Replies to This Discussion

Permalink Reply by adubu on August 20, 2013 at 8:27

sherrie--- sounds like your tract of minerals when though several generations and mulitple Heirs and or part sold through the years. If your facts are correct you have about 0.39 net acres on first tract and 0.23 net acres on second tract. Are these tracts continuous with each other if so you have a total of 0.62 net acres undivided. Sad truth you not going to get rich, sorry. These type tracts are a night mare for Landsman to run Title and find the owners and get leased. With this small of  net acres it's not worth major bargining over, but you want something for signing and helping Landman get Titles cleared. I would request a Flat $400 and 25% R and take 20% if he said No to 25%. For example calculation if you but in 640 acre unit you decimal interest in a well would be at 20%  0.62/640X0.20= 0.00019 if 25 % R then 0.000242        If you get a good Shale well that makes 8 mmcfd at $3.5 gas price your first months check about  8.0X30X3500X 0.000242= ~$200then drops sharp each month thereafter and then divide that check by how many in family. Many enough to eat out each month for a few months. But if get more wells in unit then muliple of number of wells. After about year or so you get a check about every 3 months for $50 oe so unless more wells then after about 4-5 years a check about once per year for $50+ Good Luck--- Something better than nothing. 3 years with 2 year option if 25% R same Bonus is OK with small < 1 acre net minerals

• ▶ Reply

Permalink Reply by sherri weeks on August 20, 2013 at 9:07

Thanks so much. I just spoke to the land man and it looks like we only own a little less than an acre ot the 300. Do you think that $150 flat rate and 3/16 is still a good offer?  Thank you again. Sherri

• ▶ Reply

Permalink Reply by Spring Branch,mineral owner on August 20, 2013 at 9:09

No, I don't think it is a good offer at all!

• ▶ Reply

Permalink Reply by adubu on August 20, 2013 at 11:19

Sherri--- I agree with SB not good offer with 3/16. Recommend ask for 25% and $500 Flat (That about $800 acre) my floor would be 20% R  $400.That fair today IMO.  But 3/16 R --NO NO. If Landman disagrees then just say "sorry that my bottom price call me when you ready to sign" let it set for in few months he will call you back if they get most of unit they want leased.

• ▶ Reply

Permalink Reply by Spring Branch,mineral owner on August 20, 2013 at 8:31

I am not sure how you are arriving at 300 acres.  If I am understanding you correctly, Sherri, you own approximately 5/8 of an acre, as follows: 

2/189 X 37 acres = .391534 of one acre

6536/5294151 X 189.9977 acres = .234565 of one acre.

.391534 + .234565 = .626099 of an acre, which totals less than one acre.

It appears to me that they are offering you $150.00 for your .626099 acre, or a lease bonus of $93.91.

• ▶ Reply

Permalink Reply by adubu on August 20, 2013 at 8:40

SB-- I think the offer is FLAT $150 so that equal to about $240/acre on 0.626 acres

• ▶ Reply

Permalink Reply by Spring Branch,mineral owner on August 20, 2013 at 9:08

I agree.

• ▶ Reply

Permalink Reply by sherri weeks on August 20, 2013 at 9:08

Thanks! Just found out we own a little less than an acre. 

• ▶ Reply

Permalink Reply by jffree1 on August 20, 2013 at 12:59

Sherri, I have only rarely seen anyone accept a 3/16 royalty in Nacogdoches since 2008. You should have no trouble getting 1/5 (20%) and, like the others said... I would ask for 1/4 (25%). They always lowball the initial offer to out of town owners, hoping that you are uninformed.

• ▶ Reply

Permalink Reply by Jeff on August 21, 2013 at 8:14

Sherri, all of these replys contain some good information and some information that is misleading.  The first thing that you need to know is some basic information:

1) the "2/189" that you reference means that you own what is called an "undivided mineral interest" in the tract about which you are speaking.  Undivided mineral interest means that you (and at least one but maybe many other people) own and have certain rights to said tract including the right to lease out your interest in the minerals.  The reasons for why you (and your family) don't own all of the interest in the tracts could be one of several.  It might be that sometime in the past the tract was owned by a multi party partnership.  Often times people pass a tract (or their interest in a tract) down through generations.  It could have been divided through several generations of your family with some of them selling to completely unrelated people.  There are many other scenarios that could explain why you and your family do not own the tract in "fee simple."

So, what does being an "undivided mineral interest" owner mean.  It means that you have the right to lease your interest individually and so do all of your "co-tenants" in the tract.  Being a mineral interest owner means that you (and every other mineral interest owner) has at least one, and as many as all, of a set of alienable (able to be sold/transferred) rights/incidents comprising what is referred to as a "bundle of sticks."  Each person may have the right to use the surface, the right to develop the property/minerals, the right to sell, and/or the right to receive benefits from the lease.

This in turn means that the exploration company does not need 100% of the interest in the tract to be leased in order to produce the minerals from under the tract, this is because the state has decided that one or a few mineral owners should not be able to hold the rest of the mineral owners in a tract hostage.  There are reasons for this but the most important one is what is called the "Rule of Capture and Waste."  Oversimplified, these rules state that if the lone holdout mineral interest owner was able to block the production from a tract of land then all of the minerals under the tract would go to "waste" and so instead, every mineral owner owning an interest under that particular tract has the right to "capture" the minerals in which he owns an interest.  In addition to the minerals wasting away under said tract there is the added risk that because oil and gas are "fugacious" in nature (which is a 10 cent word that means that they can and will travel under the ground to a contiguous area with less pressure) neighboring mineral owners that have agreed to lease and are included in a nearby producing unit/well may be draining the minerals that are available underneath your tract, this is another instance of waste.

These rules are not the same between states.  Louisiana takes a different view of minerals than Texas and Oklahoma has different rules than both of the others.  Some of the people on here may not be familiar with or aware of said differences.  A good place to go to get lots of good information is the Texas Railroad Commission's website.  The site itself can be cumbersome and awkward to use but they are the regulatory agency overseeing the oil and gas industry in Texas and there are a lot of answers and tools to be found on those webpages.

To break it down simply, you have something of some value.  It is not priceless and it is not worthless.  You can choose to accept an offer or you can refuse.  There is an opportunity cost which means that by accepting one opportunity you may miss out on an unknown number of other opportunities.  There is the risk that by not accepting this lease you may not have another opportunity to lease anytime soon or ever (never is an unlikely possibility but it may be months or even years before another offer comes along depending on interest in the area and whether they drill without you).  Another thing is that you can't win if you don't play.  In order for you to receive anything of value for your interests you will have to agree to a deal at some point.  What's more, if you don't do something with your interest, depending on the other wells in the vicinity, the value of your interest may be being depleted even as I type.

2) The bonus and the royalty.  Bonus payments and royalty offers vary wildly so be certain that you are getting good and accurate advice from someone that you know and trust.  Your Houston attorney may be familiar with oil and gas deals in one geographic area and have no knowledge of the pricing in another.  Also, the people from whom you are seeking advice do not have to live with the consequences of your decisions either way, but may receive some benefit from whatever you decide.  BE VERY CAREFUL OF ANY FINANCIAL/CONTRACT ADVICE YOU RECEIVE IN FORUMS OR OVER THE INTERNET.   YOU DON'T KNOW WHO IS AT THE OTHER KEYBOARD, THIS INCLUDES ME, ADUBU AND SPRING BRANCH.  You should get the facts and do the analysis for yourself and not just listen to us talking heads tell you which way the wind is blowing.  If the other members are mineral producer employees they have a vested interest in talking you down or up depending on whether they are competing in that area.  If the other members are mineral owners they may have an interest in keeping you from getting leased so that they can buy your interest on the cheap or keeping you from producing your land so that their nearby tracts can continue to produce at elevated levels or for longer periods of time without a nearby well on your property competing with their well.

Bonus and Royalty vary depending on market forces.  Despite what anyone says there is no "standard" or "minimum" royalty %.  30 years ago the going rate was 1/8th royalty.  In places where there is only speculative leasing (wildcatting) interest owners may be agreeing to a 1/8th or less royalty.  In places with known production interest owners may get 3/16ths or more.  There is however a maximum royalty % above which a producer will not go because the lease would become financially untenable.  Remember, the lessee is taking on 100% of the risk that its $7 - 15 million dollar investment will pay off someday.

Economics dictate the price of bonus and the amount of royalty being offered, it is not some number pulled out of thin air.  The market price of natural gas, oil, condensate, the level of competition in the area, the amount of acreage that you own, the number of lessors in your particular tract, the type of contract a producer has with a refiner or marketer, the quality of the products coming out of the ground, the cost and risk of drilling a well, the time and likelihood of any well/unit paying out (whether and when revenue less costs reaches a postive number by some margin), producer's opportunity costs, the particular geological anomalies underlying your tract, and many, many more factors that can be exceptionally complicated.

In "hot" areas where you own a lot of acreage with lots of competition and high volume and high quality production and highly valued products you will of course be able to negotiate a better deal than in an area where you own a tiny amount of acreage, there is little or no competition, lower production, "sour gas" and less valuable products coming out of the ground.

With all of that being said, your best deal is always going to be the one that you get done.  Push back some and see if they give some ground.  They are a business and are obviously interested in doing business if they are making you an offer at all.  Be careful waiting for the pot of gold, though, leprechauns don't exist and at 2/189 interest in a tract you are never going to be headed off to Beverly Hills with Jed Clampett and his kinsfolk based solely off of production from this tract.  Don't forget, you need them to do a deal just as much (and maybe more) than they need you.  Get a deal done and become one of the many Americans enjoying another of the freedoms and rights that don't exist in 99% of the other countries in the world.

I am not an attorney and absolutely NONE of this should be construed as legal advice.  Best of luck!!

• ▶ Reply

Permalink Reply by jffree1 on August 21, 2013 at 11:12

I don't think any of the three of us said anything misleading, Jeff. And, no offense intended, I would suggest that you not leap to any conclusions as to what you think our motives might be. You might be surprised to learn that there are no more than a handful active on this forum now who have devoted more time and energy to trying to get accurate information out to mineral owners, over the life of the Haynesville Shale, than Spring Branch, Adubu or myself.

I think we all agree that she should "push back" a little and see what happens but not a one of us is advising that she try to hold out for some sort of big pay day because that just won't happen with that small an undivided interest.

Personally, I wouldn't be a bit surprised to learn that the tracts are already in a unit, with a well that was drilled some time ago (& most likely conventional by someone like Valence, Sonerra or Samson), and that she is just one more owner that was lately found to own a small interest. And... if that is the offer most, or all, of the other owners accepted then she will not gain any ground with a counter offer and will learn that muy pronto if she does ask for a better royalty. She sure won't hurt anything by asking.

Say... maybe you are the guy mailing out those  leases? Just askin'...

• ▶ Reply

Permalink Reply by GoshDarn on August 21, 2013 at 12:16

jffree:

You gotta give Jeff credit for a well-written and detailed analysis.  I mean, his post really took some time to compose.  That's some serious writing he did.

Plus, on his GHS page he clearly states that he's an O&G pro.

So I think if he was the one sending out the offer, he would've been a bit more self-serving (but I could be wrong).

 

• ▶ Reply

• ‹ Previous
• 1
• 2
• 3
• Next ›
• Page