We just received an Oil and Gas Lease offer for some property we didn’t know we had. Described as 160 acres, more or less, but the net mineral acres is .1234566. Is that because of other owners? They sent paper work that this property was originally a group purchase. This is SW/4 of Section 45, Block 13, Abstract 283, Reeves County. The lease term is 3 years - can someone explain what that means? They gave us a ‘Total Bonus’ figure - is that a one-time payment? Thanks in advance!
My $.02
They are saying that in a tract of 160 acres your % of the ownership is very very small, thus you effectively own .1234566 acres. Other people own the rest. This could be because this thing was chopped up over 6 generations or something similar.
Right now there is no production on this acreage.
They will pay you a one-time bonus per acre (times your .1234 acres). You will get a royalty rate (ideally 25%), which means that if they produce and sell oil and gas from this acreage you will get 1/4 (or whatever the rate is) of the amount of that oil/gas attributable to your acreage. A 3 year lease means they have 3 years to establish production on the lease or else this agreement is over. And then you are free to lease the acreage again.
It’s not very good acreage. But there are definitely gassy reserves under it, that may or may not be economic to develop at this time. So somebody may or may not drill a well within 3 years. But mostly it’s tiny as described. Sadly. It’s hard to make any good or bad choices around 1/8th of a net mineral acre.
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Hi @kasy, welcome and congrats on finding unknown property. Yes, the bonus is typically a one-time only payment. Yes, the net mineral acres (nma) is less than the gross acres (160) because there are other owners. Gross acres multiplied by percent ownership gives net mineral acres. The 3 years you are seeing is probably the ‘primary term’ of the lease, which means the lease will expire if no wells are started within 3 years. Note, however, that if you keep reading the lease it will say something like ‘if production is found, the lease will stay in effect as long as oil is produced’, which can be many, many years. If possible, it’s good to have a lease reviewed by an oil and gas attorney at least to get a good understanding of what you are signing.
Thank you, NMoilboy. Really great information for us. This is so out of the blue. Yes, the rate is 25%. And we did hear from our SIL who got a letter as well.
Thanks very much. The letter was sent by a company seemingly to establish my husband’s existence, on behalf the company offering the lease. So while they gave him the basics, I imagine the actual lease would be forthcoming and we’d be able to review it if we go forward with this.
You’ve gotten solid advice. I’d add that, since you previously didn’t know you owned this interest, it would probably be logical (or at least interesting) to investigate how your husband came to own this mineral interest, and before making any decision try to confirm that mineral ownership amount you were told is really correct. I’m assuming he came to own it through inheritance. Are there other family members who also have interest in this same tract, and could he own other interests you don’t know about?
See what the people who contacted you will share with you regarding the title research they’ve done on this interest, and then do some digging yourself in the Reeves County deed records to see what you can learn about it.
Here’s a link to the online site where you can search the deed records for Reeves County at no cost. https://reeves.tx.publicsearch.us/
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Great advice and post!
It’s very interesting- he actually sent a photo copy of the original deed with my husband’s great great great on it. His SIL also received a letter and she’s already contacted a TX attorney. I’ll share your points with her. Thank you!
That landman’s research sounds impressive.
If all those prior generation families were large it may take a bunch of genealogy to confirm they calculated your husband’s interest right. If you can figure out how to contact them there may be a bunch of cousins that could benefit by sharing information and agreeing to negotiate as a group, maybe splitting the legal cost also if it goes that far.
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