Lease offer is $500 for 3 years and option to extend 2 years for $250 seems ridiculous… $750 for 5 year option?! All at 20% royalty. With the “Dig baby dig” mentality for a hopeful future wouldn’t it seem reasonable to get additional offers or want a smaller lease. New to this am I thinking correctly in our benefit?
Also this tract is split between 5 relatives with one having a much higher percentage than the rest. If they signed the lease already… and we all have individual offers, can we even seek others to lease with if she already contracted the largest chunk of the pie with an oil company already? And if not, since they have already signed is this our only offer to run with if she already secured such a large portion at that rate?
If we don’t sign and they dig, will we get a percentage still later just at smaller royalty rate and no bonus, or do we get nothing without a lease?
Most savvy mineral owners would decline the option as that extends the time frame for too long and gives all the power to the lessee. Most folks in Texas would prefer a 25% royalty, so ask about it. The bonus would be less, but never hurts to ask. A higher royalty tends to pay off in the long run.
“Drill baby drill” depends upon the operator’s budget and the geology, so not relevant everywhere. Operators tend to stay within their economic plan.
If each of you inherited separate percentages of the acreage, then each of you are free to lease under your own terms to whomever you choose. The operator needs all of the acreage under a drilling spacing unit to be accounted for. Either leased or pooled (depending upon the state).
Cannot comment on who is leasing there since you did not give a location. Many times, other companies will also try to lease. The operator must abide by those lease terms as well.
With any draft lease, it is wise to get legal counsel. The leases are not generally in the mineral owner’s favor, so getting a good attorney to suggest changes and negotiate on your behalf can get you a better lease and more money in the long run. The rest of you can share the fees for the attorney. Each of your would sign your own lease, but each one would have the better language. The royalties are based upon the net mineral acreage, the drilling spacing acreage, the royalty, prices of oil/gas and whether or not you have post production charges and taxes which are required.
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