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Question
I have been offered a lease agreement from San Juan Basin Properties for my 8.3333% mineral interest in 165 acres in Sandoval County, NM. Township 22 North, Range 1 West. Section 17: NWNW, N2SWNW and Section 18: NENE, S2NENW, S2N2NENW, E2NWNE, SWNWNE, S2NWNWNE
The offer includes a $100 bonus consideration (per mineral acre) and a 1/6th royalty. The term is for a primary 5 years, with an option for another 5 years after a payment of 125% of the initial bonus. The lease offer includes a PUGH clause.
The area has shown recent interest because of the San Juan Basin / Mancos Shale formation.
Is this a fair offer? I've noticed that BLM auctions in the area have yielded $200-$400 per acre, but they are for 1/8th royalty rights. Any info to help me make a better informed decision would be appreciated. Thanks!

Answer
Thanks for the great question.  The proper way to establish a market value for an oil and gas lease involves some research to learn the nature of the prospect (production on surrounding parcels, for example), the likelihood of payout, and the expected quantity of payout; and perhaps obtaining the opinion of a geologist or at least talking to a knowledgeable landman who is active in the area, all of which takes time and money.  One property may bear a lease bonus of $1000 an acre or more while an adjacent one may have a value of $100 per acre or less.  Have any wells been drilled in the surrounding area recently?  Have you spoken to the owners of the adjacent properties?  Have you asked a landman what is the most he has paid for a lease in that county?  Unfortunately, I cannot afford to answer questions like this one for free due to the aforementioned need to pay for research and hire experts.  

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Mark Bonner

Expertise

Interests include oil and gas leases, mineral deeds, royalty payments, interest on late royalty payments, post-production costs.

Experience

I have been an attorney for over 20 years.

Organizations
Norman & Edem, PLLC 127 N.W. 10th St. Oklahoma City, OK 73103 405-272-0200 (Tel.)

Publications
Oklahoma Bar Journal; Oklahoma Association for Justice Advocate

Education/Credentials
Highest Honors, OU College of Law, 1992 Earl Sneed Award for Oil & Gas

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