Lease offered - not yet signed

Oil and Gas Leasing Help
1

I have received a lease offer for my mineral rights in Section 28 of McClain County, OK, from Mr. Charles Doggett, a Landman with Energy Lease Account LLC in Norman, OK . The lease is for 5 years at 3/16 royalty with a $2750 bonus to be paid by draft. It has a shut-in clause at a rate of $1.00 per acre per year with no ending date, it states I must participate in post-production costs, and includes the standard "Lessor warrants and agrees to defend the title" clause. 

After doing some research, I made the following requests, with his response italicized:

1. To know who he is representing (he will only state that he represents many Fortune 500 companies).

2. To change the amount in the lease for the signing bonus amount from $10 to the actual amount offered of $2750 (he responded that this lease is sent to several people and he does not want each person to know what signing bonus amount the others are being paid).

3. To be paid by cashiers check instead of draft (he stated that was possible but that it would take a couple more days).

4. That there be an ending date to the shut-in clause (he agreed to 2 years beyond the 5 year lease).

5. To delete the post-production costs language (he said that the Oklahoma Mittelstaedt Law requires such, and after reading it, although I'm not an attorney, he appears to be correct).

6. To omit the title clause (he responded that he could not as it protects him from paying the wrong person). Since I am in the process of changing the title to the mineral rights from my father's name, who is now deceased, to my and my sibling' names, I understand his point.

I am a novice at all of this, having just found out about having inherited the mineral rights. I've put in some time online and even more on this website in an attempt to educate myself as quickly as possible. While I am waiting for the revised lease, I would like some feedback on: How am I doing? Does anybody see any red flags? Has anybody worked with Mr. Doggett or his company? Any knowledge of this area and producing wells? Should I be able to pick up the cashiers check and hand over the lease at the same time?

2

L. Pope:

You might want to think about adding a "PUGH" clause in your lease. If you are not familiar with this, google the term in and study the definition.

3

Pugh Clause is good .....a force majore clause also a depth cluse releasing you from 100 feet below the depest formation drilled.....how many acres is the $2750 for? Ever consider taking a biger royalty w out bonus?

4

DEPTH CLAUSE: In the event this lease is extended by commercial production beyond its primary term, then on such date this lease shall terminate as to all rights one hundred feet and more below the stratigraphic equivalent of the deepest producing perforations in the well or wells located on the leased premised, or land unitized therewith. If the lessee is in the process of drilling or completing a well at the end of the primary term of this lease, this clause shall become effective upon conclusion of such operations.

AFFILIATE SALES: The gross proceeds accruing to the lessee pursuant to a sale under its non-arm’s-length contract (or other disposition other than by an arm’s-length contract), shall be at least equivalent to (for royalty purposes) the gross proceeds derived from, or paid under, comparable arm’s-length contracts for purchases, sales, or other dispositions of like-quality gas in the same field. Under no circumstances however, shall the value of production be less than the gross proceeds accruing to the lessee (either directly or indirectly). NOTE: Chesapeake is becoming more and more of a “vertically integrated” company (they may sell to affiliates in other words) and so I think it would be wise to include this clause in your lease if possible.

DEDUCTIONS: Royalties payable under this lease shall not be charged either directly or indirectly for the cost of producing, marketing, gathering, storing, separating, treating, dehydrating, compressing, transporting, and otherwise transforming the oil, gas and other products produced hereunder into marketable condition; however, any such costs incurred off the lease which result in enhancing the value of the marketable oil, gas or other products to receive higher net proceeds may be deducted from Lessor’s share of production so long as they are reasonable, and actual royalty revenues increase in proportion to the costs accessed. Notwithstanding the foregoing, payments to the lessee or deductions from the price referenced in the sales contract for certain services such as compression, dehydration, measurement, and/or field gathering to the extent that the lessee is obligated to perform them in order to place the production in marketable condition may not be deducted from Lessor’s royalty.

SHUT-IN ROYALTY: After the end of the primary term, this lease may not be maintained in force solely by reason of the shut-in royalty payments, as provided for in this lease, for any one shut-in period of more than two (2) years or for shorter periods which exceed two (2) cumulative years.

5

All literature that I have ever read say to NEVER warrant the title…and there must be a reason for it because my leasing company had NO problem in me stating that and lining through and initialing the sentence.

6

I told the Landman just that. He said that because (a) the title of record is still in my father's name and he is deceased, (b) my father died without a will and probate was never opened, and (c) my father lived out of state and did not own any property in OK, that clause must remain in the lease. I believe that had I been the legal owner of record, he would not have had a problem removing that clause.

This may be a very naive question, but if all of my siblings and my step-mother are each signing a lease (no one is being left out), then what is the danger in defending the title?

Larry W Banyash said:

All literature that I have ever read say to NEVER warrant the title....and there must be a reason for it because my leasing company had NO problem in me stating that and lining through and initialing the sentence.
7

this may sound almost too simplistic…and if there is someone out there to let me know please let me know also. But as I see it at the present you would be signing a lease to warrant a title that is NOT in your name as of yet. (your father’s) ie, You are assuming a significant responsibility (past taxes, etc) that is not yours, and for who know whatever reason, may never be—but now you have accepted all responsibility for any costs of any type whatever…mind you I am not an attorney, but my son who is an attorney even advised against that clause. it would be nice to have a more clear cut answer from someone.

8

Thank you for alerting me to this issue BEFORE I sign the lease! If I get the title recorded into my name before I sign the lease, am I still at risk defending the title?

9

Again, I am just a poor old retired GP–but I would think you would be ok if it were in your name. When I signed the lease the property was still in my mother’s name–hence striking the clause and any financial responsibility she may have had pending. is there a lawyer around here on this forum? Hope not to be too poor much longer…

10

hello, I have some mineral rights in Sec. 24-5N-2E...I've had this for a while but just recorded the deed and mineral assignments last year. I don't know if they know I have this interest and would like to lease this. I see yours is Sec. 28 so thought it might be getting some action. do you have a number for the company that contacted your? I would like to give them a call and see if they are interested in leasing. thanks and look forward to how you made out on the lease, etc. or if you even leased with them.

11

Do you have mineral rights in carter or Stephens county? If so please contact me I may have been llooking for you to lease

Elizabeth Kirkpatrick said:

hello, I have some mineral rights in Sec. 24-5N-2E…I’ve had this for a while but just recorded the deed and mineral assignments last year. I don’t know if they know I have this interest and would like to lease this. I see yours is Sec. 28 so thought it might be getting some action. do you have a number for the company that contacted your? I would like to give them a call and see if they are interested in leasing. thanks and look forward to how you made out on the lease, etc. or if you even leased with them.