Replies to This Discussion

Permalink Reply by Les Bamburg on May 7, 2010 at 5:21

Shannon, if you are unleased the operator will recoup your share of the capital cost of drilling the well from your share of any gas produced. After the capital cost is recovered you will receive the revenue from your share of gas production less operating expense.

For example, if you had 32 acres in a 640 unit your share would be 5%. If the capital cost of the well was $10 million, the operator will retain your 5% of gas production until he recovers the $500,000 for your share. Afterward you receive the revenue less operating expense for your 5% of production.

Of course you can lease at any time and receive a bonus per acre and a royalty % of the gas. In the above example if your royalty rate was 25% you would receive 1.25% of the revenue from the well (25% times 5%).

Permalink Reply by SLEM on May 7, 2010 at 5:31

Les B, thanks so much for the information, it really helps! One more question though ....we would love to lease, in fact, had an offer back in 2008 that fell thru (X#@&%). Why would an O/G company want to lease our property if they can reap the benefits without signing a lease with each landowner? I hope my question makes sense. Thks again!!

Permalink Reply by Les Bamburg on May 7, 2010 at 10:52

Shannon, because the operator is making zero profit from your acreage in the section. He is just recouping his out of pocket costs and not making any additional return on your percentage ownership. It would be in his interest to offer you some upfront bonus money and a risk free royalty (say 25%) in return for acquiring your mineral rights. The challenge is to come up with an appropriate bonus ($/acre) that makes it worthwhile for you to lease and the operator still makes a good return for assuming the additional risk.