So I have a question. last time I leased I got a check for the whole 3 years all at once and it said bonus on the check.
My taxes took a big hit because it got claimed as income with 30% tax.
Are all leases the same? Is there a way to break up the payments into 1 year checks instead of a lump sum? Just wondering because the next lease I would like not to have to lose so much of it to taxes. Thanks
Dear Miss Murelene, the leasing agent will typically give a check for everything at once (or more than one check but still for everything at once) covering the primary term (usually three years). This lease is "paid up" and no one has to keep track of when to send checks to you during the primary term. You can negotiate different terms but the operator or leasing agent may not be willing to help you. You can try.
Dear John W, if you are the surface owner as well as the mineral owner, then I would say it is in your interest to negotiate use of the surface prior to signing a lease for the minerals. Once the leaseholder has a signed lease, they have certain rights of access that may not make you happy if they disturb your current or future use of the land. Many landowners stipulate or limit use of the surface in the lease. For example, the lease may prohibit pipelines or rig sites within 200 ft of a barn or chicken house. You may wish to consult a lawyer to help you with wording that you would propose to the leasing agent or operator.
Dear Miss Murelene, the two year extension gives the operator or other leaseholder a free option to extend the lease on the same terms. You can always strike through this clause before you sign. If the lease is valuable at the end of the primary term, then the leaseholder will exercise the extension. If not, then it will lapse. You have no read advantage to agree to it unless you deal with them to get a higher bonus in return.
Thank you Stephen. When I signed 3 years ago it was for 400.00 an acre lease with 3/16 royalties. I have been getting offers for 2700.00 an acre lease with 1/5 royalties lately.
As you can see I do not want to agree to that option of 400.00. I have educated myself with this group and also thanks to M barnes have purchased a few good books that will help out with the next negotiations. I also have a really good lawyer with these types of contracts.
If they do the 2 year option, be sure not to let them turn it into 3 with another lease. They will likely give you some BS story on how they need an extra year to drill. Most of the time they are just flipping leases and its a lot easier for them if they have 3. 2 years go pretty fast and you can re-sign at a much higher rate later.
Joe S: your advice below is good in an up market, which has been the case recently.
In all fairness though, it ignores the possibility there may be a down market on the horizon. That is why it is important for the landowner to gather as much information as they can, and understand the risks going both ways.
Frank ,the trend looks to be up. But its all speculation on which way it is going to go. If the market goes down, then there may not be any leases! I do know that McClain county is one of the hottest developing fields in the US. My only worry is there are a bunch of wells on the sideline that can be brought online at any time. We need more demand. Hopefully, Trump can get some infrastructure bill going which would help a lot.
I am in agreement with Joe S. regarding the method of operation of many of these lessors. They are usually just flipping leases and you have now just added a 3rd party to your interest. Unless I KNOW they are leasing on behalf of a driller who plans to drill imminently, I just ignore their offers with a nice but definitive letter. It is better just to pool your interest and you will get no less than the best offer. That is just my opinion, to each his own.
Joe S: "the trend looks to be up."
If you were familiar with the mantra "stay alive til '85," then you know the dangers of terminal optimism. I hope you are correct and have a better handle on the supply and demand than I.
The last crash was a really good one. So, I personally think the market is in a state of repair. Some times its a really long grind for higher prices. The crash in the late 90's, oil was like $10 a barrel or so. I did not think it would ever go up! Most everyone in any oilfield business was dying. I knew a guy that bought a directional drilling rig at a fire sale price and built a business starting with that one rig and went on to make millions.
Joe S., I recall quite well the mantra "stay alive til '85". I was serving on the staff of Governor George Nigh, as the economic development/ trade "guru" the day Penn Square Bank went down and took with them many state and out of state banks with them. It was ugly. If that was not enough punishment, I was named Director of the OK Department of Economic Development [Now named Commerce Department]. Every Friday, while in the Governor's Office, the Banking Commissioner would call me and tell me which banks were closing their doors after business hours that day. My job then was to get US Senators Boren and Nickles on a conference call and relate to them the names of those banks. It was frustrating because OPEC controlled the price of oil and all they had to do was stick a drinking straw in the ground and strike oil. That was an awful time in Oklahoma, having actually seen deflation here, the opposite of inflated assets. Whatever you had on July 1982 was worth less than half what it was before that time. The crash in the 90s were no less appealing. Anyone who believes they know what will happen next is just blowing smoke. There are only so many factors in your control with respect to the price and there is always a new one that might pop up, e.g. Penn Square Bank.
"A new one that might pop up"--DUC wells.
That is something to consider, Frank Pfisch :-)
I agree Frank. I think there is plenty of supply on the sideline. Increased demand needs to happen for any sustained upward price movement.
The Keystone Pipeline will probably affect the mix of intangibles.
Thanks Stephen Weeks for the info. I was afraid that was the answer. At least the prices are better this time around.
I received an offer for a mineral interest lease last week for a tract of land described as being in the W/2 of Section 6, Township 7 North, Range 3 West, McClain Co., OK, which apparently was owned by my grandfather and left in my name. He died in 1985, however, and it’s as yet undetermined how many acres he owned or if it might have been sold. No records in OK. Fortunately, There is a probate trail that I’m following, but any insights into activity in the area would be helpful.
The initial offer was for $1,600 per net acre bonus for a 3 year term with a 2 year extension, having a 18.75% royalty 3/16th. Based on my cursory review of recent discussions, that seems low, but I’m also new to the forum and learning about the topic as I go.
Thanks to all for any help you could provide!
Eric,
That sounds a lit low. Section 7 had $1600 1/5 previously. You do not want a two year extension. Always ask for the 1/5th and 1/4th set. Read over the last six months of comments here on the county and get a feel for the advice regarding lease terms, Exhibit A clauses, etc.
M Barnes is right. The book from NARO Look before you lease is very good. I have learned a lot of things I did not know and will be better prepared when the lease expires in April 2018. Thank you