Please help me understand this. Jagged Peak Energy wants to exercise a 2 year extension on the 3 year lease we had signed with KEW. Jagged is the successor in interest to KEW. They are matching the 3 year $ amount for the 2 year extension ($1,000/mineral acre). I received an offer from Pride OIL and Gas Properties, Inc. recently offering to acquire 50% of oil and gas RIGHTS for $5,000/net mineral acre for the same section and block, but for Reeves County. First, is $1,000/acre (from Jagged Peak) respectable and, if not, how do I (can I) change the terms on an extension? Second, what's the confusion between Ward and Reeves Counties? Is that a mistake by Pride Oil and Gas? Any help greatly appreciated.
If you signed a 3 year lease that specifically included a 2 year option, then the current lessee has the option to exercise the extension for the specified additional bonus. You have no ability to change the terms of the lease. If there is no option, then the lessee can ask for either an extension or a new lease and all the lease provisions are negotiable. This difference is a reason not to agree to options to extend. The lessee can drill or come back with a new offer.
Regarding the purchase offer, unless you are desperate for cash, you should hang on to the minerals. Operators say there are plans for 8 Wolfcamp wells per section as well as Bone Spring wells. Look to the future.
Your section is miles from the Reeves County line so I think Pride just made a mistake. Most leases that are 3 years with a 2 year extension aren't negotiable at the extension phase. They should have the right to either pay you for the extension or not, it's their choice, not yours. That said, I never recommend anyone agree to an extension. You should ask for best bonus paid to date, 3 years, 1/4th royalty and adequate riders to release depths not producing.
Henry, is Jagged Peak trying to exercise a two year extension option that was created in the lease you signed with KEW, or are they trying to amend your KEW lease by extending the primary term for an additional two years? If it is the latter, you do have some room to negotiate better terms. Feel free to send me a message and we can discuss it further.