Why all the secrecy about oil and gas leases?

Every so often, mineral owners - particularly inexperienced ones - want to know why people (mineral owners and oil companies) treat their own business with such concern for secrecy, privacy or discretion.

From a mineral owner standpoint.

I work for one of the larger mineral interest owners in southeast Texas. I am prohibited for discussing ANYTHING about their business, but I am allowed to reveal items that are public record. This prohibition extends to people in my organization as well.

Other landowners do not want to disclose their lease arrangement with anybody. And, I do not blame them as well. I really do not want to disclose my business with anybody that does not need to know. For example, if I told people that I just made a deal on 6000+ acres for $325 an acre, then anybody with a calculator will know that I just made a $2MM windfall (which I am doing for a client right now). Trying to compare the lease negotiation power of a large mineral interest owner has no relationship to the smaller owner and vice versa.

The location of the property geologically and the history of production of that formation in that area counts for more.

From a company standpoint.

Oil companies want to keep a competitive advantage. That includes using brokerage firms to acquire the leases in the name of their contractor (the brokerage company). They prefer to quickly move on a prospective area and get their leases and get out before word gets out and block busters move in. The truth of the matter is that most companies are not block busters, but they are still everywhere - looking to pick up a generally small acreage amount and selling it to the operator, making a profit for themselves.

Oil companies prefer to not have anybody know their lease rates.

I do not blame them.

On the Deed to my house, it says "Ten dollars and other good and valuable consideration" instead of reciting a dollar amount. I felt that it was nobody's business but my own on how much money I paid for my house.

There are folks that are inexperienced in leasing who would prefer that oil and gas leasing was more like a stock market, where they can look in the paper in the morning and see how lease rates are doing. There is a website that asked for user participation to post (anon) what bonus they received on their property. Unfortunately, that website has had 17 posts in the past year. Seems that very few posted about their lease success or failure. And this was on an anonymous basis!

What do you do?

There is not such a daily service (but there is a quarterly service) for a lease rate "stock ticker", but if someone wanted to know bad enough to determine lease rates in their area, they could easily go to (or have someone go to) the courthouse and get the most recent leases around your tract and call the mineral owner and ask them directly. I have certainly employed that technique and it is a bit surprising just how willing they are to participate in a survey. However, I always ask for a range -- was it $300-$350. over $400, etc.

Most people do not want to get paid less than the "going rate" for a lease, but it always been my position that the minerals are mine and I get to set the price. If you do not want to purchase a lease from me at that price, then OK.

The going rate is determined by what dollar amount the earliest leases in the area were purchased. The earliest leases in the area were typically negotiated by the weakest negotiators in the prospect area - so the going rate was set by the weakest and not the strongest.

I get asked from time to time what leases are going for in XX county. Sometimes, I can give a range, other times I can call a friend who is working in that county, but most of the time, research would be necessary to find out. If I were looking to find lease rates, I would IMMEDIATELY join a county or shale group right here on MRF and ask that question of the group members. They have the best chance of knowing, because that is where their property is located and certainly they are more invested than others in other areas.

If anybody has any ideas or thoughts on how to determine mineral leasing value, I would be delighted to listen and learn. The best that I can come up with is that the mineral leasing value is decided by a willing buyer and a willing seller on that tract.

Thank you for your thoughtful explanation of this issue. I am not an informed mineral rights owner, but this forum and your comments are helping me be better informed.

Buddy

I get your idea about private business matters being private. However the oil companies have no real regulation or incentive on what fair play means or should be.

"At the core of operator strategy is leasing acreage at below market prices and then taking that acreage and parlaying it into serious capital gains for themselves. Operators are flipping their valuable low cost lease acreage to others for fabulous fortunes at enormous price per acre markups. Chesapeake and all the other Eagle Ford operators are paying chump change for valuable acreage and then reselling that acreage at a tremendous profit."

When land was leasing with bonus payments at $50/acre making a mistake might not be that expensive. Now these same acres are getting 50-100 times more. Making a mistake could be costly. I have tried to use the various forms and few land owners want to discuss specifics. What is obvious is how much a large collection of leases can sell for.

I wish there was more transparency. When I buy or sell anything I like to know the ranges. The transaction size deserves knowing ball park history. I would hate to buy a house or car without knowing anything about what others trade similar items for. I think the days of landowners being in the dark are numbered. We are headed towards more information being available not less.


Dear Richard,

Explained another way. There may be no higher expression of capitalism that transactions on either the stock exchange or negotiating mineral transactions.

The problem is what you wish will never occur. What anybody wishes will not occur unless the Federal Government nationalizes oil companies and then your minerals could be confiscated and the government will set bonus and royalty prices for you.

The real solution, and you are on the right tract, is what we do here. Learn what you can, find out your weak points and get help where necessary.

Alluded to in earlier posts is what various people are receiving for oil and gas leases. This should not be a brag item, but an informational item. I bet if Kenny Dubose allowed the creating of a "list" that could be added to anonymously, it might gain huge favor here. But, it does not go to the true heart of the matter, the real value of minerals. It only reflects "going rate" which as discussed above has serious conceptual flaws.

Part of the problem is that bonus values are extremely location dependent. If I tell you what I paid for a new Chevy in Seattle, you can figure approximately what the same chevy might cost you where you are. If I tell you what bonus I received on my lease for mineral rights in one location, it will not mean that it would be a fair price for your lease at a different spot in the same county or a location in the next county. That information would be of greater value if the properties where adjoining or real close.

Dennis F you are so right.

In many rocky mountain states they are proud to get 1/5th royalty, which is pretty much the floor where I am.

Amen, Richard White!!!

Disclosing the specifics of a lease deal are not required to be helpful to those wanting to lease without getting taking advantage of. We would like the "Blue Book" value of our minerals.

It is my opinion that those of you that have unleased minerals in the top 4 ND Bakken Counties should consider the floor $1,000ba at 20% royalty.

Hello Buddy,

I intended to message you privately and the system required me to send you a friend request first. Sorry for any confusion! If possible, I would like to ask you a question regarding leases and acreage in multiple spacing units. Thank you!

Sharon Round