Why are we making thing difficult? It seems to me the best way to handle the problem is to have an amicable discussion between the prospective leasee, lessor and their oil and gas attorney. You always should have your own attorney craft the document.
We aren't. The advice I gave to William was very simple. If he has any questions or problems with any of the provisions in his lease, then he should ask or tell the person who presented it to him. An attorney is an additional expense that you obviously feel comfortable incurring. It may not be the best option for everyone. I had already said that there should be a discussion between lessor and lessee or its agent. You are wanting to now bring in an attorney. That can make things more difficult.
I feel better having a competent oil and gas attorney preparing our documents. Each to their own.
William Matthews,
The best way I have found to refuse an extension during negotiations is to point out that continuous drilling operations will extend the lease beyond the primary term of the lease if they require more time. I like giving them a reason to begin drilling sooner rather than later. And if they cannot get the operations started before the end of the primary term I am willing to negotiate another lease at that time because I want to get my minerals produced. This still gives the Lessee an option to "extend" a lease with me without binding me to what was negotiated with them three years ago.
If they still demand an option to extend for another two years, and everything about the rest of the lease is acceptable to you, then require that any wells completed during the extension period have a 2.5% increase in royalty over what was agreed to in the primary term.
Happy negotiations.
Tell them you won't sign. They can change it or else...period - end of story.
Many leases these days include extension clauses by default, so I always look for them. Rather than just "removing" it without asking first, I would suggest contacting the lessee/landman directly. Tell them that you'd rather not have a lease extension option in your lease, but that if they feel they need more time as expiration nears, you'll be happy to consider another lease with them, at the going rate at the time; but don't want to potentially tie up your minerals at today's rates for longer than the initial primary term.
If my lessee will either delete the extension option of offer to double the original bonus on exercise of same then we have a deal in most cases. If not, then I usually politely decline their offer.
Frederick M. "Mick" Scott CMM, RPL
The logic to me is that if they have not developed within 3 -5 yr, why would I expect them to in the next 3-5 yr.? AND, obviously, as has happened in the Fayetteville Shale, an awful lot of leases were not renewed because they were otherwise condemned as uneconomic by drilling... any offer to extend was made at a much lower bonus and/or royalty
Do you mean that any offer to sign another lease after the end of the primary term was made at a much lower bonus and/or royalty? It would be impossible for "any offer to extend to be made at a much lower bonus and/or royalty". That would be stipulated in the original lease. They would be bound by those terms if they exercised the option to extend.
Do you think they should renew leases condemned as uneconomic by drilling? What would be the point? Give away money and get nothing in return on their investment.
Mr. Shields is absolutely right. It does not take years to drill a well. I can see it taking a year, possibly two to line everything up so the lessee should start as soon as possible, but many don't because they are simply speculators, have no intention or ability to drill wells.
Should the value of your minerals increase, your extention just gave the lessee a payday for the cost of the ink to write the extention clause.
I don't understand his logic. He expressed concern about drilling condemning the minerals. In the context of his statement, that drilling would happen within the original primary term of the lease. Then he goes on to write that the terms would be lower on any extended leases. No they wouldn't. The leases most likely would not be extended. If they were, it would be impossible for the terms to be any lower than those stated in the original lease regarding the option to extend. If there was no option to extend, and drilling during the primary term of the original lease served to condemn the minerals, and someone offered him less, well then, what the hell would he expect? In that scenario, he would be lucky to get any new offers.
William,
While I don't know what state your minerals are in, it's generally accepted that the terms of an Addendum will override the terms of the contract it's attached to, if they differ. So I think you're on the right track. Put a clause in your Addendum stating that the lease is for X number of years, no automatic extensions. As there are a number of other things that could extend the lease (as you've seen from the discussion on your question) you really should have an oil and gas attorney from the state the minerals are in advise you on how to write the Addendum.
We have narrowed it down to either Colorado or Baja Oklahoma.
I agree the addendum will override any conflicting lease terms, but I'd still check with them first to make sure they're okay with any addendum you submit or you'll be wasting a stamp potentially.
Frederick M. "Mick" Scott
For what it is worth on the question of using an oil and gas attorney, if you don't, please make sure the contract contains a Pugh clause, a non extension clause, an arms length sale clause, a no deductions clause, also a clause requiring workman's comp insurance and other liability insurance.
Damages should be defined. You need to know what you will be paid for what kind of damages. Piping should be placed well below the plow line. You need to make sure they place cattle guards and the type of cattle guard that should be used.
How and where the property is entered and exited should be fixed. The work site needs to be fence properly. The clean up and re seeding should be mentioned.
We also prohibit the introduction upon the work site of dogs, firearms, pyrotechnics, alcoholic beverages and illicit drugs.
The devil is in the details. I am not a lawyer, but I learned a lot the hard way. I wish you luck.
I would oppose the inclusion of cattle guards unless it was necessary.
The insurance is ridiculous if an indemnification clause is added.
Well, each monkey to his own peanut. Do what works for you.
http://www.mineralrightsforum.com/profiles/blogs/3-year-plus-2-year-kicker
T L Shields said:
The logic to me is that if they have not developed within 3 -5 yr, why would I expect them to in the next 3-5 yr.? AND, obviously, as has happened in the Fayetteville Shale, an awful lot of leases were not renewed because they were otherwise condemned as uneconomic by drilling... any offer to extend was made at a much lower bonus and/or royalty
Frederick, I've always talked with the landman, come to an agreement, and then drafted a document. It seems to work fine. I'm currently working with a client who specifically requested that I put together a lease, let them sign it, and send that to the landman without any warning. My client thinks that the negotiating tactic of putting your terms in writing is more powerful than working things out over the phone and through email. He might be right. We'll see. I'll try to remember to let people know how it works out, keeping in mind that one instance of it working or not working is not necessarily predictive of what would or would not work in the future with another company/landman.
I think it depends on what your client is trying to ambush them with. It could work against him. If the provisions are onerous, they will probably strike the landman and his client co. in a more negative way, than if they were discussed in advance. They may feel that your client is being too abrasive and over-the-top, and may be less likely to want to deal with him.
That's certainly a possibility, and something we discussed. I'll let you know how it goes.