Replies to This Discussion

Permalink Reply by Two Dogs, Pirate on May 9, 2011 at 11:26

As a landman the more depths that are free and shorter primary terms makes for job security. If the folks would only lease the target zones with language that would somehow apply to something found on the way down to target but released in a reasonable time if not found. A 7 year OGLM is BS.

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Permalink Reply by The_Baron on May 10, 2011 at 3:13

I agree with two dogs,

 

and there is a lot of BS in south AR right now.

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Permalink Reply by Joe Deerhunter on May 10, 2011 at 4:44

It's interesting to hear how mineral owners are "being screwed by big interests, and independents would give them several different lease income streams."

The trouble is so many mineral owners have never heard a peep from these independent guys in a generation or two. 

Is it any wonder that any lease income sounds good, these days?

So, my question is, where does a mineral owner (who is at all aggressive about exploring these possibilities) look to get in contact with some of these independents who will lease for different depths, and shorter periods?

 

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Permalink Reply by The_Baron on May 10, 2011 at 4:54

The point I am trying to make, is that a mineral owner may be selling themself short by leasing for an extened period, especially in play where there is little to no data, strong lack of well control, and no production. If you just have to lease to these guys.. fine, but seriously consider some depth restrictions. I also think anyone willing to lease for 8 years, is simply making a mistake. The reason they are taking these long term leases is that there are no plans in the immediate future to drill these leases.

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Permalink Reply by Skip Peel - Mineral Consultant on May 10, 2011 at 5:10

Joe, you don't find them, they find you.  If they have an interest in drilling a prospect that includes your minerals.  Mineral owners with significant acreage can often get an operator to define the target formation(s) or depths they wish to explore.  And lease terms should be specific to that definition with some contingency for any additional productive intervals encountered with a contractual commitment to develop.   The problem of fair mineral owner compensation comes when a lease holds formations that are deemed to be productive but the lessee is incapable or unwilling to develop them.  In other words, they will sit on them indefinitely until they get a deal they like.  This is not fully developing for the benefit of all parties, this is delaying for the benefit of the lessee.  A mineral owner is better served by a lease which covers only what the operator is committed to drill.  There is no limitation in the creation of custom lease language.  It has been happening for savvy mineral owners for generations.  Those who have never dealt with a Real O&G attorney and think that the cost is prohibitive can just continue to sign the standard lease forms provided by the leasing companies.  Professional assistance in the management of minerals is an outstanding investment.  And it's past time that more mineral owners grasp the fact and begin to make better decisions in leasing their minerals.

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Permalink Reply by Joe Deerhunter on May 10, 2011 at 6:23

Well, there you go.  Nobody's come looking, for a lot of owners, and the current generation of many families are going to be impressed when an offer does come along.

Good advice to get a Real O&G attorney.  Hopefully we have one such on our side.  I hadn't thought of the possibility of putting upper as well as lower depth limits in a lease, with the idea of leasing to shallower operators.  But, would that tend to scare off prospective operators?

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Permalink Reply by Skip Peel - Mineral Consultant on May 10, 2011 at 7:58

A depth clause may be as complex or as simple as you care to make it or the situation warrants.  IMO, the simplest and most easily enforced is to limit development rights to whatever is produced in the primary term of the lease.  No more than a three year primary with no extension option.  Example, an operator leases the Hosston formation or  one or more specific HOSS reservoirs.  In the course of drilling that well the operator generates some science that leads them to believe that a Pettet well would be productive.  Any time prior to the expiration of the primary term, the operator may drill a Pettet well.  If both wells are productive, the lease would grant continuing drilling and production rights to those two formations and release all others at the expiration of the primary term.  There is no pat answer to what is acceptable to either party.  It is a negotiation.  And the bonus and possibly the royalty may vary depending on the nature of the formation(s) to be explored.

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Permalink Reply by Herman (Chuck) Plonnigs, III on May 10, 2011 at 9:23

In my case taking the top 3000 feet out of the loop didn’t deter Pinebelt from wanting underneath it. I have an unsigned lease on my computer at this time.

 

Quick thought/question…while under the effect of a complete mental episode/breakdown…during the leasing process what if I should decide to pass on upfront bonus money in turn for an increase in royalty percentages?

 

Just a thought.

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Permalink Reply by Skip Peel - Mineral Consultant on May 10, 2011 at 9:41

All terms should be negotiable and will vary according to the parties doing the negotiation.  Example, operators will often agree early on to a quarter royalty when leasing directly but a land company will try to get the lessor to agree to something less because they keep the difference as part of their profit.  The land company's override is the difference between what they can lease a tract for and what the client has set as the top royalty.  A lessor agrees to a fifth royalty and the land company gets a 5% overriding royalty interest in any production under the lease if the client has set a quarter as their highest acceptable royalty.  Mineral owners with large acreage positions in prime locations dealing directly with an operator can often get a royalty greater than a quarter if they are experienced negotiators or employ experienced professional representatives.  If a mineral owner has less than 20 acres, he has little clout to get more than the basic terms in most cases.  As mineral ownership exceeds 80 contiguous acres it improves and when it exceeds 160 it improves even more.  Those who wish to have Most Favored Nation and other rare beneficial clauses and royalty in excess of 25 or 26% would need hundreds if not thousands of acres.  Those with more modest acreage who prefer royalty to bonus can certainly negotiate to take less or even no bonus in exchange for a royalty bump.  It helps to have good professional counsel on your side that knows something about the party offering the lease.

Permalink Reply by Herman (Chuck) Plonnigs, III on May 10, 2011 at 12:32

As Mr. Peel has eluded to…the larger your mineral acreage ownership the more clout you might have at lease time.

 

Just a thought…if you are a smaller land owner, such as myself, and you would consider pooling your acreage, with someone like myself, to possibly increase your leverage we might need to arrange a meeting. I’m sure there is no hurry at this point…just a thought.

 

Pooling resources to retain legal counsel etc.

 

My thanks to all who have participated in this, and future, discussion’s the last couple of day’s…it’s like taking a course in mineral ownership!!

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