Replies to This Discussion

Permalink Reply by Steven Gardner on February 13, 2012 at 12:37pm

Their  "stock" lease I saw last year was a classic example of what not to sign. I do not know what they are offering for a lease now. I do know they took quite a few leases early last year for $250 per acre. I do not see any wells actually drilled or permitted by them in Ohio... My $.02

Permalink Reply by shade2u2 on February 13, 2012 at 12:50pm

Thank you for the response.  They are currently offering $5,000 + 17.5% on 640 acre pool.  Are all royalties calculated on 640 acre pools?  I have 5 pages of addendum pages that they claim to have added to their standard lease for this Ohio area.   I'll try to compare their lease to others that I have in hand.

Permalink Reply by Red Skelton on February 13, 2012 at 1:42pm

17.5 % is low. hold out for at least the going rate of 20% regardless of who you sign with. Don't be in a big hurry to sign, I don't believe this is anywhere near a done deal.

Permalink Reply by shade2u2 on February 13, 2012 at 1:51pm

Are the 20% rates based on a 640 acre pool?  I heard that some were based on 1020 acres.

Permalink Reply by L.O. on February 13, 2012 at 1:35pm

They sre flippers

Permalink Reply by shade2u2 on February 13, 2012 at 1:50pm

What is the down side of flippers if you have a transferable lease that secures and protects your terms?  Just wanting ot understand more.

Permalink Reply by Steven Gardner on February 13, 2012 at 4:40pm

If they do not intend on actually drilling on your lease and wind up selling it to someone else (the actual driller) then whatever they get above what they paid you is money lost to you. Amarado bought a bunch of leases at $250 and they could just sell them to Shell now for $5000... SWEET !! if your the Flipper.

They could also sell it at 20% and keep the 2.5% of your royalties. Avoid the middleman if you can.

Permalink Reply by shade2u2 on February 14, 2012 at 4:18pm

Thank you for the flipper explanation / opinion.  Good old capitalism.

I'm still interested in what the members here know about the "pools" of acres that most royalties are based on.   I'd like to get some feedback from folks with lease contracts in hand that clearly cover this detail.  Are all contracts calculated on a 640 acres pool?  17.5% of 640 is more than 20% of 1020 - for example.

Permalink Reply by Steven Gardner on February 14, 2012 at 4:52pm

I think at this point it is unknown what these final drilling units will look like as far a size goes. To date most permits range from 140 acres to 220 acres. If you have a 100 acre tract you would do pretty good in one of these units .. 2 acres and it becomes a moot point.

Permalink Reply by Nelson Roe on February 14, 2012 at 5:02pm

John, the overall percentage the landowner will receive is based upon the amount of acreage that they own within the unit... Here goes a theoretical example... Using round numbers for example purposes...

 

Landowner X Owns 100 acres & all 100 acres is included in a 1000 acre unit.  The lease stipulates 20% royalties for every landowner within that unit. 

Say a well is drilled on this unit & produced $1 mil in total profit for that month.

It is my understanding that the company would then run the calculation of 1,000,000 x .20 (20%) = 200,000.  This $200,000 would be the total royalty payout to all landowners within the unit.  Landowner X would receive a portion of that based on his land percentage within the total unit, so in saying that he owns 100 acres of the 1,000 acre unit, he would own .10 or 1/10th of the unit, so they would then take $200,000 x .10 = $2,000. This would be the payout for Landowner X for that month.

 

This is my understanding of how the royalties are calculated, so take it for what it is worth & if anyone knows anything to the contrary, please correct me.  Thanks!

 

And to answer your base question... No, I do not believe that all leases are calculated on the 640 acre pool.  I have seen leases first hand that only allow up to 640 acre units, some up to 1000 acres, others up to 1,280 & even some that do not have a restriction on unit size, so the royalties can be diluted depending upon what your individual lease allows. 

But, as Steve said, just because it is allowable to grow the unit to these sizes does not necessarily mean that they will max them out in every instance.  At least not initially...

Permalink Reply by Steven Gardner on February 14, 2012 at 5:41pm

And.. to follow Nelson's post .. if they did add more acreage to the unit it would most likely come with additional well laterals.. so your acreage % of the unit would shrink but you would have multiple wells to draw royalties from. Lots of variables.

A friend of mine leased with Shell on the "new" standard lease.. but he has 2 acres so some of these negotiated addendums become less important.

Permalink Reply by Billy Park Whyde on February 14, 2012 at 5:50pm

Nelson isn't the Royalty Calculator on the main page set up this way to enter in the variables?

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