Mineral Rights Land Lease Rates

My uncle owns about 150 acres in east Texas and just received an offer to lease the mineral rights. I know there is gas on the property, and surrounding properties have oil.

I was asked to evaluate the deal, but I don’t have any knowledge of what fair rates are. Does anyone who works in the industry or perhaps prepares taxes for land owners have any insight on this offer?

$400 per acre plus 3/16 royalty.

Is that a lowball or a good deal?

What county is he in? There can be substantial differences from county-to-county. $400/acre is generally pretty low.

Get out the drilling rigs and drill it yourself! :slight_smile: A surface only lease in my neck of the woods is going to run you north of $1k/acre, and as much as $3k/acre, but I have zero knowledge of Texas and we don’t own mineral rights here, so that’s just the right to access, drill and produce. Not apples to apples unfortunately. Our royalty rates are higher as well (to the Crown).

Thanks for the insight. The property is in Fayette County, so not too far east.

Oh wow, I thought you were more east. Fayette is right on the eastern edge of the Eagle Ford Shale. I believe Apache Corp. has some acreage there and has done some drilling around there. If you go southwest from Fayette county about 60 miles you’re on the hotspot of the play. Encana Corp (geo is probably quite familiar with them) just completed an acquisition paying 3.1B for 46k acres in Karnes and Wilson counties (as a land owner you won't get near that /acre, but it’s just a reference for the economic value to companies). Big money but production there is quite good.

I’m not sure how successful drilling has been in Fayette county but it is overtop the oil window of the Eagle Ford so $400/acre seems low but I’m not directly familiar with the geology there. I’m also not as familiar with the royalty market in general. Eagle Ford is one of the three most sought after shale plays in the U.S. fyi. That acreage in Fayette isn’t in the popular parts of the play, but it’s got value.

Yeah its Apache that is making the offer.

Its a negotiation my friend. You’d be a fool to accept the first offer. Perhaps shop this around. They obviously came in low expecting you to counter.

As a reference for you, there’s a trust called “Texas Pacific Land Trust” that owns surface rights to acres in West Texas. They have annual reports on their website that detail the land transactions during the year; acres sold by county, cash considerations and royalty rates, I believe. Much of that land is over the Permian Basin where there is a lot of drilling activity so it’s a good reference. Keep in mind, this trust does not own the mineral rights – it’s only surface rights. This trust sold the mineral rights long ago (whoops!)

Good luck. I don’t know how much negotiating power your uncle has but I believe $400/acre is quite low, although there are probably some clueless land owners that accept it.

You can use a service called IHS herolds to look up transactions comps for acreage.

IMO that’s a low offer, but at the same time 150 acres isn’t a ton of space if you’re drilling horizontal wells. Also well performance is can be spotty in that county . If you want to shoot me a PM with more detail on where it is, like SE corner, middle, etc of the county I could be a bit more helpful. Most royalties in the Eagle Ford are about 20-25% for new leases (signed in the last few years) and expect a couple grand an acre, assuming there is no production. A 3/16 royalty was pretty standard for conventional leases signed pre-shale boom.

Too bad I didn’t see this while I was at the office today, one of the guys on my team knows a bunch of land guys. I can ask his thoughts on Monday.

off topic: im reading the BIG RICH, fuking great read so far

I was doing some research yesterday at work on Canadian heavy oil and randomly came across something I felt was very pertinent to this discussion. I’d paste the picutre but I don’t have the capability on my comp at my condo. Check this investor presentation from Baytex Energy, pages 15 and 16…


It’s really pretty interesting b/c surprisingly there’s been so few wells permitted in Fayette County. It’s my understanding Apache Corp holds the majority of the acreage there, so I don’t know what exactly their strategy is – it’s not like they don’t have the capital to invest b/c they are quite financially sound. It’s generally a good working theory that the E&P’s go after the low hanging fruit first and leave the less attractive geologies for later, so the absense of much capital invested in Fayette County is interesting. Good luck to the OP.

Fayette County has been left relatively undeveloped, at least for the eagle ford because the San Marcos arch runs along the Gonzales/Fayette county line and the play thins out as you go northeast. Apache has a decent amount of acreage there, but it’s all in the northern part of the county (per the map at this link). At any rate, they’re currently more active in Brazos and Burleson Counties.