Top Lease

I have been approached by another active driller in my area of SW Pa. to consider doing a Top Lease with them in the event nothing is done with my current leaseholder over the next five years, but if they do, the top lease is null and void and I keep the 5% monies of the lease amount they are offering, which has to be still negotiated. Since we are willing to have the property as a well head location and the property itself is in a great strategic location, I believe the offer could be rather substantial. Thoughts and thanks. Scott 

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Permalink Reply by J. Kinney LandRights on January 20, 2014 at 8:39am

How much time is left on your current lease?

Permalink Reply by scott m on January 20, 2014 at 8:42am

December ends the first five then another five. Have seen the layout for the well for my property already and suppose to be done in next 2.5 years. Thanks

Permalink Reply by J. Kinney LandRights on January 20, 2014 at 8:55am

wow- so you're essentially 1 year from the expiration of the primary term then your current lessee has the option to extend you for 5 additional years AND this company is willing to do a top lease on that (6 years of waiting).  I can see their reasoning -- meaning they will be making very little investments (5% down now) on what could be a great buy 6 years from now. Time value of money in 2020 will make a $4000/acre lease now seem like a $2000/acre or less lease then considering the market trending up rapidly.   Honestly I don't see anything you have to lose because I agree that your current lessee will extend (another payment to you) and they will have it drilled/producing before it expires in 2020 (meaning you have royalties coming) AND you get the 5% of what that company is willing to pay now.   The only concern would be you're not put into production by the end of your lease and leases are then going for $10,000 and you would be locked in to something much less.  

Having seen the well plat/plans - that's a great sign and would definitely make you confident that it will be drilled before it expires. However things change very much and landmen will show a lot of "2016-2017 plans" to keep the landowners from calling and getting ansy. 

Permalink Reply by scott m on February 15, 2014 at 7:12am

Hello there and like you, I am sick of this weather however, the gas companies are loving it! I would appreciate your thoughts. I just found out that a competing company leased a piece of lane in the unit I am in from the original lease company. The good news is that I am the only location willing to do a well head for this entire area that the new company is aggressively going after, it is a lot like Highmark and UPMC going at it. With that said, the new company wants to do an option lease and I should clarify and it was my mistake, that is what they wanted to do before. Any wisdom you or others could provide is most appreciated, terms, conditions, monies etc. My only true ace right now is an excellent well location and willing to do it. Thanks a lot, Scott  Perhaps the new company will buy out my current lease or join forces with my current lease holder Huntley.    

Permalink Reply by Teresa Kline on January 20, 2014 at 10:00am

Do you mind telling what county in southwest PA you are in?

Permalink Reply by scott m on January 20, 2014 at 11:11am

It would be for after to second five, and the current company has first right of refusal. I look at it as a futures contract, regardless who I am signed with in the future, it would be just a different signature on the check. I am not going for the 5% now, it would have to be north of 10-15% and since I am allowing a well head, 5500-6k per acre. Thanks for your note

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