(06/05/10) - Many residents of Lake Country have received letters from Palo Petroleum, Inc. offering to buy your royalties to the lease with XTO for the "TRWD/Marine Quest Unit 1H".

What is Palo Petroleum offering?

As best we can understand, they wish to buy your ROYALTY rights, which you have via the lease agreement with XTO.  Palo Petroleum is apparently gambling the well will be a big producer.  If you agree to their proposal, you are accepting their amount in lieu of any further (perhaps larger) royalties over the life of the lease.

Additionally the amount offered in the letter is for 100% of the royalties of which Amon Carter Foundation owns 50% and you own the other 50%. In other words divide the amount offered in half. So if the offer is for $1,600 then you would receive $800 payment for your royalties. This was overlooked in the letter and may have been corrected in future letters, so pay close attention to the language used in any contracts you are considering.

Some consider the offer a very low price for our lease which could produce for over 20 years.

Where we are now with XTO?

Our lease with XTO will remain in force and effect for as long as there is production, which means if anyone drills a well to a different formation and establishes production, the royalty from the new formation would be theirs also since they are buying all of the royalty on that specific lease.

Our lease agreement with XTO states that the primary term of the lease is for 3 years from the date of agreement which is from whenever you signed your lease (most were signed late 2008, early 2009 timeframe) to drill the first well which XTO has done. Thereafter the lease will be in force for as long as the lease produces (other caveats apply, read you lease).

1)      The first TRWD/Marine Quest Unit 1H well began operating 2/8/2010.

2)      XTO has 120 days from that date to verify accurate information as to who owns the leases.  (Some properties might have exchanged hands).

3)      When ownership is verified, they will send each lease owner a DIVISION ORDER to sign & return.

4)      When XTO receives the signed form, they will calculate our royalties retroactive to 2/8/10, (plus interest if applicable) and we will receive our first check.

5)      Royalty payments may take MORE than 120 days.

6)      Thereafter, checks will be sent on the 20th or 25th of each month in which the royalties are $100 or more.  If less than $100, the money will carry over to the next month.

7)      March 2010 production averaged approximately 2.8 MCFPD (million cubic feet per day) which appears to be a relatively average output for a new Barnett Shale gas well.

Some personal items to consider whether to accept the offer:

1)      Do I need the money offered now?

2)      Do I have any heirs that I wish to bequeath my lease to?

3)      Will I pass away before I receive the amount offered by Palo Petroleum?

4)      How will the royalties impact my personal tax situation?

Should you decide to accept their offer, look very closely at the contract to insure the royalties are only from the Barnett Shale "TRWD/Marine Quest Unit 1H".

In the final analysis it's what's best for you.

Your decision will not affect anybody else to a significant degree in the leased area if you should decide to accept their offer.

(The LCPOA wishes to thank CrestPoint Home Owners Association and Bill Kunter, an Oil and Gas Landman, for their contributions to the article.)

Click here to view the Gas Lease the Greater Lake Country Gas Leasing Task Force accepted. Your lease may differ from the one accepted by the Task Force as each mineral rights owner was free to negotiate their own best deal.