Have you been approached to lease mineral rights? If you are entertaining Marcellus Shale Lease Offers there are a number of important things to understand. To maximize the mineral rights value when leasing you want to ensure that you are accepting an offer that represents the true market value. No two offers are ever the same and there are a number of factors you consider as you evaluate the offers.
Marcellus Shale Lease Offer Terms
The most important piece of the lease offer is the terms that are being offered. While the lease bonus is important, it’s only part of what makes up the offer. Each factor should be considered as they will all have an impact on you as the mineral owner. When evaluating Marcellus Shale Lease offer terms, you should understand the following:
Lease Bonus: This is the amount that will be paid up front for the right to drill on your property. Think of the lease bonus as payment for the right to drill for a certain period of time. The lease bonus will determine how much up front cash you receive before drilling every takes place. As a mineral owner you want to weigh a higher up front lease bonus against future royalties. The lease bonus amount could be anything from hundreds of dollars to a few thousands of dollars per acre.
Royalty Percentage: If drilling occurs during your lease and production starts, the royalty percentage will determine how much of the production goes to you. A savvy mineral owner will negotiate for the highest royalty percentage possible. An up front lease bonus could be a large amount of cash, but the royalty percentage could have a much larger impact on how much cash you receive overall because it will pay out for years to come. As a mineral owner you want a royalty percentage that’s as close to 20% as possible.
Lease Term: The term of the lease is another important factor. Many operators will request a 5 year lease term and an optional 5 year extension. You should attempt to negotiate the shortest lease term possible. The reason is that an operator effectively controls what happens with your property when they hold the lease so if they don’t drill you won’t receive any royalty income. By getting a shorter lease, this allows you to lease your property again sooner and collect another lease bonus payment.
For a more in depth look at lease agreement terms check out our article that covers this topic in depth.
Maximum Value for Leasing Mineral Rights
While all the other factors are important to evaluating lease offers, the most important is that you get the full market value for leasing mineral rights in the Marcellus Shale. To get the maximum value for your property, it’s important that multiple buyers have a chance to compete to offer you the highest price possible. If you were selling your home, you wouldn’t sell to the first buyer who shows up at your door step and makes a low ball offer and you shouldn’t do that when leasing your mineral rights either.
To get the maximum value for your mineral rights, you want to work with a partner who is focused on bringing you the highest prices possible. This is why we always recommend the services of US Mineral Exchange. Their listing platform and seller focused approach allows you to get your property in front of thousands of buyers who all compete to pay you the highest possible price. In addition, they can help you evaluate offers and negotiate the best possible lease terms for your property.