Have received a compulsory pooling and AFE for some property owned in Lea County, NM. Included in the packet of info is a lease providing for three year term, 3/16ths royalty. The packet does not even include a lease bonus figure. The share of cost for the interest if I go WI is approximately $25,000.00. Should I gamble the 25k or sign the lease? That is my dilemma. It is a horizontal well located in section 8 t19s, r35e. Thanks in advance for any insights. I could also go non-consent but what does that do to my mineral interest?
Gamble is the key word.... I appraise minerals. Last year I looked at a landowner who went in whole hog, and that was 4 years ago. Today, he is at a net minus of $250,000 give or take a few thou...the wells MIGHT pay out in his lifetime. I would hate to bet on it.
So he gets NOTHING...zero, zip, etc.
My conclusion was that his interest was worth nothing except to the oil company (XTO) holding the lease.
Going non-consent with penalty? Again with a 400% penalty, the payout is nigh zero. Negotiate the best you can, then lease. Avoid POST PRODUCTION EXPENSES INCLUDING "ENHANCEMENTS"...I would rather have 1/8th and ZERO deducts as 3/16th and they deduct PPE, unless your state law limits them to post-production costs that do not take you below that 1/8th. I see a lot of deducts that makes the "net" effective percentage 10% or less. Everyone needs to be on their legislator's butts to correct that and LIMIT Post Production expenses... "MARKETING" and "ENHANCEMENTS" are ripe to be abused by the operator.
Also, remember you are not in control of HOW MANY wells get drilled. I appraised a property in Arkansas in 2010 where the 5 parcels had a total of about 11 wells. We are negotiating now to value the same estate...There are now 101 wells. So what would your part of 101 wells in 4 years be? 25 Million. Have you got that kind of reserves in cash? (The Landowner would have netted about 10-15 million since 2010)