Santo/SPC is seeking a lease for Wolfcamp formations, horizonal well. It is not offering any bonus, 3/16 royalty, and 7 year primary term. These are far worse terms than I have seen elsewhere, but they are threatening that this is their final offer and will otherwise force pool our 10 NMA. (22S, 27E, Section 7) Would I be crazy to accept these terms? They have permit and say they will be drilling this year. I have seen many others in this forum say 25% royalty and substantial bonuses are common.
Those don’t seem like great terms. You are not gonna get a huge bonus in 22s27e, its just not a great place to be. But zero seems weak and 7 years seems kinda crazy. 3/16ths for there is probably fine. I would have guessed that $3-500/nma, 3/16th, and 3 years with 2 year extension for a low fee is more or less what you should expect. That seems the going rate up in the Yeso area, which is my closest frame of reference, but maybe those expectations are dated.
To date SPC has not drilled a well anywhere. Those look like the most likely ones for them to drill. Maybe they will, maybe they won’t.
I really think you don’t want to be force pooled, or participate in wells as a WI owner, but I also think they have to make you a fair market offer, and 7 years and no bonus does not seem like fair market to me. Nobody should be tied up for 7 years with no bonus. BUT…this pooling has already occurred (Order R-21096) so I think your chance to scream bloody murder is over. Once you are down to the low low bonus range you really make all of your $ off the royalty anyhow. Assuming they drill wells.
Call SPC, tell them you will take some small bonus and a shorter term and 3/16ths royalty. I think if they hold your feet to the fire you pretty much just sign what they offer and hope they drill wells. The length of the term doesn’t really matter if they drill wells and hold the lease.
I’m under the impression that forced pooling in NM is a total land grab. Basically the operators get to dictate terms. Sometimes no great answers for small land holders.
2 Likes
Thanks for your input. The pooling was done in January, but has been reopened by SPC to change pooling list and because not everyone, like us, got notice for the first hearing. This hearing before OCD is set for May 6th and will be held remotely, so participation will be easy. Statements and evidence have to be sent to OCD 4 business days before hearing. SPC didn’t mail out the notice until April 14th, so not giving Lessors much time to respond. I haven’t even received mine yet, but was given a copy by another Lessor. With these onerous terms, I am thinking seriously about going the WI route. I will give them another chance to offer a decent deal though. With no bonus, 20-25% royalty would be appropriate, and a 3 year term.
Yeah I just saw that the case was re-opened and on the docket for May while looking for something else. The WI route seems like a hard path, but to each. Definitely seems like you could threaten to oppose if they don’t up their lease offer and see if that gets you something better.
Good luck.
1 Like
This topic was automatically closed after 90 days. New replies are no longer allowed.