Lease Contracts Should be More Like 50/50

 
I think the owners of these mineral rights should have a much larger interest in the production and royalty, it's really like ah 50/50 deal, the oil companies have the equipment to develop and we have the mineral to be developed, one with out the other just won't work.  They put a 250k in your face and basically bribe you to drill for a low royalty percentage...

 

The Saudi's and the rest of the mineral rich families in the middle east don't play that... just saying

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Permalink Reply by Max on May 21, 2011 at 3:48

Mike,

It's not that simple, the 50/50 deal sounds good, but do you want to use your 250K plus another 4 million, (where can a average person pick up 4 million to invest?), and venture into a project that may be a dry hole.  All that invested money, "gone" and you have to pay back the 4 million. 

 

Next risk, one of your workers or several workers have an accident.  You have insurance of course, but can you cover the law suits?  BP was forced to put up 20 billion and they will be dealing with the Gulf mess for years.

 

Permits.  Do you have an attorney and the people to make sure 'everything is a go, before you go'?

 

Drilling oil/gas wells is a risky business.  Drilling companies have to find financing and the folks who have to the money to do so, Wall Street, don't lend unless you can show them a return, (Problem with Nuclear Power Plants).

 

The Saudis:  They "own" all the mineral's in their country.  That would be like the governor owning all the minerals in the state of Louisiana, or the president owing all the minerals in the U.S.!  Not something very many of us would like......

 

I'll take the lease and the percentage. 

Permalink Reply by Henry on May 21, 2011 at 5:40

Lets do some math.  There will be a lot of approximations that people can reasonably differ with here, but I think I can make my point....

 

Rough cost to drill and operate (for 30+ years) 8 wells in a section:  8 wells X $13M/well = $104M

 

Expected total revenue per section:  8 wells X 6 Bcfe/well X $5/mcf = $240M

 

So if you take the "profit" of $136 (=$240M -$104M), and split it 50/50 between the operator and the landowners, that gives the landowners $68M, or 28% of the total revenue.  That's not too far from the 25% royalty he gets today.  So maybe there is a rough 50/50 split her.  And the landowner takes no risk.

 

 

Permalink Reply by adubu on May 21, 2011 at 5:49

A lot of new leases O/G operator are backing down from 25% R for that reason that Henry's math shows and going back to 3/16-1/5 r but if in hot play still lease at 22.5-25%

Permalink Reply by Jack Blake on May 21, 2011 at 6:00

 

 

Permalink Reply by Aubrey C. Sanders, Jr. on May 21, 2011 at 9:03
I think that you will find that in most countrys minerals belog to the government, or the Crown and landowners get nothing from production. I AM PROUD AND FORTUNATE TO BE A REDNECK ""YANKEE CAJUN" LIVING IN GOOD OL" USA
Permalink Reply by adubu on May 21, 2011 at 10:08
Aubrey---- AMEN---- Thank goodness for Capitalism and if we can keep the Liberals in Washington under control and out of our business
Permalink Reply by Buddy Cotten on May 22, 2011 at 12:34

Adubu, to take it further...

 

Some people think that capitalism is a marauding tiger that must be shot.

Other people think that capitalism is a cow that must be milked 4 times per day.

However, capitalism is actually a horse that pulls a heavy and sturdy wagon of prosperity.

 

Buddy Cotten

Permalink Reply by Max on May 22, 2011 at 13:21
Somebody has to shoe that horse and feed it, the people.  Capitalism has help, if not, that horse would be a mustang and thunder across the plains without check.  A pretty sight on the hill galloping into the wind, but without a halter, it is only a dream.
Permalink Reply by adubu on May 22, 2011 at 13:32
Max--- that horse is "the people" it's not a dream it's real.
Permalink Reply by Two Dogs, Pirate on May 22, 2011 at 13:23
Hey Buddy, in your very many years in the field have you ever gave anyone 50% royalty? I think capitalism is more of an ox that don't know no way but forward.
Permalink Reply by adubu on May 22, 2011 at 13:30
2 dog-- I don't want to go backwards---
Permalink Reply by Two Dogs, Pirate on May 22, 2011 at 13:35
abubu, maybe a D-10gisillion Catapiler Dozer made in the USA? Last I looked a D-10 or so was one of their biggest but that has been over 20 years ago.

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