oil and gas royalty leases

hello all:

i welcome your help/input here -

within the last few days our family received an unsolicited offer from an oil and gas exploration company, stating that we owned certain acreage in nacogdoches county (to my understanding, consisting of a portion of the j.a. chireno grant, about 18 miles east from the city of nacogdoches), and offering to lease our "non-participating royalty interest" for three years, for $3400 per acre, with our family to retain a 1/5th royalty.
frankly, we were barely aware that we possessed this property interest and, in any event, are entirely unsophisticated in this arena.
so as we were trying to figure out what to do with this offer, meaning how to respond, i happened upon your internet site which seems to indicate that a well hit within the last week or so in or about this immediate area, and that the preliminary data looked promising.
so i assume this explains why the oil and gas exploration company contacted us and, more notably, why they seem quite eager to make a deal here.

so i barely know what questions to ask - e.g.:

how do we confirm whether the well that hit is within versus merely near our property interest?
in either event, what do we do/should we expect from here?
what if anything do we need to do to protect our "non-participating royalty interest"?
how should we respond to the outstanding offer (guessing we reject it if the well is within our property interest, but what if the well is merely near the property interest)?
and finally, assuming that the well that hit is actually within our property interest, how do we evaluate the worth of our "non-participating royalty interest"?

on behalf of my family, i sincerely appreciate any assistance any of you can provide here.

thanks.

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Replies to This Discussion

Permalink Reply by ledlights on August 4, 2010 at 14:20
#33170 is Crane #2H which is currently being drilled. #33141 is Crane 1H. If you are looking at the GIS viewer try to find the "Identify Wells" option in the Map Tools list. When you have selected it you can then click on the little bubbles at the end of the shown well lines (the pentagon is the well head at the other end of the horizontal well runs) This will bring up a pop-up window that will identify a well (and lead to other links (more links once the well is completed)). You may have to enable popups or fiddle with your browser popup settings to get the other information windows to popup correctly.
Permalink Reply by Ellis Sowell on August 5, 2010 at 10:58
What does it mean exactly if I get a division order from one of the operating companies? Teutsch Unit #1
Permalink Reply by ledlights on August 5, 2010 at 13:35
They now have production from the Teutsch unit which includes some or all of your mineral interests. They are ready to start paying you. The DO should state your interest rate. This is a chance for you to double check the interest rate they are planning to pay you.

Your int. rate of gas sales = (# of your acres in unit/# of acres in unit) * (your royalty rate) * (any other division of your interest)

if you sold 50% of your interest to a royalty purchaser then that last variable would be .5

Up at the top right corner of every gohaynesvilleshale.com page is a search box. Type "division order" in it and check out some of the numerous discussions there have been on the subject.
Permalink Reply by Ellis Sowell on August 5, 2010 at 15:23
Apparently this is a vertical well, which equals less production. Why in a hot area would they drill a well with less production than a horizontal well?
Permalink Reply by jffree1 on August 5, 2010 at 17:15
Because they are only concerned with holding the acreage past the lease term. And they may not have the expertise to drill a deep horizontal well.
Permalink Reply by Ellis Sowell on August 6, 2010 at 8:07
Don't they lose money in the long run if they just sit on it? What is the likely way that this will play out?
Permalink Reply by ledlights on August 6, 2010 at 8:54
In case you get to negotiate a lease in the future there are a lot of considerations that it would be good for you to become familiar with. There is a lot of information stored in discussions here about lease terms that will help when you spend more time looking for information about leases. One that you should be aware of is "deep rights release". It is now a standard for a reasonable lease from the mineral owner's perspective. If your lease lacks such a release the company that now has this vertical well, which is probably drilled to a shallower depth than the shale zones, can hold its lease for all depths in your property as long as they have "paying production" (is that the correct phrase?) in the unit your lease is in.

There are a number of things that this company can do if they will continue to hold all depths in your property. One is to sell the portion (depth rights) of your lease for the shale zones to another company that is capable and interested in developing those zones. That is what Sonerra did with its leases in your area. They sold to EOG and it is looking like a pretty good deal for EOG based on the wells that they have been bringing on line there. Though EOG may not be a prospective buyer these days (http://online.wsj.com/article/BT-CO-20100806-709726.html)
Permalink Reply by Ellis Sowell on August 8, 2010 at 3:47
Now that the leases are secure and they control the unit, is a smaller company likely to partner with a larger company and drill a horizontal well, or will things just sit there in limbo?
Permalink Reply by DJG on August 8, 2010 at 5:15
If the smaller company does not have the expertise or capital to drill proper deep horizontals, they will likely attempt to market the acreage (either for sale or for JV partnership) with one of the larger operators.
Permalink Reply by Ellis Sowell on August 8, 2010 at 5:21
What does this do to the long term value of the mineral rights? Simply delay the value a bit?
Permalink Reply by ledlights on August 8, 2010 at 10:09
I cannot predict the timing on production of your shale minerals. Value delay? Who knows. Gas prices are quite low now. If shale gas is produced from your unit, the coincidence of when new shale wells begin to produce and the gas prices available at that time can make a huge difference in how much profit your minerals accrue. The potential delay could be bad or it could be good depending on your situation. I suspect some of the folks around here are happy with their minerals not being produced in large quantities yet because they are hoping to catch higher market prices for their gas.

One thing about the area your minerals are in. If they are able to bring wells in on your unit that are similar in quality to the other good wells that have been completed recently thereabouts, such wells seem to be likely to produce enough gas to more than pay for themselves for the producers even at the current low gas prices. Of course the producers would like to do better than just paying for the wells too. So there is a fair amount of talk about slowing drilling down once leases are held by production - until pricing improves.
Permalink Reply by ledlights on August 5, 2010 at 13:55
There is a "Teutsch" well permitted by Valence just north of highway 21. # 33139

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