I own a few mineral acres in Section 12, Block 48, T9S , Pecos County and a couple of companies have approached me with leasing proposals -
Does this seem like a fair proposal for this area?
Not sure about the bonus. But ask them to remove the option. Also, ask for a vertical and horizontal pugh clause.
"Fair" depends on what you want. Geologically. it has more potential than what you were offered. As always the lease terms that measure royalty are extremely important. You also have some great options to leasing at someone else's terms.
Hi Gary,
Thanks for your reply. I inherited these minerals from my family and know almost nothing about oil and gas, though I am trying to get better educated on leases from the mineral owners perspective. Would you mind expanding on what some of those options you mentioned might be? Best wishes.
Breck,
From 35+ years of being on every side of the oil and gas exploration business, I can tell you that ALL money spent in the business starts with the geologic potential. It is the foundation of all transactions including geophysical prospecting, leasing, selling, road building, pad construction, and of course drilling and completion.
In your case, you must understand that the risk of finding oil is very low and that since 2012 every horizontally drilled well in the area north of your land has continued to help identify the the geologic potential in a subsurface basin where oil has been known to exist for decades. In my opinion, the basin (Delaware Basin) that extends up into the SE corner of New Mexico will be one of the 5 most oil productive areas of the United States.
Your options are to lease at terms that have little to do with geologic potential but are a reservation fee for others to control your minerals until the risk taking companies decide to spend the very big dollars to drill in your area or wait until the geologic potential has been proven in a nearby section then negotiate a lease based on the proven geologic potential or sell your minerals to a company that wants to participate in the risk of drilling completion. In this basin, the mineral owner will always have the option of selling the royalty income stream or the deeper geologic potential.
Regardless of which option fits your personal expectations of the property you inherited, it is imperative for you to know the geologic potential in order to get Fair Market Value in transactions.
You can bet that the ultimate lessee or buyer of your minerals will know the geologic potential of your property.
Gary L Hutchinson
Minerals Managment