Why should I sign for 25% royalties when I could get 100% royalties.

Tags: 100%, 25%, royalties

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Dear VIGO,

I am about as big a smart*^# as there has ever been.I can be overbearing , insensitive and kinda' know it allish , according to my "hottie" wife of 15 years anyway. I do prefer that you read some of my other posts and come to your own conclusion about me. Hey , she's been married to me that long , would you really just take her word for it !

I said all of that to get to this. There are many things in my character makeup that I would change if given the oportunity and enough counseling to choose the ones that were in biggest need of replacing.

But there are several things that could be flaws when not used correctly that I would never change.One being the personal convictions I have for the passions in my life. Unfortunately for you this evening ,you saw how passionate I am about this whole Shale thing. For that I am sorry .Sometimes I just think about my friends , family and neighbors that didn't have this wonderful site to learn from and the bad early decisions that they made.It begins to eat at you a little if you ain't careful. I just got back off of my "Shale" diet and look at me DOC , far too many shale calories again.

It is so easy for me sometimes to be angry with someone I don't even know, just because they don't see things my way. I feel that I have taken the" high road " so that makes whatever I say o.k. ,right ! Wrong !

After about 4 or 5 weeks on this site I have become a self proclaimed expert on everything but brainsurgery and thats because Haynesville hasn't set up that group yet. Unfortunately as my knowledge has grown to the point of oozing out of my head , I have forgotten 2 very key points in my upbringing ! And that is that all people have feelings and I should always treat people with respect.I didn't show you these 2 important principles.For that too I am sorry.

We are all in this together ,whether you are a lessor or leasee (I think I nailed that didn't I ). One side or the other . Look at ole' Randy right below us here. When I found out he was a landman I almost hurled.( forgive me for that one Randy) After numerous debates in which we showed each other our insides, I have gained a respect for Randy big enough that I have told him that I hope he is the man I deal with when the time comes. I follow his posts where ever he go's.(don't get the big head landman).

Hopefully the next time I come across someone I will give them the benefit of the doubt, first. That way I won't have to spend three hours one fingered typing an apology letter. If I could type faster theres no telling how many I could have offended tonight.
Thanks in advance for your continued posting and again I am sorry for not showing you the respect that you deserve. Have a good evening and a Happy 4th !
Hey snakestewart - Don't worry about it. When I re-read my post, I agreed with you. All of us need to think a little more about how what we are typing will sound to others and not get carried away with our own clever turn of phrase. I really liked the "rabid polecat" thing, though. You must be from my family's neck of the woods. I don't hear the word "polecat" where I live now. I doubt my neighbors would have a clue what one is. Anyway, enough of this. Let's get back to the point of all of this - helping each other get the best deal we can.
Snakestewart:

Friend and Fellow "Shale University" Colleague...Have a great 4th!

Thanks again for the above! We ALL need a good dose of that every once in a while.

DrWAVeSport 7/3/08 p.m.

P.S. Don't be gettin' too friendly with the "enemy." We all enjoy your Adrenalin for the "shale." You keep the rest of us fired up and ready for the next go 'round! (Ha! Ha!)

You and Yours have a great holiday weekend.
If it were not for the "enemy", your land would still be just "dirt"!
Mine still is dirt ! Randy and his boy's are getting tight with the checkbook ! Whats up with that Landman ?
Gee whiz now I'm making folks hurl. I'm both a lessee and a lessor. So I get both ends of the stick. In the end both parties do their job, which is to do due diligence and homework and make the best deal possible.

Randy
Come on Randy , that hurling thing was at least 2 or 3 weeks ago. Thats an eternity on this site !
I thought I understood that o&g co's always recouped double their actual out of pocket investment before paying out. the profit is figured in. They are going to get their bonus money back too. the 100% is 100% of whats left.
right on, vigo must be a landman trying to purchase leases
vigo,
the oil companies only drill after they have purchased a certain percentage of 640 acres. They have to pay you even though you don't lease. If they did have to pay the few hold outs a TRUE 100%, they still be making 75% of the acreage they held leases on. The other catch is that they have many, many, ways to make it very hard for you to ever get (near) 100% royalties.
In short, they would not pay 100% and give anyone 100%!~
Lets look at this objectively: For example. If I have 3.5 acres in a 640 acre pool and the well is producing 5 mcf/day at an average wellhead gas price of $9.00 and my royalty is a 25% no cost royalty my annual royalty would be $22,456.05. If on the other hand I am an unsigned lease holder in the same situation my annual royalty is $89,824.22. Even If annual costs are high and my share comes to $25,000.00 ($50,000.00 with the 200% penalty for being an unsigned lease holder effective Aug 08) my payment would be reduced to $39,824.22 ($17,368.17 MORE than at a 25% royalty). Yes, I know this is a very simplified example.
Anyway, that was the up side. The down side is if the O&G Company drills a "dry hole" you get nothing. (Don't let a land man tell you a dry hole means you have to pay your share of cost for drilling said dry hole. That is NOT true) Also, as an unsigned lease holder you would have to issue demand letters in order to get itemized listing of costs and wait for the well to pay for itself prior to collecting your share. You also may have to spend more time "bird dogging" the O&G Company and tracking production, costs, etc, in order to ensure you are getting what is your due. That could mean attorney fees. You still come out on top in the long run in the event of a good well.
That said, I still think it is wiser for the average person to lease but lease intelligently with proper knowledge and representation. It takes out some of the pain in the rear factor and ensures you get something in the event of a dry hole (i.e. the bonus payment). It also allows you to put some environmental and land protections in there.
There's also no guarantee that a well will ever be drilled in your section, or when. Other things could happen to dampen the enthusiasm of the oil companies - someone said that only a nuclear war could run them off. Not likely, but a change in U.S. energy policies could, or anything else to make it unprofitable to continue on a drilling program.

I watched the boom go to bust in 1983-4 and years following, from a perspective as a landman. You think companies then didn't have plans in their prospectus for wells to be drilled? Sure they did - but those plans changed when the bottom dropped out of the prices. Stuff can happen. It's only been a few months ago that people were saying "housing prices never fall". Ha!

You also have to weigh the benefit of taking lease bonus money now and using it to become financially independent. Do you have credit cards that you are paying 18% on? Could you pay off your house note and overnight own that asset free and clear? Could you invest that money into something else?

I'm also with Kassi on the amount of oversight that a mineral owner would have to do over the companies figures, to ensure that they are paying what they are supposed to. What is the value of your time and mental energy to do that?

There is no right answer, but there's a lot more to look at than just that 100% of production as a possibility.

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