I agree with this. However, my hypothesis is pre-production, namely the point at which the E&P has permitted the first well in the unit and is getting ready to spud. It seems to me that, at that point, a third party investor would pay much more for a 100% working interest acre than it would pay for a 25% royalty interest acre.
The deal with a third party investor probably would be a purchase of your interest, rather than a lease. It's hypothetical, but at least in the current environment there is a ton of $$$ chasing energy assets.
This is also speculation, but I would guess that the E&P that is developing the unit would be willing to discuss converting your 100% working interest to a royalty interest at any time along the way. As long the E&P is convinced you'd be willing to continue to hold your 100% working interest for the long term, I imagine the lease terms would be very favorable.
Will someone show me the living/breathing force-pooled, un-leased mineral owner who can tell the story of 25% vs. partnering with O&G. Until this happens, we are not ever going to pinpoint how speculative these kinds of options are in the O&G business. If we all think of this scenario as betting the farm on more ng underneath your feet than the O&Gs can produce over 20-40 years...then go for it! If you want to sign for the best deal you can get...then go for it!
One thing though, the O&Gs are spending UNGODLY amounts of money here, JUST TO LEASE YOU UP. Do you think they might just know something?????? Do you think the drilling will be increasing/decreasing over the next 20-40 years? Are you a risk taker or not?
Again, think about what you want to be handling 20-40 years down the road, and what your bet today will be providing you with 20-40 years down the same road?
And remember, anyone who is taking 6% from you just for signing you up to a lease, is taking huge liberties with your moneys...not his. I would rather sign a run-of-the-mill oil&gas lease any day then give up 6% to a stranger doing "me" a "favor" by handing me a "pen."
One more thing, the Office of Conservation is NOT ANSWERING this question in a clear and concise manner. They just threw this question back to the questioner by telling him to talk to an attorney...who hasn't seen this elusive "creature" either!
As exciting as this is, we know that we have a responsibility to do this thing correctly. After all, we want the farm to remain a place where the family can gather for another 80 years and beyond. This site was born out of these desires. Before we started this site, googling "shale' brought up little information. Certainly nothing that was useful as we negotiated a lease. Read More