My mother-in-law recently deeded 320 acres (E/2 of Section 3, Block 57, PSL Survey, A-4560 to her sons (surface & mineral). This property has been leased by Cimarex since 7/15/10 and this lease has been assigned to them as well. We recently received a Surface Use Agreement from Sam Lichtenstein of Reliable Land Services who said that Cimarex is wanting to do a horizontal well. Our family attorney has been working on increasing the payouts and has gotten agreement to increase some of the items fairly significantly. If anyone can share what they are seeing for per rod payouts on things such as roads, etc., I would greatly appreciate it. This is not our attorneys' forte though he is doing an okay job, I guess. Also, we have been reviewing the lease since we were not involved at the time it was executed and I think she may have been short-changed by quite a lot. The bonus payment was only $800.00 per acre and I have seen $3,000-3,500 per acre on this forum! I understand that the lease continues once production has been paying out for 6 months. Does it continue forever so long as the production continues? Are these things ever re-negotiable? If they didn't intend to drill, this lease would expire 7/10/15 and we could negotiate a new one I guess? Pardon my ignorance, but we are all brand spanking new to this entire topic! Any info/guidance anyone is willing to share would be fabulous - Thanks!
Lea, you are correct excepting the paying for 6 months part, if they get production in the primary term, the lease will not expire until it ceases. There may be a continuing operations clause that says if they are only working to gain production that it could extend the primary term of lease until they cease work for longer than a stated period of time without having gained production. Building a pad, road or digging a pit or drilling a water well would almost surely be considered "operations" so a lease can be perpetuated beyond the primary term for a period of time by actions other than actually drilling the well.
Lea, you would have to have something that they wanted very badly to make them amenable to renegotiating the lease. The sole purpose of an oil company is to make money, the oil is just a means to an end and paying you more when they don't have to would be in direct opposition to their purpose.
As for only receiving $800 per acre 4 years ago? The amount that could be negotiated in a lease can change drastically in a couple of weeks. If it was the first offer, then yes it probably was low but I hear that 85% of mineral owners execute the first lease mailed to them and may not even realize that they could negotiate the bonus, royalty and terms of the lease.
It sounds as though the operator intends to drill. I hope a satisfactory royalty was in the agreement because the bonus is past but the royalty will be the future.
If by some chance the operator does not begin operations in time be ready to negotiate the next lease, not an extension of the old one unless it suits you in almost all particulars.
Im a newbie too. I cant answer all of your questions. As far as the lease goes, and most leases have a HBP clause, meaning held by production. Meaning they can extend the lease if they have started drilling the well. Ive never heard of the 6 months production clause. As far as I know, as long as they are producing the well and getting minerals out, the lease is theirs. Our well is in shut in producer status. Well has been drilled and it has produced for 3 months. Then they shut it in. Were not totally sure why. More than likely they are waiting on the price of natural gas to rise. In 2010, $800 an acre wasnt too far off what we got. It all depends on the area. Not just the county but where in the county the land is. My advice is, with 320 acres of land, same amount we have in Reeves, get an oil and gas atty.Totally worth it. Also, dont let the up front bonus money dictate everyithing in the negotiations. The royalty rate is what matters. Not sure if your land is public school land where the state gets half, but the bonus money is nice, but getting the royalty rate for a monthly payout that could potentially pay out for 20-30 years is even better.
I recommend you use the Terms and payments as outlined in the University of Texas Rate and Damage Schedule. It is more than fair, and although it is expensive from an operator standpoint, it is preferred because it spells out the dollar amount for each possible occurrence on your land.
You can find it here:
http://www.utlands.utsystem.edu/forms/pdfs/rate_damage_schedule.pdf