Are you trying to determine what a fair oil and gas lease bonus is? If so, we can help! There are a few things to consider if you have an offer to lease mineral rights. The oil and gas lease bonus is an important component of your lease and it’s important that you get a fair lease bonus.
What is a Lease Bonus?
An oil and gas lease bonus is a payment made to you for the right to drill on your property for the term of the lease. When you sign a lease, the oil and gas company (operator) pays the lease bonus as a way to compensate you for the time they are allowed to drill. During the term of the lease, the operator has the right to drill at any time, or they may elect not to drill at all. You can think of a lease bonus payment the same as you would rent on a rental property. The lease bonus is paid up front for the entire term of the lease.
Fair Value for Oil and Gas Lease Bonus
One questions we frequently get from mineral owners relates to whether a lease bonus offer is fair. If you have received an offer to lease your mineral rights, you want to determine if the lease bonus is fair. You could search for hours trying to find out what a fair value, but you would be wasting your time.
The fair value for a Lease Bonus will be affected by the following:
- Location within the county
- Surrounding Production
- Who the operator is
- State regulations
- Current oil and gas prices
- And many more…
With all those factors affecting the value of an oil and gas lease bonus, the prices can move extremely quickly!
We have spoken with many mineral owners who refuse to lease their mineral rights at current market prices because “My neighbor got $x dollars and I should get the same”. Unlike the housing market where homes in the same neighborhood are worth a relatively similar price, that is not the case with mineral rights. In addition, timing plays a critical role in how much an oil and gas lease bonus will be worth. Companies may have paid $1,000/acre 6 months ago and based on certain conditions, will now only pay $200. The value of your lease bonus is based on how much the market is willing to pay TODAY in current conditions!
Best Oil and Gas Lease Bonus
Since there are so many factors that affect your lease bonus, how do you know if you are getting the best offer. The best way to ensure you get the best oil and gas lease bonus is to work with experienced oil and gas professionals who can help negotiate the best possible price. An experienced professional will be able to negotiate a strong oil and gas lease bonus for you. In addition, an oil and gas professional will help you secure the best possible lease terms.
If you have received an offer to lease your mineral rights, we highly recommend that you let US Mineral Exchange negotiate your lease. The reason we recommend US Mineral Exchange is that they work with mineral owners from all over the country and they know how to get you the best possible oil and gas lease bonus. They will ensure that you get fair lease terms and a good lease bonus so that you take maximum advantage of your mineral rights.
We recently spoke with a mineral owner who conveyed this story to us:
I was approached by a landman from [redacted] who wanted to lease us. We took your advice and contacted US Mineral Exchange and let them negotiate for us. My wife and I were thrilled to get 20% more than the landman offered originally and they helped us understand the lease we were signing. Thank you!
Other Lease Terms
The lease bonus is just one component of your oil and gas lease. While the up front money is the only guaranteed portion of the lease, you should still consider the other pieces of the lease equally important. The important things in your lease to consider are:
Lease Term: This determines how long the oil and gas operator has the right to drill on your property. The shorter the lease term, the quicker you can secure another oil and gas lease bonus. A typical lease term is from 3 to 5 years, with many operators pushing for 5 years. Keep in mind that once you sign a lease for 5 years, you won’t be able to secure another lease bonus during that time.
Optional Extension: Many operators will work an optional extension into their lease. This means, the operator (not you) has the right to extend the lease again. The optional extension is typically the same as the original lease term so most of the time you will see a 5 + 5 lease. This means the original lease is for 5 years and they can extend it again for 5 more years. This means you won’t have control over your mineral rights for the next 10 years! There’s nothing wrong with the optional extension, but you should carefully negotiate the optional extension.
Royalty Percentage: Many mineral owners are so excited about the lease bonus they forget the most important part, the royalty percentage. Once you have signed a lease, the best possible outcome is that the operator starts drilling and successfully recovers oil and gas. If an operator does recover oil and gas, you are entitled to receive your fair share of the proceeds and the amount you receive is based on your royalty percentage in the lease. You want to negotiate the highest possible royalty percentage for your property.