Hi, our family received an offer for Lease in Sec 26, Township 5S, Range 3W and I was hoping someone could help me with how I can determine what the going rate for amount per acre is in this area.
Also, does anyone know if there is some drilling activity occurring in this area?
I understand from the landman that this is a "top lease" and I am not familiar with what that means so any help defining that for me would be so appreciated.
Lastly, there is an Exhibit "A" attached to the lease that I don't really understand. In the second paragraph it reads: "In the event this lease is extended by commercial production beyond its primary term, then on such date this lease shall terminate as to all rights one hundred feet and more below the stratigraphic equivalent of the base of the deepest penetrated formation in the well or wells located on the leased premises, or land unitized therewith. If Lessee is in the process of drilling or completing a well at the end of the primary term of this lease, this clause shall become effective upon conclusion of such operations." This doesn't seem like a good thing to sign as it seems we would be giving up a lot but I am not sure.
Well..who is the lease from? A top lease is a lease negotiated before an existing lease expires. It sounds like you have a lease in place either held by production or one that was never drilled on. How long have you had these minerals and how many acres? IF you have the legal description within the section (i.e. N/2 of SW/4 or such) I can look and see what wells are there. The exhibit A language is actually good for the mineral owner and it is unusual that a company would include that. You do appear to have Woodford underneath you...which means all this new big horizontal development will want to come to your area at some point. Can I ask what the terms are? Bonuses have ranged from $300-400 up to $1,500 an acre. Royalty offers are usually 3/16 or 1/5 with different bonus levels, and 1/4 with no bonus. I have a firm policy of taking the 1/4 royalty. They are drilling several horizontal wells in each section, and the bonus is a one time payment, and unless you are really strapped for cash you will forego a LOT of potential future income for the sake of a one time payment now. BUt you also can split your acres up and take different deals on different acres if you like.
Hi Bob, thanks so much for the information. Lease is from Continental Resources thru Lowry Land. I was told that mom's original lease back in 2005 was incorrectly or illegally leased by another company in 2010 which I believe both companies have now since been bought out by Continental but I have not confirmed that. I am guessing that the original lease in 2005 is still in place then? These particular mineral rights have been in the family since way back in the 1800's. Further description is long: NW/4 & N/2 N/2 SW/4 & NW/4 NW/4 NE/4 &S/2 N/2 NE/4&S/2 NE/4. I have read about splitting up the acres like you suggest - as mentioned in the subject it is just a little over 25 acres in our family and the same amount in my uncle's family so it's not a huge amount. Sounds like you are suggesting we strongly consider foregoing the bonus payment and request a larger royalty percentage: 1/4 correct?
Are you sure that legal description is right? Thats a lot more than 25 or 50 acres it looks like. Yes I recommend the 1/4 royalty if they have offered it. I had an offer from Continental in a new area in Garvin County and 1/5 was their highest royalty offer, I said I would wait and they came back with 23%, and I said I would still wait and they came back with 1/4. These horizontal Woodford wells are still new in the area...but based on how wells behave in the Bakken in North Dakota, and early performance of the wells in this area, I believe that the difference between 1/5 and 1/4 royalty is about $2,000 per acre average over the life of the well. (some wells lower some higher) BUT you have to consider that they typically will do 5 or 6 wells in a section, but you only get the bonus once. Everybody's situation is different and your personal financial situation can affect what the best decision is for you. I also have begun waiting to get pooled rather than leasing. There are certain advantages to that. You also have the ability then to invest in a working interest in the well. Although these wells get expensive...it can range $10,000 to $15,000 an acre to participate. I'ld be happy to talk to you on the phone if you want to discuss and ask questions. Mineral owners are at a great disadvantage in knowledge and understanding compared to the oil companies who they are negotiating with...I know because my family learned the hard way...and I have spent the last three years in a road to get educated.
There are some force pooling hearings pending in the area. The most recent was in 18 for $750 3/16, so a little above and a little below will be your range. Section 35 right below you is pending, so you may want to wait and see what they offer before moving ahead on yours. It will be the most up to date prices with three-four options to choose from. I usually go for the lowest bonus and the highest royalty-1/4 if I can get it and I am pretty sure they will drill, some cash and 1/5 if more risk of not drilling-at least I will get some bonus money.
JMA drilled a Woodford well in 21 in 2010. I suspect there will be more shortly since the poolings are pretty active.
A "top lease" is when a company wants to come in and lease before the end of another company's lease ends so that the day one lease expires, another one begins. Go back and look at your first lease, because it may have a clause that says you have to let the first company know and have the right to match it. I am not a fan of them for lots of legal and technical reasons, but others may have a different opinion. If the area is heating up, it may be better to wait for the force pooling since those will be the best offers.
Actually, that depth clause is a a tricky one and you were wise to catch it. You actually want it to protect any productive horizon, not just a penetrated horizon. They are trying to save more than they should. My depth clause says "As to expiration of the primary term, this lease shall terminate as to all depths 100' below production from the then deepest perforations." If I can get that clause, I am very happy. If I can't get it, then at the very least, it should say "It is agreed and understood that this lease shall expire at the end of the primary term as to all depths 100' below the stratigraphic equivalent of the deepest producing formation from any well drilled during the term of the lease or any extension thereto or in any land that was spaced, unitized or pooled during the primary term." The drilling and completing sentence is okay.
Thx Bob, would like to take you up on your offer to discuss further via phone. I sent you a private message so check your inbox. Thx!
Bob Titley said:
Are you sure that legal description is right? Thats a lot more than 25 or 50 acres it looks like. Yes I recommend the 1/4 royalty if they have offered it. I had an offer from Continental in a new area in Garvin County and 1/5 was their highest royalty offer, I said I would wait and they came back with 23%, and I said I would still wait and they came back with 1/4. These horizontal Woodford wells are still new in the area…but based on how wells behave in the Bakken in North Dakota, and early performance of the wells in this area, I believe that the difference between 1/5 and 1/4 royalty is about $2,000 per acre average over the life of the well. (some wells lower some higher) BUT you have to consider that they typically will do 5 or 6 wells in a section, but you only get the bonus once. Everybody’s situation is different and your personal financial situation can affect what the best decision is for you. I also have begun waiting to get pooled rather than leasing. There are certain advantages to that. You also have the ability then to invest in a working interest in the well. Although these wells get expensive…it can range $10,000 to $15,000 an acre to participate. I’ld be happy to talk to you on the phone if you want to discuss and ask questions. Mineral owners are at a great disadvantage in knowledge and understanding compared to the oil companies who they are negotiating with…I know because my family learned the hard way…and I have spent the last three years in a road to get educated.
We are leasing in that area and would love the opportunity to beat Continental's offer. If you would like please email me at [email protected]. Thank you