Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on July 12, 2010 at 15:09

For residential lots and small acreage tracts, $5K seems to be the prevailing value. Just as 25% has come to be considered the standard royalty. The only reason for both is competition and knowledgeable mineral owners. I find both quite acceptable. The challenge may be getting the no cost royalty for the Exhibit A page. If enough lessors demand it, I think it likely that it will eventually become standard also.

Disclaimer: My comments are applicable to urban lots and acreage. Slightly larger rural tracts may have greater value depending on specifics.

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Permalink Reply by kittycatmama on July 12, 2010 at 15:17

In later leases, we have been able to get the no cost royalty clause in the lease even on tracts as small as one ac.. I am thinking about putting something in the lease that we are to be pd. market value for gas. I know people who are still getting $1.99 cu. ft. for gas. Last summer it was $1.92 cu. ft. I think there are some posts on this site detailing the low cost being pd. by some operators. These are residential lots in an area that total an acre, so it won't hurt my feelings if they say don't want the lease.

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Permalink Reply by Skip Peel - Mineral Consultant on July 12, 2010 at 15:30

KCM, some companies, Petrohawk comes to mind, are doing their best to decline to include no cost royalty clauses lately. I think this is because some lessors do not understand the inherent value. And the companies find it an opportunity to gain some not inconsequential profit. As to the market value of gas, please consider posting sample language for us to discuss.

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Permalink Reply by DJG on July 12, 2010 at 16:04

For our own recent lease in E.Texas we were able to get wording in the Schedule A that the O&G has the obligation to market the gas at prevailing market rates. The tricky part, of course, is for that wording to have any teeth then there has to be some wording to define a baseline as to what is to be considered the "prevailing market rate" at the time of sale.

For our O&G, the wording that they agreed to was that at no time would the price of NG be sold at a rate less than 95% of the Houston Ship Channel price (1st of month) less $0.25.

This, at least, gives us some baseline in order to confirm that the marketed price each month is indeed greater than that oligatory minimal rate. Ideally, of course, the O&G would sell at a higher price than that minimal rate - but at least we are protected so that they do not sale the NG at a discounted/preferred price.

For folks in Louisiana, I would imagine that you'd likely be tying the minimal price of NG for your lease to be calculated against Henry Hub (1st of month).

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Permalink Reply by Skip Peel - Mineral Consultant on July 12, 2010 at 16:13

I find no reason to expect that an operator is selling for less than the best available price with the specific exception of selling to an entity affiliated with the operator. Any lease clause addressing this possibility should cover that specific relationship.

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Permalink Reply by Nancy T6N R11W S8 on August 4, 2010 at 5:16

Skip, what is considered small acreage? What would be cut-off point for that and "slightly larger rural tracts?

Thanks for all you do!

Nancy

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Permalink Reply by Skip Peel - Mineral Consultant on August 4, 2010 at 8:03

My arbitrary definition is 10 acres and under is "small". Such as the acreage surrounding a rural residence. Size is relative to the size of the unit. With the majority of HA units being a governmental section, ~640 acres, any ownership interest of 5% (32 acres) or greater is significant. A quarter of a quarter section is a common size tract and equals 40 acres.

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Permalink Reply by Jack Blake on July 12, 2010 at 17:32

Jack Blake thinks 5k is fair. Do get an excellent exhibit A. 25% no cost royalty. price at the wellhead or market value, whichever is higher. Reserve shallow and deep rights. Only sell lease on formation they are after for your first well. Lots of other nuances.
then drill baby drill cried jack Blake!!!

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Permalink Reply by Henry on July 12, 2010 at 23:22

KCM,
I always think it's worth more than $5k, but that's just me. Listen to others.

Among the other things to ask for is a clause demanding notification any time your lease (or any depths of it) are sold or assigned. Fifty years from now, this will make it a lot easier to know who holds what depths.

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Permalink Reply by Skip Peel - Mineral Consultant on July 13, 2010 at 1:28

Henry, It may be worth more. It simply can not be assumed to be worth more. There must be specific facts that justify a higher valuation.

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Permalink Reply by S.H.M. on July 13, 2010 at 2:16

I think that is fair. And agree that larger rural tract should get bumped up. I say, take it and run!! But, get a good contract drawn up by a good attorney.

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Permalink Reply by kittycatmama on July 13, 2010 at 2:32

thanks everyone for your input. By the way, forgot to mention that the co. wants a 5 yr. lease. First time anyone has asked us for 5 yr. Imagine we will be fine with it. IT is only an acre, but on a larger parcel, I would not do a 5 yr. lease on any larger parcel of land. Also, this lease is different. No Exhibit A as in other leases. There is a caveat too that we entered into it with full knowledge of our rights. Interesting.

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