Replies to This Discussion

Permalink Reply by John Wake on July 20, 2015 at 9:39

I own a 1.25 acre property in a subdivision on the west side of Ruston and have been offered a bonus of $500 and 1/4 royalty for an oil, gas and mineral lease. The company seems legit and the offer seems reasonable to me, but the way the lease is written is kind of scary. There seems to be virtually no protection for the land owner except they say they won't drill within 200 feet of the house. Otherwise it seems as if they can drive across your property any time day or night, cut down trees, make roads and just about anything they want to do.  Anyone have any ideas about this offer and what a homeowner should do about the wording of the lease.

Permalink Reply by Skip Peel - Mineral Consultant on July 20, 2015 at 9:50

John, in a developed subdivision it is unlikely that there is a qualifying surface location for a well pad near by.  Most of Ruston can be drilled with horizontal wells from surface locations  outside of or on the edge of the city limits.  Unless you're the last house in the subdivision and next to a big open field you probably don't have anything to fear.  If you are next to an open area that could be a well pad or other surface right-of-way or facility you should have a simple no surface use clause or a damage clause that states how you will be compensated should an energy company choose to use part of your property.  Just ask the landman to include a no surface use clause and you will find out quickly whether they are interested in using any of your land for operations.

Permalink Reply by John Wake on July 20, 2015 at 15:46

Thanks for the advice. My property is near the edge of the city limits and next to a large undeveloped area which is why I was concerned that they might want to use part of the property.  I spoke to the landman on the phone a short time ago and he tells me that the lease agreement will include a "no surface operations" clause that will ensure that the company will not be taking down trees or moving vehicles across my property.

Permalink Reply by Skip Peel - Mineral Consultant on July 20, 2015 at 16:27

You're welcome, John. 

Permalink Reply by L Faber on July 20, 2015 at 9:51

You can tell them you want provisions added to protect your property.

Permalink Reply by Two Dogs, Pirate on July 20, 2015 at 12:38

You can tell them anything you want to because it is your property. If the property is mortgaged then the mortgage holder may rule the roost.

Permalink Reply by fm on July 17, 2015 at 10:33

I've  heard lincoln & jackson parish are some of the hottest areas for leasing& drilling now with leases going for higher amounts than i have ever heard of in these areas from 1800. to even 5000.hope this is true

Permalink Reply by Skip Peel - Mineral Consultant on July 17, 2015 at 11:28

Yes, bonus offers have escalated over the last few months.  However the bonus is not the lease term to focus on.  Whenever you hear someone mention a big bonus, the proper response should be what was the royalty?  Speculators are offering leases with nice bonus dollars but low royalty fractions.  It is always better to be leased to the operator if possible and the operator will normally make the better royalty offer.

Permalink Reply by fm on July 18, 2015 at 6:26

most royalties I've been hearing are 1/4 & leases up to2000.an acre or more

how do you know who the operator is for sure&what do you mean by bonus can you explain I'm just trying to understand so i can stay better informed.  thanks

Permalink Reply by Skip Peel - Mineral Consultant on July 18, 2015 at 6:41

The bonus is the up front cash payment per acre for signing a lease.  It holds the lease in force for the primary term, usually 3 or 4 years.  Not all lease offers are for 1/4 royalty although that is becoming quite common.  Operating companies want to drill wells.  They will accept a net royalty interest which in this case is 75%.  A speculator has no intention of drilling any wells.  They want a royalty interest or working interest in the wells that an operator will drill.  If they can get mineral owners to sign for 1/5 then they can assign the lease to the operator and keep the 5% differential for their profit.  To get that 5%, or more if possible, they often offer a greater bonus than an operator.  You can ask the landman the identity of the client but unless you have some leverage you will be unlikely to get an answer. 

Don't be too concerned about the identity of the client that the land company  represents if you are getting 1/4.  The bottom line is that regardless of what company you choose to execute a lease with the terms of that lease by law must be honored by any company that acquire the lease at a later date.

If you would be so fortunate as to have your land included in one or more drilling units with the kind of wells that MRD has drilled in the Terryville Complex, the 5% differential in royalty over time will make the difference in the up front bonus amount look like chicken feed.

Permalink Reply by lee on November 3, 2015 at 5:51

Skip, how is the leasing activity in Lincoln Parish?

Permalink Reply by Skip Peel - Mineral Consultant on November 3, 2015 at 5:56

lee, there has been a drop off in posts about Lincoln Parish leasing.  I suspect that this may be related to the recent acquisitions by MRD.  There will be considerable accounting work and due diligence involved with the assignments from multiple parties to MRD.  Then the question will be what land company or companies will MRD employ going forward and whether they will look to in-fill the leased area or to continue expanding their Area of Interest, or both.  It may take a little time to become obvious.  I've been busy elsewhere and haven't performed any in-depth research, I've just had time to maintaining my play tracking spreadsheet.

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