May State of Michigan oil and gas lease auction for 37,000 acres of mineral rights

At the May 2013 state oil and gas lease auction, Huron, Oceana and Newaygo counties all had an excess of 2,000 acres of State of Michigan oil and gas lease rights available.

At the May 2013 state oil and gas lease auction, Huron, Oceana and Newaygo counties all had an excess of 2,000 acres of State of Michigan oil and gas lease rights available.

The State of Michigan holds a mineral lease auction twice per year for State of Michigan owned mineral rights. Parcels auctioned are nominated by commercial oil and gas production and development companies. A total of 37,600 acres of State of Michigan owned mineral rights was available at the May 2013 auction. The State of Michigan lease terms are 5 years and as long thereafter as oil and gas is produced in paying quantities; a $2 per acre per year rental fee and a 1/6 royalty.

It is not uncommon for leasing of private lands to accompany interest in government lands. Michigan State University Extension has oil and gas leasing information for private landowners including the “Oil and Gas Leasing Video” which is a narrated slide presentation that explains the terms of the oil and gas lease. The video is also available as a DVD at a price of $10.

Oceana County had the most available acres at the May auction with more than 5,200 acres in Otto Township (T13N-R16W) and more than 2,000 acres in Greenwood Township (T13N-R15W). Grand Traverse County’s Fife Lake Township (Township 25N-R9W) had more than 3,500 acres and more than 2,000 acres were offered in Huron County’s Sigel (T16N-R14E) and Verona (T16N-R13E) townships and Newaygo County’s Beaver Township (T15N-R14W).

Leasing mineral rights for oil and natural gas exploration can lead to a significant income opportunity for the landowner. Unfortunately, many landowners treat their mineral rights as second class citizens and don’t even bother to read the lease; they only consider the bonus (or up-front cash) payment.

Landowners in many areas of the country are learning to treat their mineral rights as an alternative crop that is produced from the subsurface. They have learned that the initial lease offered from the company can be negotiated and some of the terms modified. Some of the terms most commonly negotiated in oil and gas leases are the bonus payment (cash that is paid at sign-up) and the royalty percentage, along with having based on gross income rather than net income. For example, the initial royalty offer is usually an eighth of the net income, but private landowners are negotiating one sixth to 25 percent royalties based on gross income. It is important to understand that an oil and gas lease is a legal contract that can last for generations. It is recommended you understand all of the terms, their impact to your business and alternative terms before signing a lease.

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