I just received my first lease offer since being in control of these mineral rights, and I am a little overwhelmed! I have a few questions.
Do I have to accept this lease offer? I thought I remembered my dad negotiating with various companies to get the best offer, but that doesn’t seem right thinking about it.
It is generally the best practice to choose the option with the greater percentage of interest, rather than the greater initial leasing bonus, correct?
It included a form that breaks down all of the costs associated with making the wells. At the bottom, it has two different things where you have to select one option. I have no clue what it really means or what is the best option to choose.
a. Yes, I desire coverage under Company’s Policy or No, I do NOT desire coverage (please provide a certificate of liability insurance
b. I agree to participate at my current working interest or I do not wish to participate and will go non-consent.
Is this a letter only or a letter with a draft lease?
Which state is this in? Huge difference to the advice.
No, you do not have to lease with them. You may get other offers or you can wait for pooling if this is Oklahoma. If Texas, then you need an attorney asap to walk to your through your options properly.
Most of us would negotiate and ask for the highest royalty. The bonus is not as important as the royalty and the actual clauses in the lease.
The other form is the AFE, Authorization for expenditure. You probably do not want to be a working interest owner, so you do not want the liability insurance that goes with the WI ownership. Only folks who really know the business, have deep pockets and excellent attorneys and accountants dip their toes in the WI world. Again, if this is Texas, then get an attorney. Probably a good idea to get one in OK as well, but for different reason.
It is Oklahoma. I’m not sure how to answer your questions, but I’ve uploaded the documents they sent in the link below. I tried posting in the forum itself, but it didn’t seem like you could enlarge the images, so it wasn’t very helpful.
I personally do not like to sign and return these forms as there is a risk that it may be taken as a binding contract. This is especially true when the details have not been nailed down… Instead, I visit informally through email and ask for a lease for review. The company will send one that will need to be modified.
This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.
Maybe I just don’t understand the workings of this, but how can multiple companies offer to lease? Is it not ultimately one company that does the work? Also, if I don’t sign the lease for this company, how are they allowed to continue with the work?
Anyone can lease. There may be hundreds of mineral owners in a drilling spacing unit. A mineral owner can lease to whomever they think gives them the best lease. The lessee is not necessarily the operator. The operator must abide by the terms of all of the valid leases.
If you are new to the world of Oil and Gas, the Mineral Tab at the top of the page is a good resource. Most of the oil & gas states have publications aimed at their state. The National Association of Royalty Owners is also a great networking and learning place.
It’s important to know if rights are from a mineral interest or a working interest from an existing well. I have non consent clauses that range from 200% to 500%. I’ve rarely consented to a 200%. I love being in the money without putting up funds at the beginning. Then later drilled the offsets and made some bank. Only once did a 500% payout. Wish I had participated in that one.
