Several months ago I posted a link to a spreadsheet that I created calculating  royalties that may be received from wells similar to the Spencer #1115. The values on the bottom of the sheet were calculated using a 100 acre unit with one well. Values are $/ACRE/YEAR. Here is the revised spreadsheet:

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If a company made an offer with bonus and the the bill passes then they would be hard pressed to justify why they forced pooled you into a lower price. I am sure a good lawyer could make this point. Just because you get forced pooled doesn't mean your royalty percentage will go down. And a good lawyer could find out what everyone else in the unit got and make the company give the average to you.

That means they made the offer already, with the good bonus and royalty %. What if you are still negotiating to get a no deductions lease, or some other important terms? They just wait until they have their 80% net mineral acres leased, then can force you into the minimum. What if the 7 member panel is slanted toward the company? A lot of questions.

Also, what if  most of the leased 80% net mineral acre people signed the first offered lease with a $500 an acre bonus? A lot of people did that at first, and probably still are doing it. That makes the average of the leases be a lot lower % and bonus.

Thanks Nancy.

While it is true that the original offer may stand the test of the 'commission' (though there are many variables there that are yet to be determined), this is a standard, low-ball offer, which almost certainly has a built-in range for increase.

My (mother's) offer was just raised yesterday to $3500/18%, which the landman stated is 'well above our average offer'.

Interestingly, this offer has a four day window.  With the bill due out of committee soon, I doubt that this time window is unrelated.

My point regarding pitlover's offer is that, should this bill pass, any increase in bonus will likely be gone with the wind.  As you say, there are quite possibly lower bonuses on record in the proposed unit.  Given this and the likelihood that the 'committee' will be salted with industry shills, pitlover's offer could possibly end up being adjusted in a negative direction, with regard to signing bonus.

Not trying to be negative, Dan Warner, just seeing how the companies emphasize the signing bonus and royalty % (your mother's offer does sound above their average) but so many of the other things that make up a good lease. I would be glad to negotiate with a company for lower bonus and % if they would offer a true no cost lease. Also a term with a firm limit if they end up not drilling by the end of the primary term (usually 5 years), instead of  "searching for" oil or gas, as is on one of the leases I have seen. The old leases said things like drill a well within 6 months (or so) or lease is void. Old shallow wells, of course. But that was pretty definite.

Also remember that with natural gas and oil prices this low, the more fixed costs take up a larger amount of the total, so if you have a lease for 18% royalty less 18% of the post production costs, on $2.50 / mcf gas, that could end up being a  pretty big hunk compared to on $4.50 / mcf gas.

No problem here, regarding negativity.  I appreciate the input.  I don't pretend to an expert.  This has been baptism by fire for me.

I agree.  The bonus is a drop in the bucket relative to the residuals.  I just want the community to know as much as possible regarding what the companies are hiding from owners who may not have access to the information otherwise.  I feel that crowd-sourcing can be a powerful force against behemoths like the O&G's.

With the forced pooling issue at hand, I've barely begun to negotiate the other terms of the lease.

I did ask for 100% deduction-free, and here is their counter-offer.

I would be most appreciative of your thoughts.  I know that these issues have been discussed to death on here, but I have been approaching the process in stages:

"Market Enhancement Clause

It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil, gas or other proceeds accruing to the Lessor under this lease or by state law shall be without deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other products produced hereunder to transform the product into marketable form; however, any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor's share of production so long as they are based on Lessee's actual cost of such enhancements.  However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee."


What seems to me to be missing here, is language that states that my mother would be paying only her proportional share of the 'enhancement costs'.

To me, this reads that 100% of the market enhancement costs would be deducted from her royalty.

If that be the case, she could theoretically receive a bill instead of a check.

Maybe that last sentence is what keeps it lessor's proportionate share.

But it is not very clear.

I am not going to offer my opinion on forced pooling, but here are two quotes that may help you in forming yours.

WV Farm Bureau "This pooling bill is greatly improved from previous legislation and represents the needs of all stakeholdersWhile it is not perfect for any stakeholder, it represents significant positive gains for surface and mineral owners."

WV Royalty Owners Association "House Bill 2688 regarding pooling was introduced last week.  We as an organization had the opportunity to work with the other stake holders in regards to what issues are important to us.  We are happy to announce that a compromise was reached between  royalty owner associations, surface owner associations and the industry.  As with any compromise, no one got a bill that they are 100% happy with, but we all have a bill that is fair."

Bob, it looks like this year we might be allowed to start to export our natural gas to the the rest of the world. I've read that we could get as much as $11 BTU in asia and $9 in europe and $6 in south america. I think this might revitalize the industry. ......Odd move for this administration. BUT.....I think the new congress might just make it so.

Your thoughts? Bill

Bill, all the long range projections I have seen has the price of natural gas increasing to $4-5.00 over the next 12 to 18 months and then remaining at that price for the foreseeable future. I am sure the LNG export market was used in their calculations. I think what we need most (in order to spur production) is an increase in the price of oil. Our ace in the hole is our natural gas liquids.

Thank you William and Bob for your thoughts and information !  This sounds Wonderful !   Nancy


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