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Permalink Reply by Skip Peel - Mineral Consultant on January 27, 2022 at 14:15

Post production charges can be addressed in lease language.  A mineral owner can request a "no cost royalty" clause but the specific wording is critical and must match what is required in case law.  For that reason, an experienced O&G attorney should draft the language so that it would hold up in court.  It is also possible to have a clause that allows some deductions and disallows others.  Once again, an experienced O&G attorney should draft this language.  Although both those approaches are possible, the mineral owner would have to have a strong negotiating position.  Large acreage within the unit, key surface locations needed for drill sites and other supporting infrastructure and help in knowing what is possible and what is not.  That brings me to USG.  Where USG is leasing minerals in north Caddo Parish, there is no competition.  USG is the only player.  Lacking the negotiating power as mentioned,  don't expect to get any concessions on the major lease terms.  Forget a quarter and forget nine-fortieths (22.5%), one fifth is the best you will get.  As to whether three sixteenths with an "enforceable" no cost royalty is better than a one fifth without, that would take a deep dive into the production and decline of the wells Trinity is drilling for USG in north Caddo.

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Permalink Reply by Iris on January 27, 2022 at 14:49

It wasn’t me trying to negotiate but someone else and with different lawyer Im very aware of what youve shared about no competition and appreciate. The remark about 22.5 just from Google I dont know where or when. Just curious, Im ready to get it done.
Thanks Skip

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Permalink Reply by Skip Peel - Mineral Consultant on January 27, 2022 at 14:56

Iris, my response to your discussion is not just directed to you.  It is for all the folks who own minerals in north Caddo and are currently or will soon be dealing with USG/Trinity.  Competition is what drives up lease terms, without competition the vast majority of mineral owners have little chance to get anything other than what USG is offering.  Unfortunately, it's take their terms or get force pooled.  I'd take the lease offer.  The only caveat is whether there is value in potential use of the surface.  Someone that understands how development is laid out could make an educated guess as to the value of using the surface and how to use it in negotiations.

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Permalink Reply by Iris on January 27, 2022 at 15:01

Alright thanks.  But I personally don't want surface use for now and that is mentioned in lease.  But someone else might on their acreage.

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