Expert: Alan H. Coogan - 6/16/2009

Question
First off, many thanks for your participation in this website. I have found the information contained within to be incredibly insightful as I evaluate the offer in front of me. I am extremely close to complete ignorance when it comes to this subject and any assistance you could provide would be most appreciated.

Currently, I am a joint owner of 160 acre homestead in Cleburne County, Section 14, Township 12 North, Range 9 West.

We currently have an offer for $500.00 per acre bonus, 1/8th royalties, 5 year term with option to extend.

What is your general opinion of this offer? What would you counter offer?

Should we have a vertical and horizontal "Pugh" clause?


Answer
Dear Eric:
Last year I would have said it is is a low offer.  Now, the prices have changed and activity dropped off. The amount per acre per year is low over 5 years.  The renewal means a well might be drilled in 10 years. Also important is how many of your acres would be in a well!
Suppose 40 of your acres go into a 640 acre unit?  so,
cash up front is king in Arkansas.
good luck
AHC