Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on Monday

I'd say, get out your squirrel gun but this maybe natural gas instead of oil.  Don't want you to blow yourself up!

Permalink Reply by Marc Stepman on Tuesday

Hi Skip

I got an update on Teche.  They floated the idea of having a 1/5 royalty at first and after production happens then going to 1/4 on the royalties.  

Permalink Reply by Skip Peel - Mineral Consultant on Tuesday

Marc, that's more like it.  The question for those with some negotiating clout is one of post production deductions.  For example a 1/5 royalty lease with an enforceable no cost royalty clause may be more lucrative in the long run than a 1/4 royalty if significant production is established.  Although less often seen, a 9/40ths royalty (22.5%) is also an option.  In any case I suggest having an experienced O&G attorney review the standard form lease and craft an Exhibit A to address the specific concerns that a fee owner may have.  If possible a lease should include a depth clause that limits the lessee's rights of exploration. And knowing what the target formation is can help to inform how to craft an exhibit.  For example, Cotton Valley production often comes with high salt water disposal costs.

Permalink Reply by Marc Stepman on Tuesday

I will see if what he says about he new percentage option.  They still have not provide any information on the formation they are targeting.    And yes I will seek and OG expert before I sign any lease.   

Permalink Reply by Skip Peel - Mineral Consultant on Tuesday

A good O&G attorney should speed up getting to Teche's best offer.  Once a known attorney is involved most lessees will cut to their best offer.  A depth limitation clause will also often make the lessee divulge the target formation.  If a lessee targets the Cotton Valley it's okay to include the Hosston as they are often co-mingled but the clause must be drafted carefully and tied to a reference well's producing depth in close proximity.

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