In summary, my share of a recent Oil and Gas Lease offer on my 80 acres interest (not Chesapeake):
BONUS: $4,000.00 ($50 per acre)
ROYALTY: 15%
TERM: 5 years primary + 3 year option for extension
My uncle, sister and I own 320 acres in undivided interests. Uncle 50% and sis and I 25% each.
I have been tasked with working out a deal with oil company.
Here is what I got about 8 years ago for my 25% interest from Chesapeake Oil:
BONUS: $24,000 ($300 per acre)
ROYALTY: 18.5%
TERMS: 3 years + 2 year option for extension
I know it isn’t accurate to compare but this latest offer appears very weak in comparison.
I would like to counter-offer a 3/2 year term at the very most and I have attached the counter-offer below I proposed a few years ago and was accepted by Chesapeake Oil.
So counter the new offer with a 3/2 year term and this attached “Exhibit A”.
You are being fished. the new ‘norm’ is 20% 5/2yr
Counter with the Most Favored Nation clause, Plugh clause and 3/2yr with 25%. That is the dream lease. Most favored nation clause they HATE because it says you will sign the current lease but if they sign anyone for more you get what they get, at the trust of the oil people (haha). Plugh clause is a must. The offer you got is a sucker deal.
This is a family owned 320 acres so we would present the same counter offers.
Would an MFN mean anything considering all three of us are on the same page working together?
I don’t know. Yes always ask for more you have a 50/50 chance of them saying yes! Good odds. My father always said it is better to get a higher royalty (if they drill and hit) than it is to get a higher bonus payment. The Wyoming legislature was considering a bill for mineral rights owners that would have increased the permit application costs from $500 to $10,000 and if they did not drill within 6 months of being permitted then they would have to reapply. So there is obviously enough pissed off mineral owners to get a bill written and brought up in committee! What has happened to us in the last 3 leases we have been ram jammed into signing is that they have just tried up that land for 7 years i.e., 5/2 year lease and as we have seen 7 years can make a great difference on the price of a barrel of oil.
If they don’t want the MSN clause then get more bonus or more royalty percentage or shorter lease. If they don’t want a shorter lease then get more bonus AND more royalty, etc.
I’m a bit confused as to what an MFN clause covers.
My assumption is that it pertains to the part owners of a parcel?
For instance if they offer my uncle and/or sister (the other part owners) better than me an MFN would automatically bring my lease up to theirs?
Is that how it works?
