Hi, newby here. Live in Oregon, mineral lease is in ND. Lease says "The lessee shall deliver to the credit of the lessor as royalty,free of cost, into the tanks or in the pipeline on the leased premises to which lessee may connect it's wells the equal fifteen(15%) part of all oil produced and saved from the leased premises" ........etc. Research of the meaning of these terms seems to indicate that "free of cost" means only free of drilling costs etc, and that the lessee can charge for transportation etc. My e-mail to the lessee as to why they are paying us at $76 a barrel when oil is at $100 a barrel (couple of weeks ago) resulted in an explanation that it is for "transportation to the refinery and then to market". Seems like a hefty charge, when the lease says "free of cost into the tanks or pipeline ON THE LEASED PROPERTY". Is oil language designed to mean something other than what the words indicate? Thanks, TJ
Mr. Johnson you have a very good grasp of the situation. Sadly, if you had not signed a lease you would probably received 16% as a non-consent carried interest.
Thanks Mr Kennedy, Is it your opinion then that "transportation to the refinery and then to market" is therefore an invalid charge ? (apply what ever disclaimers you require). :-)
When this all started almost 5 years ago, the "oil broker" or I guess "Landman" is the term, was not easy to get answers out of. Most of my relatives signed right away, but I held out for a month or longer, asking questions about each paragraph of the lease until I thought I understood it well enough. I have been in the real estate industry for many years, and it's not as if I was just off the turnip truck. That said, I still did not really have a thorough understanding of the lease. However 15% was the "going rate" and I was told by that landman of possible negative consequences that could result by me holding out any longer. But it is what it is, and I just want to make sure we all receive what is contractually due. I am almost 64. My Grandpa and Grandma were pioneers into that cold North Dakota country in 1902 and homesteaded land, and as time went by built a nice farm. As far as I know, it is still in the family. Thank you sir, for any ideas you might have. :-) TJ
Mr. Johnson, it's a valid charge. You can agree to anything you want to in a lease and most people do not know to exclude the conditioning and transport charges, I sure didn't when I was negotiating after Dad was gone. Dad never taught me how he did it but he was negotiating leases in ND for 20% royalty in 1977 with Texaco. My great grandfather came to ND in 1913 with a desire to own land and homesteaded in Dunn county and later built a ranch in McKenzie county.
Oil and gas leases are complex documents and the standardized driller's form which is usually 2 or 3 pages should immediately be thrown away and never signed, and you will not find an honest oil man/woman or landman/woman who would not agree with that. Most good oil and gas leases are 25 to 50 pages in length and everything is spelled out in detail. They are not easy to understand but that doesn't matter, really, because the legal language has evolved over the decades and has specific meaning as per judgments, legal precedents, etc. Next time an oil and gas lease proposal is made, counter offer with a good oil and gas lease whereby you get 25% royalty and bear no transportation costs, production costs, etc, you can even put in the lease that they MUST pay you for every barrel of oil and every cubic foot of gas even if such hydrocarbons are used in the production process (which is common). People need to understand that as mineral owners they literally OWN all the minerals on their property, and they allowing an outsider to mine these minerals for profit, but NOT at the expense of the owner. Even excellent oil and gas leases will be violated by certain oil and gas companies, so it's important to keep an eye on things if there is production.
Thanks Ron and Tim, This will surely help someone else. I had my shot and did not do it right. Sad. 5 years ago I was not apt to immediately get on the computer and Google a subject for advice that exists and is freely given, nor was I apt to contact an attorney to help me understand these things. Seemed pretty clear English language that said: "as royalty, free of cost into the tanks or pipeline on the premises". I would never have thought that that statement did not mean that at all. :-( TJ
Ron, do you have a reference document that we can access to use as our guideline, it seems by your statement that you probably have your own set handy and that it must be successful more times than not.
Yes, and I'd be happy to send to you. Just let me know your email address. I also have "collected" leases that others use that are also excellent lease forms.
Hi Ron, Rick Tatum here. I would be interested in those lease forms too. If u don’t mind.
Thanks
Ron Hicks said:
Yes, and I’d be happy to send to you. Just let me know your email address. I also have “collected” leases that others use that are also excellent lease forms.
Mr. Hicks,
Could you enlighten us on what is a standardized driller's form?
Ron Hicks said:
Oil and gas leases are complex documents and the standardized driller's form which is usually 2 or 3 pages sh
Mr. Cotten, you might be better "enlightened" by doing research on the internet. There is a lot of information about standardized oil and gas lease forms. Often called Driller's Form 88, they have a many decades long history and generally, in nearly all ways, favor the oil and gas company and greatly disfavor the mineral owner. At one time, landmen would carry stacks of these forms, going from farm to farm, ranch to ranch, and simply draw from his stack the standardized form he felt most appropo to the situation. These forms are, unfortunately, still in wide use today. Because of countless lawsuits, there have been many rulings on various sentences, paragraphs, clauses of these various standardized forms that have spelled out their "meaning." Hence, what the form actually says may mean something quite different based on legal precedent. They are short and brief and fail miserably at consituting a good, solid oil and gas lease that gives the mineral owner a fair deal.
Mr. Hicks.,
It is well settled that there is no such thing as a "Standard Oil and Gas Lease." For example, an offer letter that says $100 per acre, 3/16ths royalty on a Standard Producer's 88, is a letter agreement that is absolutely unenforceable. Do you own research and you will find many, many, many Producer's 88. And none the same. The Pound Printing and Publishing Paid Up Lease form, Rev 4/76 is different than the Pound Printing and Publishing Paid Up Lease form, Rev 7/69. Of those two, which is the standard Drillers Form? See the point that I am trying to make? It is a very common mistake for many people new to the industry to make.
I see your point quite clearly; however, I see no mistakes in my postings or thinking in this matter. The pre-printed oil and gas leases you make reference to are what are called standard lease forms, and they look nothing like the oil and gas leases we use. I stand by what I say, and I am not new to this. Your sarcasm is neither welcomed or appreciated.
Dear Mr. Hicks,
There was no sarcasm intended. My apologies if you were offended.
Hi, I appreciate EVERYBODY'S opinion, thanks guys. It is still beyond me how a statement on a lease that clearly says "into the tanks or in the pipeline on the leased premises" can actually mean that we have to pay 24% of our royalties to transport the oil to the refinery which I assume is several states away. It appears that the "Law" through the years has allowed the oil companies to change the English language for the express purpose of trapping mineral owners. It is a sad commentary on our system. :-( TJ
Mr Thompson,
I completely agree with you. Those pre-printed lease forms say one thing but in actuality a court may have ruled at some point in the past that it means something quite different. That is one of only many reasons why we do not use, accept, or sign those pre-printed, standardized lease forms. We have our own lease forms that have served us quite well over the years, and depending on the print size and paper size, range in length from 30 to 50 pages long. Our lease forms are considered "way too strict" by some companies, while other companies find them quite acceptable. They serve to protect our interests, clarify any and all issues that have arisen over the years, cover all contingencies, and do not allow the o&g companies any free use of production whatsoever.