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Permalink Reply by Sylvester Deal on June 5, 2011 at 1:08pm

Melinda,

You haven't included enough information for some one to help answer your questions.  What was the original acreage?  How has the property been "passed down" through three generations past your great-grand parents?  Do you know all the descendants and how they acquired their interest?  These are things that have to be determined by a landman to make a lease offer.  You may not know your family as well as the landman that researched your property.

 

This situation occurs frequently when properties are continually divided at each inheritance.  The thought may be "that old property isn't worth anything, just divided it equally" without regard to the future value of smaller and smaller interests.  My grandfather spent years purchasing the divided oil and gas interests assigned by deed to previous owners of his farm and other oil and gas leases he held.  A little genealogy and a lot of courthouse work on your part may help.

 

You mentioned royalty of $200 per year, I believe you mean bonus with delay rental of $200 per year for the primary term.   Unless located in an unproven area, this seems very low on a per acre basis for a 5year, Marcellus lease: 5yr*$200/.821875= $1217.  Marcellus lease bonus on a paid-up lease could be $2500-$5000.

 

SD

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Permalink Reply by melinda golden on June 6, 2011 at 6:39am

SD, Here is more info, the landman from xto, said he had "about" 25 leases, my brother told me exactly 22, as far as I know as of today there are 6 of us who are fourth generation Golden heirs, that leaves 16 third generation of heirs. The landman does indeed know these people better than myself as I am one of the youngest in the family & only really know the other 4 fourth gen. cousins, & not that well I might add. My great g-parents had 4 chilldren, 2 sons, 2 daughters, between the 2 sons: 9 children, one daughter: 6 children & the other one did not have any. Seven of the 9 children by the sons are still living. I do not know how many of the daughter's children are still alive except 1 granddaughter, I will know this later today. We only own the mineral rights to the property not the surface. The landman proposed 32.875 acres in the 1st & 2nd lease but the boss lady from corp. in TX says this : Your interest is as follows - you have 1/40 interest in a 31.868 acre
tract = .7967 net acre interest and you have a 1/40 interest in a 1.007
acre tract = .025175 net acre.   ~~~~~ I have copied & pasted her email to me. Here is her calculations based upon estimates that I said about the 200.00.  Your net acres (.821875 net acre) divided by the unit acreage (640 acres)
X your royalty amount (12.5%)               .821875 / 640 = .0012841
X .125 =.0001605 equals your interest in the 640 acre unit.

If the monthly gas production is 10MMCF per month and the gas price is
$4.00 then your royalty payment would equal 10,000 X $4.00 = $40,000
X .0001605 = $6.42

I have played around with acreage as she has it here on one of those royalty calculators & it doesn't look pretty to me. If you need more info please let me know. I truly THANK YOU so much.
After re-reading this I know the acreage as she has broke it into 2 pieces of the 31. & .0007 = 32.875. I am not able to go to our Courthouse as my life does not allow such, I take care of my Aunt who recently has become wheelchair bound & has Alzheimers, 24/7/365, w/o any outside help.    THANK YOU

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Permalink Reply by Sylvester Deal on June 6, 2011 at 8:46am

Melinda,

Based on the lineage you described, the daughters heir receive 0.25/6= 1/24.  As a group the sons heirs receive 0.5/9= 1/18.  You and your brother interest would fall between one-half these values at 1/36 to 1/48.  So the 1/40 seems reasonable.  Your direct lineage determines the division of the original 1/4 from the great-grandparents.

 

The proposed royalty of 1/8 (0.125) is industry standard, higher values such as 0.15, 0.1875, and 0.20 are being negotiated based on reports on this site and elsewhere.  Acting together your relatives may be able to negotiate a better royalty. 

 

Lastly, your estimated royalty may be $200/month.  Ten MMCF per month makes for a good conventional vertical well.  Reports are several MMCF per day are likely for horizontal Marcellus wells.  Although production will decline rapidly within three years, a 640ac unit implies 6 to 8 wells over the unit life.

 

SD

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Permalink Reply by melinda golden on June 6, 2011 at 2:44pm

SD, Thank You so very much, they are drilling horizontally, if & when they drill.

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Permalink Reply by melinda golden on June 6, 2011 at 6:55am

 The bonus was only 900.00 & mine was only suppose to be 739.69, but I threw a fit, they started @ 250.00 & I held out until they said what reasonable amount would you accept ? Everyone else who the landman approached was OK w/250.00 an acre, of course they are elderly. They also said they have the right to drill for Utica it is in the lease but I have yet to see it. The WVU coop. ext. agency told me they have to have a permit to do such, but I bet they will drill for it & not say a word for the payout will be greater than marcellus.

 

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Permalink Reply by Jim Litwinowicz on June 6, 2011 at 10:19am

You need to to talk to your neighbors and find out what they are being offered, anyone within a mile or two. You will probably find that the offers are much higher but that all depends on where you are located. Could be as high as several thousand per acre but maybe not if your area is poor. But I am guessing that since they are after you to sign, it is a good area worth at least $1500/acre but that is a guess. And all of this is assuming that the land is free and clear of all old leases.

 

Then, contact all your relatives with the info and try to negotiate a lease with better numbers.  Concentrate on getting a higher % royalty because that is where the real money is.  And companies are often willing to give a higher % royalty as it requires no up-front money from them.  Of course, depending on your circumstances, the bonus money may have more importance for you....you have to decide your priority. And if the neighbors haven't signed a lease yet and are willing to work together, that will give you more leverage.

 

Also, either get a good O & G attorney or get very educated on leases as they are very complex and full of loopholes.  Concentrate on things like Pugh Clause, depth severance clause, unitization, a detailed leasing clause, commitment to at least on horizontal well, limitation of pipelines, surface disturbances reimbursement, and more.  Also insist on extending the term only by matching best offer.

 

Don't be in a hurry, the gas will be there for a long time and the gas companies will want it.

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