Bump......isn't this of interest to people who might become better informed???.

[oneoff]

Negotiate from power. Leases
OilLady posted May 14, 2013 15:32
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Just remember, Good thing not cheap, and Cheap thing not good. Don’t give away the farm. Do your homework. Challenge the landman to explain how he or she came up with the bonus value. Ask questions such as: What are the probabilities of success the Oil Company is using? What is the discount rate used in net present value analysis? What cash flow assumptions are they using (price, production rates, costs, taxes, inflation rates)? While the Oil Company may not answer these sensitive and often times confidential type questions, it educates the Oil Company and its landmen that you have a bit of sophistication in your understanding in how bonus is determined which will give you leverage to negotiate and increase the bonus payment. And quite frankly in many instances you will be smarter than the landman as to how bonus are determined.
The attached spreadsheet is an example of determining cash flow, net present value (discounted cash flow) and ENPVs.

more good information here:http://www.mineralrightsforum.com/profiles/blogs/explantion-how-lease-bonuses-are-calculated-and-a-suggested


UNQUOTE:

It always bothers me when there dooesn't appear to be any interest in a topic. Seems to be a reverse correlation between a subject' s importance and public interest.

Thanks for previous author's research. You deserved more support and response.

[dluther]

I am meeting with a potash company this morning . I would imagine this applies to them also, just going to listen to them today. THANKS.

[sumdumguy]

Guess Potash Fever is alive and well. Vale was
going strong here, but abandonded the project.
We heard of offers of 1 mil a quarter. Would be
interested to know how this compares to other
companies.

[dluther]

I just have mineral rights ,don't own land, thanks to C.C.U. How does this work?

[Hopperbin]

Well the lease is going to look in appearance extremely better than the buy out. Our buy out was 40 thousand, the lease sounds like it will pay 10 times or more almost unbelievable plus in the lease there is still more potash to mine later the life will outlive me, so if its too good it probably is. Let us know how you see it. Supposedly we have the same deal as the gov't owned minerals so were told. Somehow I don't think the gov't is cashing in like we are supposed to be, have not seen much money yet just sign up bonus sort of thing.

[Hopperbin]

Thanks for the link oneoff

[OilLady]

I am just stealing posts from the mineral rights forum "americas conversation place" mostly oil and gas, but hope this contributes more.

All DiscussionsMy DiscussionsAdd.Why Your Royalty Should Be Based On Gross Proceeds
Posted by r w kennedy on May 16, 2013 at 6:07pm in Oil and Gas Leasing Help Group
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.The reason your royalty should be based on gross proceeds, with nothing withheld except for taxes is because the ROYALTY owner is not supposed to spend money. Spending money is the job, by definition of the WORKING INTEREST, it's what they do in exchange for a 75% to 85% interest in oil that you the mineral owner already own.
When the lessee/operator asks you to pay post production costs in a lease, he is asking you to spend money. The lessee/operator is asking YOU, the mineral owner to do his (the working interest's) "work", to spend money to capitalize on the production of your minerals. The lessee/producers working interest should be GREATLY REDUCED if you are asked to assume the burdens that rightly belong to the WORKING INTEREST, which is spending money, spending money for gathering, compressing, dehydrating, separating, transporting or marketing. If the operator spends money to buy equipment to carry out these actions, he deducts it from his taxes/ depreciates it as you cannot although you are paying for it.
If you are expected to do the "work" (spending money on the lease) of the working interest, you should be paid like one, considering how little they probably paid you to gain title to your minerals and considering how much of your royalty may go to paying post production costs, it would probably be fair if you had a 10% to 20% working interest in ADDITION to your royalty if they expect you to do their job for them.
For what the mineral owner is giving up in a lease, he should expect a turn key operation, meaning that he should do no "work" which is defined as spending money. The mineral owner/lessor /royalty owners job is to cash checks, not spend money on the lease.
Another reason for the lessee/producer/working interest to want you to pay post production costs is you have no easy way to get an accounting, they take out what they tell you that you owe and all you can do is audit if you have that right in your lease, or sue them, if you are really, really sure you are right and the amount you think you are being cheated out of is greater than the cost of the lawsuit.
Another good reason why your lease should be gross proceeds is because it makes accounting easier. XXX oil was sold at xxx amount times royalty amount - taxes = your royalty. The same may be done with gas and while it could be a little more complicated if divided into it's constituent parts, dry gas, propane, plant products and so forth, it would still be easier to calculate than with post production costs added in. Anything that makes it easier for you to make certain that you are paid correctly is a good thing, isn't it? The lessee / producer/working interest probably wouldn't agree that it would be a good thing that your fifth grader could determine if you were paid correctly.
Let the working interest do his own "work", unless he actually is your brother-in-law and you have a personal stake in making sure he makes more money.