An Introduction to Oil and Gas Lease Bonuses
What Is a Lease Bonus?
An oil and gas lease gives the lessee the right but not the obligation to produce oil and gas within a specified area for a certain amount of time, as defined in the terms of the lease.
The current industry standard is to issue what is known as a “paid up lease”, meaning the lessee pays the lessor a lump sum of money, known as a lease bonus, at the time the lease is signed. In exchange, the lessee receives the rights to extract minerals from the land at any point during the term of the lease.
How are Lease Bonus Prices Determined?
It is important for mineral owners to realize that bonus prices are usually discussed in a standardized format known as a Bonus Per Acre. This is the price a potential lessee is willing to pay for each net mineral acre in a given area. Therefore, a mineral owner’s total bonus consideration can be calculated as follows:
Total Lease Bonus = Bonus Per Acre x Net Mineral Acres
Bonus Per Acre prices can vary widely among (and even within) counties, usually due to differences in geology and oil and gas reserves between areas.
While geology does play a large role, there are many additional factors that contribute to how much you can get for your oil and gas lease bonus. One such factor is competition among potential lessees. When multiple parties are actively bidding on the same lease, prices can rise quickly due to the creation of an auction-like environment among bidders.
How Do I Maximize My Lease Bonus?
If you want to ensure you are getting the most for your lease, follow these three easy steps to lease like a P.R.O.
Patience: Be patient when negotiating your lease, don’t just sign the first offer that is sent to you. Sometimes it pays to be one of the last people to lease in a given section. Don’t ignore the landman who contacted you, but it might not hurt to slow play negotiations for a couple of months if there is time. Buying time can allow competitors an opportunity to reach out with better offers, terms to rise due to increased activity in the area, or apply pressure to the issuing company to increase offer terms to get a deal done.
Research: Understand what type of interest you own. If you own 100% of the minerals in your tract, you could be extremely valuable to the companies reaching out to you. You hold the power in this scenario and can be more aggressive during negotiations. If you don’t own all of the minerals but you know the other mineral owners in your mineral tract, reach out to them and ask if they have been contacted and what they were offered. Researching what others have been paid in the area using Mineral Insight can also help you increase your negotiating power, regardless of your situation.
Outreach: Try to solicit companies for additional offers. Look into other companies that are actively leasing in your area and reach out to see if they have an interest in making you an offer. Competition is one of the best ways to increase what you are being offered to lease your minerals. If you don’t have the know-how or desire to reach out to companies to get more offers, contact Mineral Insight. We can help get you more offers with no contracts or strings attached.
Before you lease, make sure to check out www.mineralinsight.com so you can lease like a P.R.O.!
