Recently was contacted by Contex Energy. For mineral rights leasing for T156N-R91W, Section 1: S ½ SW 1/4.Was offered 800/net mineral acre, 18% Royalty. Want to know if this is a good offer.
Dustin,
STOP! Don't agree to anything regarding the lease until you know where you stand. Immediately try to verify this information.
It appears your minerals have been pooled with others (W1/2 of Sec 1, E1/2 of Sec 2 in 156-90, and all of Sec 32 in 157-90) and EOG has just begun to drill on this interest last week! Per the NDIC map, EOG Resources began drilling a well the "Clearwater 25-3202H" on Aug. 3rd. This well bore is in 157-90, Sec 32 directly north of your minerals. It was permited to be drilled for 19,302 feet (ie... under a 1,280 acre tract). Your minerals under T156N-R91W, Sec 1: S1/2 SW, are part of their 1,280 acres.
This dramatically increases the leasing value of your minerals. Again, determine is this is accurate. Then ask Contex whom they are leasing for (they are a leasing company, not an oil company). I suspect it's EOG trying to tie up loose ends on the acreage. Likely you have a small interest, with a recently expired lease, or were initially overlooked.
Inform Contex you're aware of the well being drilled and negotiate accordingly. Successful wells have been drilled in every direction around your interest. Most were modest producers, but a couple IP'd at 500 and 700 bbls per day. This is not great production but it confirms your minerals are almost certain to produce.
Don't be shy, ask for $3000 per net acre and a 22% royalty without any costs. The Contex rep will say that is impossible. Though don't cave too easily. Insist on a minimum of a 22% royalty without any costs. You could be more flexable on the bonus amount. My best guess is you should be able to secure a lease with that royalty and at least twice or three times the amount of the initial net acre bonus offer. Go do your homework and good luck!
What Eastern MT said, and don’t forget to get competing offers. I have negotiated when the drillbit was in the dirt and it can be high pressure and interesting. It’s nice to be able to get an offer of $2100 per acre and 20% from the operator and to make a phone call and be able to call the operator back and tell them they have been topped within 15 minutes. I also told KOG, my operator that they couldn’t just match any offer I got, because of some un-truths they tried to tell me. During negotiations they constantly told me they had to have a descision by friday then by monday and so on. I always told them I probably couldn’t give them an answer by then so I;m just saying no right now. You may well be sitting over more than one formation, look into Pugh clauses. Good luck!
Would I negotiate with Contex? I live in Nashville, TN…so visiting them would not be an option.
Someone hired Contex to go lease your minerals. So yes you'd negotiate with them. It doesn't matter where you live. Your negotiations will be over the phone at first and then via email. After starting the process try to get everything via email so you have their offers and promises in writing.
Mr. Kennedy is correct, when you're leasing COMPETITION is your best friend. So make a list of phone numbers and see what you can generate. Call Contex first, then call Hess Oil and Hunt Oil Co. both of which have drilled or blocked acres next to your interest. Then try Diamond Resources and Empire Oil both of which are lease brokers like Contex and very active in the Williston basin. A quick google search will provide phone numbers for all of the above. I would encourage you not to delay.
If possible gather the phone numbers now and contact each of them either today or tomorrow. The meter is running. Since they already spud the well you should try to conclude a deal as quickly as you can. However, don't accept any offer until you have more than one in hand. Dustin, good luck I hope you make the most of the situation.
Dustin Larson said:
Would I negotiate with Contex? I live in Nashville, TN…so visiting them would not be an option.
Thanks for all the replies will get on this and let you know how it went!