. As of July 2014, they have 86 wells producing from the Eagle Ford - these wells are making about 300,000 BO and 200,000 MCF per month.
The attached PDF shows a list of these wells - note the cumulative production numbers as well as the time frame for this production (note first production dates).
The PDF is from DrillingInfo.com - a subscription service.
You can access similar info (but in a lot more confusing and convoluted format) on the Tx RRC site
This is where we stand as of this morning.
Told Halcon's landman yesterday that we wanted a new lease for one year, $500. per acre and 5/16 royalties. He called back this morning saying their original offer "is what it is", one year lease extension under the current lease agreement. Our current lease agreement has 1/5 royalties.
We're having a hard time understanding why they want a one year extension when there is still nine months left on the original lease. Their answer is oil companies do this all the time. One final comment from them is they may drill the well before the original lease expires and if they do this then the money you receive, $500. per acre is a bonus.
Any comments or feedback?
Rock Man said:
If you do the math on the Halcon deal with Ausco to acquire this acreage, it worked out to over $5000 per net acre when you combine the cash paid plus the drilling carry for Ausco.
Clayton Williams paid over $7000 per net acre for the Sheridan Production acreage in Burleson County.
If you go back through releases on other Burleson County deals (e.g. Comstock and Ursa), you will see similar high $$$ per acre metrics.
With all this being said, the $500 seems low and the 20% royalty is sure low.
You can deal with Halcon and grant them an extension or tell them "no deal" and put yourself on the open market for a brand new lease after yours expires.
Tough decisions to make and I am sure that Halcon can do some things on your lease that may end up perpetuating the lease beyond the expiration date if you play "hard ball" with them.
You may want to consider some legal advice for a qualified O&G attorney on this whole issue too.
One last point - Halcon has been very successful so far chasing the Eagle Ford in Brazos and Burleson Counties. As of July 2014, they have 86 wells producing from the Eagle Ford - these wells are making about 300,000 BO and 200,000 MCF per month.
The attached PDF shows a list of these wells - note the cumulative production numbers as well as the time frame for this production (note first production dates).
Melvin, more than a few times I have heard of lessors sending out lease extensions just after a well is drilled. I believe it's because many oil companies are not well run and the decision to extend leases was made but not acted upon for months and the extensions were sent out anyway even though they were moot because operations had begun and wells were drilled. Halcon at least seems to be ahead of the game.
Halcon appears to be juggling resources and the point of topping themselves 9 months early is if they can extend the time on your lease cheaply, they can drill someplace else. Even the largest company has a finite amount of resources and rigs that they can call on. They would much rather extend for a cheap year than have to lease for 3 years again. If I were morally certain that they were going to drill next year, I might bargain for more money countering with a 5 year lease. Usually operators want longer leases and the mineral owners have to bargain for shorter leases, leases with no options, why not throw turning the tables on them into the negotiation? I'd say sorry sir, we have a 3 year minimum.