Offer for Lease in Section 5, fair or lowball?

New Mexico Mineral Rights Lea County, NM
1

I have an unleased mineral interest in Section 5, T-15-S, R-37-E of 20 acres in Lea County. My family members have a combined total of 320 acres in this section adjacent.

The offer i was given was a Bonus of $400 per per net mineral acre, a primary term of three years for $400 per net mineral acre for a three year term with an option to extend for an additional two year period, and a royalty of 20%, proportionally reduced as you my interest.

I think this is a low ball offer and have discussed with other family members to negotiate together.

I was curious if anyone has any information regarding activity and fair pricing for this area. I'm thinking at least twice the bonus per acre and at least 22.5% royalty. Since we have 300 acres all together it might be worth more.

Any input anyone could provide would be greatly appreciated. I live in SC but was in Lea County a few months ago and saw a few rigs and plenty of horse heads in the southern part of the county so there appears to be active drilling going on.

Thanks in advance!

Russell

2

You could look up state leases in your area to get a better estimate of value.

http://www.nmstatelands.org/Oil_And_Gas_Sales.aspx

3

Thanks Bart.

4

You lease bonus is the least of your problems. If you get 50% royalty and the company claws back 75% of it post-production expenses, are you ahead? Short answer "no". You have a lot of things you need to limit.

I just appraised a tract for a charity and of the 18 or so wells involved in this unit, 3 actually had net LOSS which they took out of the charity's proceeds. In other words, the charity PAID THEM to take their gas...

Demand limits on Post - Production expenses ... not more than 10% ever for any reason whatsoever and NOTHING that will take the monthly take at less than 12½%. I would not sign otherwise. Considering the price of oil and gas now, any bonus over $500 is probably "OK". I don't like extensions on leases...they are lose lose. Basically they walk away if not worth much and if they are worth much, likely are worth a lot more. So you are basically signing a 5 year lease for 3 years pay.

5

Thank you sir. That is very valuable information. I appreciate it.

6

Have an offer at 700nma & 1/4 for our family 80 acres in 15S 37E but no paperwork yet and our lease is not up till October

7

Thanks Paul, do you mind if i ask whom you are working with?

8

I just inherited two parcels of mineral rights in Lea County that’s been in the family for three generations. I know that over the years, it’s been leased several times. In 1986, there was a well drilled and completed but subsequently plugged. I have a lease offer, however, I never thought one could actually “lose” money on a lease. Are there leases ever contracted whereas the lessor takes less upfront and if a low producing well is placed into production below market prices, the lessors don’t have to write checks to the oil company? Why would a company produce gas or oil out of a well at a loss? This makes no sense to me… And no, I’m not related to anyone owning Yates petroleum…, I’m in the water well business…

9

It’s not a loss to them. JUST TO YOU, if you signed a lease that allows them to apply post production costs.

My grandmother signed a lease like that . She got $200 for that bonus and NEVER SAW ANOTHER DIME.

So, you should be VERY CAREFUL of what you sign with a lease document.

NEVER EVER EVER SIGN THE LEASE THEY OFFER. It is only in their favor and not yours. GET an O&G attorney to review your lease offer to remove any and all harmful - read at your expense for things that the driller SHOULD pay for. If not, like my grandmother you might find yourself with a well drilled and pumping for more than ten years and you don’t get a dime.

Just my families experience.