Lease offer in T18S, R27 east, Sec18: E/2SW/4

New Mexico Mineral Rights Eddy County, NM
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Hello,

I hope everyone is having a fantastic day!! My family and I inherited mineral interests in Eddy and Lea counties about 2 years ago.

One of these being “an undivided 1/2 interest on 60 acres more or less” in the above tract in Eddy.

We received an offer on a 3 year lease for 25% royalty with a $1,500 bonus per net acre.

I’ve chatted with two retired landmen who are friends of our family. They think the bonus may be low for the area.

My question:

Is anyone familiar with activity in that area?

If so, does a $1500 bonus seem low?

We are not greedy people by any means. We want to be sure it’s a win/win for everyone or no deal.

Any thoughts on what we should do would be greatly appreciated.

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Yep, you can just call and explain you have an interest to lease and wanted to know if they would want to send you a lease offer. I know that when they find a prospect they like, they close quickly - in as little as 2-3 days if title is easily verifiable.

As for representation, that it solely up to you. An attorney can be expensive, but worth it if the company is putting a lot of lessee-friendly language in the lease. A landman would generally be cheaper while performing essentially the same duties, but you need to ensure the landman is fully capable and experienced in leasing. On the other hand, you can represent yourself for free so long as you know what you’re doing. Personally, I would contact them myself first and see how they respond. If they provide an offer with a fair bonus and reasonable terms right off the bat, then it will show they are likely acting in good faith and not out to screw you.

Some reasonable terms to keep in mind: Royalty - 25% Term - 3 years Important Clauses - Cost-Free Royalty and Pugh

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Hi there,

It looks like a lot of active wells in the northern part of that section with a new permit from Jan 2019 in the SW (Operator Lime Rock Resources). Also looks like a lot of permitting in sections to the North. Eddy Cnty has had high bonuses at auction for federal interest (95K last yr) but individuals look to be getting $2K on up.

Others on the forum may have more specific suggestions but I would ask for at least double if not double+ as part of the negotiation and let them tell you no/counter.

The 3 yr term and 25% royalty are good but I would also try for royalties paid at the well head with no deductions for marketing, transportation etc.

There are other terms re: release of unused minerals at specific depths , bonus negotiation if an extension is desired, etc that should also be included. Smart to ask an O&G lawyer to review the lease once initial terms are discussed to make sure these additional protections are included.

Good luck!

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Thank you both!! and yes I have heard there’s been large bonuses paid out in Eddy recently.

Does anyone know where I could find a map or something to reference if I were to go back to them and present a higher offer?

Do you think it may come across as insulting if I don’t have some sort of supporting docs justifying the uptick in terms?

Any help is appreciated. I’ve been clicking around as much as I can on the go-tech site. It’s cumbersome interpreting the data as a newbie.

Not sure where everyone is getting these easy to interpret “heat map” type documents.

Is calling around to as many potentially interested parties as TwoShoeBeagie7 recommends what most folks are doing?

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In my experience negotiating leases, if you provide your baseline terms they will either accept or counter. I’ve never provided any documentation or references, simply outlined in a professional email our interest to proceed with a lease assuming terms can be agreed upon. I then bullet out our requested terms for example:

  • $XX/acre bonus paid per acre on a 3 year lease
  • A 2 year renewal option will be extended upon review and mutual agreement on the additional bonus to be paid
  • 1/4 royalty paid
  • A shut-in royalty of $XX/acre
  • All Royalties will be paid from the well head, free of all costs for processing, treatment, purification, dehydration, separation, stabilization, manufacturing, measuring, transportation, compression or marketing the oil, gas or other hydrocarbons covered by the lease.

We also request the use of our standard lease format which includes additional specifications as well as specific vertical and horizontal Pugh clauses.

We send over our standard lease for review and then the Operator will come back and agree/counter on the various points. Sometimes there’s a bit of back and forth e.g. we’d rather keep a 25% royalty over a higher bonus but usually what they have offered is a low offer and they come to meet us.

Again, I’ve never needed any back-up or corroboration. The operators know what’s going on and have the leeway to negotiate.

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I’m assuming your lease offer came as part of a pooling agreement from Percussion. And or St. Devote (who is also Percussion).

Percussion has NMOCD approval for compulsary pooling of of 3 different “units” in Sec 18 of 18S 27E. Toadies, Smashing Pumpkins, Oasis. Apparently somebody likes 90s alternative rock. NMOCD cases 20223, 20228, 20232. To drill Yeso/Glorieta wells. To clarify, these wells are not permitted, Percussion has just been going through the regulatory work to make them drillable. Have to go through hearing part of NMOCD to find this info.

http://ocdimage.emnrd.state.nm.us/imaging/CaseFileCriteria.aspx

E/2 of the SW/4 is in the Oasis and Smashing Pumpkins pooled area(s). So in theory, you are on the list below as UMI (unleased mineral owner). Which means that you are being forced pooled. In NM, that pretty much means that you need to sign a lease.

That’s not a terrible thing. Mostly means they are planning to drill wells there in the future, which is really what you want. Percussion is in the process of selling to Spur who, in theory, will be even more aggressive on drilling. So you have to figure you will get some wells there in the next few years.

$1500/acre is pretty fair. BLM leases (which has 1/8th bonus) in Sec 21 and 22 went for $700/acre in 2018 lease sale. You have slightly better rock, but you also want 25% royalty. Your range on bonus should be pretty tight. The stuff at $90k/acre is 50 miles away and is totally apples v oranges. If you don’t sign a lease you are out of the wells with a 200% risk penalty. That is not where you want to be. They would rather lease you, and you should negotiate by all means…but if you will not settle, they can/will just roll on without you.

I guess consider this more specific suggestions. It’s possible that I am wrong about all of this, but this just so happens to be something I looked at in a lot of detail for a consulting gig. Mostly I think you are in a good situation, you want a 25% lease and wells drilled. And that sounds like what you are going to get.

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NMoilboy, where did you get that list from? The hearing link?

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Was in the hearing exhibits somewhere. I’ll need my 8% carry on whomever you lease/buy. :wink:

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[TwoShoeBeagie7] thank you for the heads up! What was the name/contact info of the party who you said may be interested in the area?

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NMoilboy, thank you for chiming in and sharing all the knowledge you do! Yes you’re right and we definitely plan on leasing.

I’m going to share that info about the BLM leases in Sec 21 & 22 as well as the rest of the info in your post with my family. That was really helpful I appreciate it.

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Thank you BP11!!! this is helpful!

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Lea County is prime territory for leasing and drilling right now. Eddy County is also seeing leasing and production, but it depends where in the county your land is located.

I have ORRIs in 24S, 26E. My interests are southwest of Carlsbad. One new well is producing on my land in 24S, 26E, and a huge well came in about 780 feet south of my interests. Another well is currently being drilled on land that I have an interest in.

My brother sold part of his net royalty acres in 24S,26E for about $7,000 an acre earlier this year. I am holding out for more. NRAs are generally more valuable than working interest acreage, because the buyer doesn’t pay drilling costs.

You are 6 miles north and 1 mile east of my interests. My impression is that my land is sort of the northern and western edge of the Delaware Basin play, but you should get feedback from professionals. If you are part of the Delaware Basin play, $1500 is definitely low. 80 acres went for $14,000 an acre in 24S, 26E back in December, but that was federal land with only a 12.5% royalty.

I recommend you go to the New Mexico Oil Conservation Division website and search for wells in Section 18, T18S, R27E. You can search with those 3 parameters at:

https://wwwapps.emnrd.state.nm.us/ocd/ocdpermitting/Data/Wells.aspx

I did a quick search and turned up 27 wells or permits in section 18. The most recent was drilled in 2014, but it looks like Lime rock Resources has permitted 4 wells as recently as May.

I think you can reasonably ask for more money. If you’re part of that Lime Rock play you should be in a good position to negotiate. You may also want to reach out to other mineral owners to see what they got. All of the new wells in section 18 bear the name Leavitt. I’d talk to the Leavitts if you can.

Remember, though, the royalty is where the real money will come from. 25% is great. Best wishes.

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Fwiw, the Leavitt wells have a surface hole location in Sec 18, but they are all going to produce from Sec 13 only. That’s not obvious, but it does mean that they won’t help out the Sec 18 folks. All indications are that Sec 18 is going to be Percussion, or Pure now that they bought Percussion.

I’m quite sure their deal in Sec 18 is they are getting force pooled. That limits your options. Haggle a bit if you like haggling, but sign a lease.

In terms of bonuses, the variability within each of Eddy or Lea Counties will range from zero to highest in the nation. They are big counties. IMO $1500/nma is a reasonably fair bonus in 18S27E for a 25% lease. 24S 26E is actually six townships south and one township west of 18S 27E. Some 40 miles away. Only reason I point that out is to highlight that your two cases are very different. 18S 27E is outside of the Delaware Basin, it’s on the NWShelf.

Totally agree. The 25% royalty is where the money will come from. Assuming you get some wells. Good luck.

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Got it. Forced pooling - would that not allow for any other players or operators to offer a competitive bid? Is shopping these type of deals not common practice?

Curious as I’m hearing that term (forced pooling) come up in other lands not associated with this particular lease as I educate myself.

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You can lease to somebody else besides the operator. A lot of times you just follow the path of least resistance, and that is leasing to the operator. Finding a competitive market of potentials lessee’s is not all that easy.