Hello!
Might someone in this forum be able to tell me, in layman’s terms, what Free Royalty means?
Also, thoughts on $450 per acre, 3 year primary term lease, with 22.5% free royalty?
Thank you in advance!
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Kim,
I’m a novice, but since no one else is answering you, I’ll do my best. We have mineral rights to several hundred acres in Dawson. We were paid $400 an acre for a lease, which had the rights to extend (and it WAS extended). Lease was in 2015, renewed for two years in 2018. (This is apparently a standard term lease for mineral rights. Not familiar with primary term lease.) Our royalty is 1/4. I think that is the amount our family shares of the royalties. So 22.5 % is a litte less than 1/4–has to do with how many family members are also on the lease, I believe. Not familiar with Free Royalty? Maybe someone else can weigh in and help here–and correct anything I’ve said. What I do know is $450 is probably a good price (I’ve checked but don’t know the particulars of your property and what’s on or around it).
Free royalty means you get paid at the well head and do not suffer cost for transportation, dehydration, marketing, etc. You want this in your lease. Primary term refers to the 3 years. An extension is generally what is called a “kicker” and most of them are 2 years at some pre-negotiated price. My preference is to never agree to a kicker. You want to get 1/4th royalty or 25%. $450 is a good price for Dawson County.
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Thank you so very much, Susan! I really appreciate your reply. It’s all a bit confusing for newbies! 
James… Thank you! Valuable information! So, would it be appropriate to negotiate for 25%, or is that even an option with companies?
Unless you have an oil and gas attorney or some other very knowledgeable person check your lease language, it will be difficult to know if the the lease truly has a cost free royalty. It can read “free of all costs other than taxes” but because of Texas Supreme Court rulings, the company might still get away with deductions. At least this is my understanding.
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Oh, wow! Good to know. Thank you, AJ11.
Thank you, James! I guess I misunderstood the 1/4 royalty. Appreciate all your knowledge sharing!
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