Gina: Allow me to interject. Rather than you trying to figure out the terms of your lease agreement (the term "any activity" holding the lease is way too broad and can mean anything depending on the argumentative skills of an attorney, and I work both sides of the process) I think you should get the help of a good O&G attorney. There are some very good ones in Weld County. In my experience, parking equipment on a location or even setting conductor pipe will not hold a lease, but I cannot speak for your agreement specifically. And I surely would not want to pay attorney and court fees to figure it out. And, as much respect as I have for landmen, I would never depend exclusively of their assessment of the terms of a lease agreement. That's why a DOTO is always part (an expensive part, no less) of the process. (The Division Order, Title Opinion is the controlling document.)
Regarding the offer, and whether it is competitive, there is a lot of information on the internet as to what people are receiving in different areas--from thousands of dollars in ND to a few hundred in Oklahoma. It will take some effort for sure. From a personal perspective, $5,000 an acre without any production within a 3 mile radius sounds very good. Last year in the Mead area, they saw bonuses of $3,000 and royalties of 3/16th; but oil was much lower than it is today. Again, have a good attorney review the offer as I would assume there are some pre-conditions that may limit the financial liability of the offering company. I would also look to see who exactly making the offer--a landman buying for his own book, a landman representing an independent company or an investor, or a landman who is an employee of an oil company. (In spite of what others may say, it does make a difference.) Also, be very sensitive to anyone trying to take an override on your minerals as part of the agreement (especially if the bonus or royalty are above market). We see overrides all the time, and walk away from acquisitions in many cases because of the structure of the override.
As for the company mentioned above, I have direct experience with them. Good people, good company. But, remember it's the terms of the lease agreement that guide and control the relationship. In fact, I would not assume that any expenses are covered unless it specifically states that. Nor would I assume that transport costs are not deducted--again that should be specifically addressed in the agreement. Since my leases were on a very productive farm, I included additional terms that did not allow them to workover wells during the growing season, even when they were prepared to reimburse me for my crop losses. It just made my farm operations too difficult. You can ask for anything you wish, and they can decide to agree or negotiate.
I always get into this issue of whether the bonus and royalty are "fair". If the offer is competitive and works for you, then it is fair. Besides, it is not anyone's business! Do not get too hung up with all the noise from people spouting about what they and others have received. Do your homework, and look at the bonuses and terms Weld County has secured on its land, it's on the web. I trust they are very aware of what is competitive. Remember, we are dealing with geology at 8000 feet, and it does change (sometimes dramatically) over distances (in areas of OK within a mile)--so what is great just down the road, may only be good (or non-existent) under your parcel.
Lastly, if you do not believe that your previous lease is expired, then your attorney should include a clause in the new lease that indemnifies you and holds you "harmless" from any claims of others or recourse from the new leaseholder for amounts paid you. You may also want a clause that the new leaseholder agrees to "defend you from any claims of the prior leaseholder at their expense". Any O&G attorney worth his salt will know how to do this. If the new leaseholder refuses to do so, then I would think twice before signing the lease, as the old leaseholder could come back and require you to pay him for all of the lost revenues well into the future. Caution is required.
Gina Thomas said:
RW, I have rec'd many many offers to buy my rights over the last year or so. There are a couple of companies who send me a letter almost every month. The pace of offers has picked up significantly over the last few months. I did ask for offer amounts, so the $5000/acre is the highest of all of them, and makes me ponder selling.
Yes, it was you with the casing info. I have to plead ignorance on all this terminology-which is not something I do often, but can admit to it. :> )
My current contract says that there is an automatic extension of the lease as long as there is any activity, in any form, on it. Not just the one 5 year extension. So, I'm not sure how I could let the lease expire at this point. ??
r w kennedy said:
Gina, I was not that good Samaritan, there are so many helpful people here. I did tell you that EOG had set surface casing
Interesting that you had equipment parked on your property a year ago?
Gina, it usually is 3 to 5 years of the existing wells royalty but if they have an inkling of future development, they could include that also. Also, I believe the usual offers are discounted in case the price of oil drops, in case the well declines at a greater than expected rate and so forth so 5 years discounted may actually be equivalent to 3 years of the full royalty.
May I ask a question or two? Have you received an offer from only one buyer? I receive offers from multiple buyers several times a year is why I am asking. There are many possibilities, one of which is that the buyer may be somewhat underhanded and looking for the unwary. I recall the story I had from someone whose father had minerals that had paid him $300,000 over a period of 30 years and he sold to a buyer using the buyers contract and not having a lawyer look the document over for him. The contract included all production from the well since first production and the buyer paid the man $50,000. So the mineral owner owed the buyer $300.000 as soon as he returned the contract to the buyer. My second question is, have you ever heard of the saying that if something seems to be too good to be true, it probably is? It's a truism that comes up frequently in oil and gas.
Gina, I recall the advice you receive from those professionals who buy and sell, they have to tell you that it's risky to hold your minerals, if they told you, you would be better off holding the minerals they would be going against their best financial interests, that does not mean the advice to sell would always be wrong. If you have multiple buy offers and no production I would want to hang on to it until the lease expired before selling as the expiration of the lease could increase the value by as much as 50%. It is somewhat of a crapshoot, you just have to go with the best information you can gather and do what you think best.