How is a landman compensated for his work?

Oil and Gas Leasing Help
1

How does a landman earn his fee? If they are retained by an oil company does the oil company tell them the top dollar for lease bonus and the top royalty % that they are willing to pay? Does the landman then get a bonus (an override?), or some other form of compensation, from the oil company if the landman can get a lease signed for less than the top amount the oil company had stipulated to the landman? Will a mineral owner typically get a better deal (and save time during the negotiations) if he can find a person within the land department of the oil company that he can deal with directly? Will a person in an oil company’s land department have more discretion to increase the bonus amount, royalty %, agree to better (for the mineral owner) lease terms than would an outside landman that the oil company contracted with? If yes, is this (at least in part) because the oil company is saving the fee that they'd have to pay the landman?

How does all of this work ……. and how can the mineral owner go through this process to his best advantage?

Thanks for any thoughts/advice that can be provided.

2

Herc,

There are different levels of remuneration that a landman / land company can receive, depending on countless factors and I will share some of the experience I have had over the years of owning different parcels that has been passed down through the generations.

First, there are landmen that are independent, that acquire the leasing or pooling rights to areas, then turn around and sell the leases to production companies, often for a fee or an override, frequently 1/32 or 1/64. The mineral owner has zero control over who 'buys' the leases and may be stuck with a less than desirable operator. Upon learning that a landman was seeking to repackage my leases with those from other mineral owners, I went directly to the production company and received a higher bonus and royalty.

Dealing with land companies is more convoluted, with countless forms of employment and payment practices. Some land companies only hire "Independent Contractors" a set rate based on the number of leases secured in a month. This can be extremely frustrating, there is a greater sense of high pressure sales pitches and if 'John' did not meet his quota for the month, you may be dealing with 'Sally' the next month, starting from square one.

My experience has been, dealing with a landman that truly works for a land company, there is still a sense of urgency to get the mineral owner to sign, but fewer games played. Although there is a high turnover rate, it is lower than companies that rely solely on independent contractors. Typically the land company has one person that interfaces with the production company and they bounce the mineral owners demands, back and forth.

I finally learned to work with a law firm and they have been able to secure the best leases possible. It may cost me $250.00 - $500.00 in legal expenses to have assistance from the firm, but they know who to deal with at the production companies and have a reputation for looking out for their clients. The minerals have laid dormant for centuries and there is no rush to harvest them immediately, if it means signing a bad lease. Although I have no desire to spend the money or time involved in defending myself in a partition suit, I have been successful in doing so; my attorneys had records of every offer, counter offer, et al. Additionally, the landmen have a sense of "We can't snowball them" that I find quite comforting, when dealing with attorneys.

I much rather take a lower 'bonus payment' and a higher royalty, which is not the norm and landmen are very happy to 'flash the cash', to get a signature. A single word missing from a lease has the potential to cost a mineral owner $50,000.00, so spending $500.00 up front is a cheap insurance policy in my opinion.

I do not know if there are bonuses to be had for getting leases signed for the lowest dollar amount, but do not suspect the production companies would continue to use a land company's services, if they are not negotiating the best deal for the production company.

Lastly, the mineral owner has a stronger position to negotiate if they are the last of ten mineral owners to sign, than if they are the first.

3

Well said, WV Mineral Owner! That is what I have thought.

4

Thank you for the good information you shared. You just helped many people. Please continue to advise as needed. Thank you again.

5

Herc,

I'll try to answer your question the best I can. 90% of the time when approached by a landman, he will be an independent contractor who works for someone called a "broker" which is a land services company. For example, Exxon does not actually go out and secure the leases themselves they will hire a land services company also called a broker who in turn has 40-50 independent contractor landmen on staff who will go out and do the title research and try to get the leases signed. They are told by Exxon what the most they can offer for a per acre bonus and the highest royalty allowed and will usually try to start low.

These independent contractor landmen who work for a broker are paid a "day rate". Usually anywhere from $200-$500 a day with other expenses paid if they are working out of town from where they live. They are not incentivized by the number of leases and do not get to keep the difference if they sign you at a lower bonus amount than the max they are allowed to give. I have never heard of that situation in my experience.

This is going to be the case at least 90% of the time when you are approached by a landman, the rest of the time might be guys like WV Mineral Owner below talked about. Those are landmen who work for themselves and will go put up the money to take a lease in hopes that they can "flip" it to Exxon at a higher price and keep the difference and maybe an override.

Now to answer your question about making sure you get the best deal and terms, I would agree about consulting a oil and gas lawyer. Most attorneys will have their own lease form with the best language to protect the mineral owner. They should also knowing the going lease rates in the area and most of the time can negotiate a higher bonus amount that will cover the cost of hiring them and make it worth it.

Hope this helps,

Cam

6

Thank you WV Mineral Owner, Nancy, Carol and Cam for your comments. Much appreciated. If anyone else has any comments or insights, feel free to add to this conversation.

-Herc

7

I agree with both Cam and WV Mineral Owner that you should consult with an attorney who

specializes in Oil and Gas - preferably in your area of interest. I would add that because most

landmen you will be dealing with are independent contractors, you should insist that they disclose

the ultimate Lessee / Assignee of any lease entered into. I've always felt that the Operator you lease

to is the most important consideration to you in deciding among competing lease offers.

8

As an independent landman....

Years ago there were a lot of overrides (80's and before) given for leases, but I personally have never worked for a company that offered me an override or bonus for better lease terms. I have been given bonuses for meeting a goal of a certain amount of acres leased in an area, but each lease was looked at individually. I had no problems dealing with the mineral owners attorneys and even added a clause on one that said we would not place a rig on their land. I guess it really depends on the oil company you are working for as to how honest they are and maybe it is because I am also a mineral owner, but I can't deliberately tell someone to take a certain royalty if they asked me what is best. I have even advised clients not to sell their minerals when I would have received a large bonus if they did. Don't lump us all together. Talk to the landman and most of the time you can tell if they are honest or just feeding you a line.

One thing I'm not sure mineral owners realize is that sometimes it is time sensitive as to how many leases a company can get in an area. If several companies are wanting to drill in a section it can boil down to who has the most leases in the section as to who gets to actually drill the well. I have been crew leader where one of my responsibilities was to look at the section and determine if we could get the majority of the leases in order to drill. If it did not look like we could reach that goal we moved on to another section and didn't waste the investors money. Each county you work in has different challenges.

9

Darla,

In no fashion did my post attempt to speak in reference to every landman, only previous experiences. There are countless horror stories of dealing with the leasing process, like every industry, there is the good, the bad and the ugly. Equally, I am certain that you could share countless stories of crazy demanding mineral owners too.

Unfortunately, there were / are many that jumped into the landman game, with questionable morals, willing to say anything to get a signature. Having been through three production suits by one production company, one suit came without receiving a single call to negotiate, another pertaining to a parcel that already was leased by another production and receiving a notification of suit a week after having signed a lease, one is left to question all aspects of the leasing game.

One thing I am not sure mineral owners, landmen and production companies realize is; sometimes "time sensitive" only pertains to the latter two and not the mineral owner. I remind all, a mineral owner has rights which include the right NOT to lease.

10

It is sad that these things happen as it gives everyone in the oil industry a bad name and it is true that a mineral owner has rights which include the right NOT to lease. Most often it happens in counties where the surface owner owns the minerals, but I have ran into owners that did not want wells drilled on their property and you can't even force pool a section when you can't get any leases there.

The one thing I have learned is you can't rush people to lease. I have eaten at mineral owners tables and sat on their porch and had many a conversation that did not relate to leasing their minerals...just so they could see who I was before we got down to the business of leasing.