Oil and gas mineral rights in Oceana County to be leased by Terracore Energy

All of the State of Michigan land in Oceana County offered at the May State of Michigan oil and gas leasing auction will be leased.

Terracore Energy was the dominant winning bidder at the May 9, 2013 State of Michigan oil and gas mineral lease auction. Parcels of state land that are currently not under a lease are nominated by commercial oil and gas production and development companies. At the auction, bids are accepted from qualified bidders and the high bidder earns the right to sign the State of Michigan oil and gas lease.

Denver-based Terracore Energy was the high bidder for 8,120 acres of the 8,897 acres available in Oceana County. Their average bonus paid was $10.89 per acre. The remaining 440 acres was leased by Clayton Energy Company for $47 per acre.

Terracore also leased the bulk of state lands nominated in Newaygo County, leasing 5,448 of the 5,888 acres offered. Their average bonus bid was $26.76 per acre. It is not uncommon for leasing of private lands to accompany interest in government lands as the company works to secure necessary tracts to allow for exploration and development of a production field.

The State of Michigan lease is often utilized by Michigan State University Extension as an educational tool for private mineral rights owners. The State of Michigan lease is significantly different than the standard lease initially offered to private mineral rights owners by an oil and gas company. It contains a glossary of many of the terms used in leases and agreement terms that experts who represent private landowners recommend to be included in their lease agreements.

For example, some of the State of Michigan lease terms are a 5 year primary term and as long thereafter as oil and gas are produced in paying quantities. This is in contrast to a standard lease that states the lease will be in effect until production permanently ceases, which means the lease could continue long after the landowner ceases to be paid a royalty. The state lease also includes a $2 per acre per year annual rental fee and a 1/6 cost free royalty. A cost free royalty is based on gross income. The standard lease offers a 1/8 royalty based on net income by first deducting post production costs. Post production costs can reduce the royalty actually paid to a private mineral owner by as much as 50 percent.

MSU Extension has oil and gas leasing information for private landowners including links to the State of Michigan oil and gas lease. Also available is the “Oil and Gas Leasing Video”, a narrated slide presentation that explains the terms of the oil and gas lease which is a good place to start for landowners. Additional information and valuable links to resources can be found here.

Oil and gas leases can be very long term contracts. It is recommended you understand all of the lease terms, their impact to your business and alternative terms before signing. If you have any questions feel free to contact me at .(JavaScript must be enabled to view this email address).

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