I’ve been contacted by a company who wants to drill from my property to frac on adjacent properties. They are offering to pay for pads, pipelines, roads and other infrastructure they need to operate the site. Property is located in loving county. What are the going rates out there? And what is a standard term for a lease for this type of project? Thanks.
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Tell them you want 5% from each well bore of the production from the horizontal well bore paid out of their portion, not the other mineral owners. IF you don’t ask you won’t get it! I know some will not agree with me but that’s OK.
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Start by looking at the University of Texas Rate & Damage Schedule, with different rates for roads, pipelines, site damages, etc. Note that most of those rates are based on 10 year term and with additional consideration due each 10 years. The vertical wellbore can be treated as a pipeline for rates, to the extent that it is under your surface. You can agree to single payments for at least double the rate. Do you own all or just a portion of the surface? You really need to consult an oil and gas attorney for a surface use agreement which will specify terms, such as only for specified wells.
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Those are terms of an oil and gas lease and not for a surface use agreement. You need to consult an attorney who is familiar with surface use agreements to be sure you maximize your compensation and re protected. This includes being paid over time for each additional pipeline or electric line or other use. Surface use agreements are complex legal documents and you are looking at decades of use. This is not a do-it-yourself project. And do not let them pressure you signing a letter of intent which hamstrings your attorney. Speed is not in your favor. Has the well been permitted? Have they already surveyed? Or is this exploratory?
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That is not going to happen and could be a deal-killer. Well economics are not going to work if the NRI drops from 75% to 70%. The operator may not own 100% of the leases and WI if there are other lessees within the tracts and those other WI are not going to agree to a drop in their revenues. And under no circumstances can the operator arbitrarily reduce the royalties for any mineral owners in the well. This is good income for the surface owner, particularly if he does not own any minerals. If he does own minerals that are under lease, then he should make sure that the off-site wellbores will not interfere with his ultimate royalties from his lease and this may require a discussion with his lessee. However, as surface owner, he can agree to these kind of uses. His goal is to maximize his income from his property.
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I was referring to the land owner getting the company to agree to pay an amount percentage taken out of the companies revenue from the wells, not the other mineral owners in the horizontal well bore that is producing on their mineral tracts.
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I understand that you are suggesting the surface owner demand a 5% overriding royalty for use of his surface for off-site well pad and operations. This is not a realistic demand as it will sharply reduce the WI owner’s NRI in the well and reduce the economics of the well. It is realistic for the surface owner to be paid for damages for the well pad acreage and per-rod charges for the pipeline ROW for each vertical wellbore under his surface and charges for roads, electric lines, pipelines, and other facilities to the extent located off the wellpad and on his surface. Sometimes this totals to well over $50,000. It all depends on how many surface acres he owns and how much is used. And no one knows the details here. It is important for everyone to give measured responses, knowing that people rarely post all the relevant information. And posters often want a single easy answer which is not possible as there are so often complexities. That said, if you have personally negotiated an OR as payment for your surface use, then you should give advice regarding this process as it would benefit everyone, including me.
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Your situation is not comparable to this posting. There are only 51 people who live in Loving County, TX and it is extremely unlikely that the surface owner or anyone lives near the proposed location. Any surface agreement should include protective provisions such as indemnity.
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The issues you have cited are site, damages, production facilities and pipelines. Your concern should be the length of time of this entire operation that could last 20-40 years. Do yourself a favor and consult a local oil and gas attorney on this matter. You can build in their cost to the final settlement agreement.
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Could a considerable amount of money already have been invested in engineering work by the company? In other words, if you refuse the offer, how much will it cost the oil company to rework its plans? How many multi-well pads are around you? If multiple wells are routinely drilled from pads, that might mean ten million per well. 12 to 20 wells would represent a many tens of millions of dollars investment. What is the surface land worth per acre in its present condition? If you own a thousand acres of barren land, why not offer to sell the company 10 or however many surface acres for an astronomical sum, say a million dollars? If you own 20 acres and the company can slide over to your neighbor without impacting its plans, then your negotiating power may be greatly diminished. Have you looked at your property on the RRC’s GIS Map Viewer which shows producing and permitted wells?
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Asking prices are not the final sales figures. And you have misread these notices - Those are 100% price, not per acre. Per acre price is asking price divided by the number of acres.
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I did not misread or misunderstand the price [$1700/acre and $1960/acre], and I did not claim that the parcels had sold. The point of my post was that the OP may have an opportunity to get many times more per acre if he were to sell ten or however many acres to the oil company that has offered to lease his surface land as compared to selling to a “civilian” buyer who might use the land as lower economic value shooting range, etc. It all would depend on how difficult it would be for the oil company to find a new pad location for any wells it might have planned and the extent to which those wells have already been engineered/designed. If the oil company has an opportunity see a $200,000,000+ project to completion, paying $20,000 or more an acre for a needed location does not seem as though it would be out of the question.
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Just a quick question for someone more knowledgeable. If the $50K is treated as damages, is that more favorable taxwise than selling the land and having a capital gain? May be factors to consider in the final decision
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Depending upon the operator and the size of the drilling project that they are doing… Some operators do not want to own land as it adds another layer of staff and paperwork. Some do.
The area needed for drilling can be several acres during the drilling time for rigs, trucks, mud tanks, etc. , but frequently, the area is reduced to about an acre or so once the drilling is complete and the christmas trees for gas or pumpjacks and tanks for oil are set. The rest of the acreage can be reclaimed for its previous purpose.
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