Leasing advice

We've received a request to lease rights in Township 7N 8E Sections 23 and 34. First I would be interested to find out if anyone has recently received requests for those sections. I also need some advice. The lease requests are only for 3 acres in one section and 9 in the other for $175 an acre. I've read about the many pitfalls you should look for in a lease - e.g. ensuring production costs are not included in royalties, ensure there is no clause that Lessor warrants the title, ensure Lessee is not being given water rights, ensure there is no extension clause - all of which are in the current lease. Since it is such a small number of acres though I've heard that we have no leverage anyway so just take the money and be glad you got something for it. Also the rights are split between about 14 heirs, so it's a headache for the lessee anyway. Any advice on this? thx

I have no knowledge of these particular sections. However, I would suggest that under certain circumstances it's helpful to create a family LLC to manage your family's properties. If these are the only properties you have, that certainly won't be worth the trouble. But above a certain level, it really simplifies things. It has down sides too. If you need more information about this, I'm sure there are folks here (including me) who would be willing to help you see if this fits your situation. I have no financial interest in helping you in this direction, but I manage such an LLC, and know a fair amount about how they work.

I am interested in leaning more about LLC for my families mineral rights. Do these need to be formed in Okla? No one in our family currently lives there. I would like to figure out how to make dealing with mineral rights simpler for the following generations.

Karen: No one involved in our family LLC still lives in Oklahoma either. An LLC, of course, is a legal entity having some of the properties of a partnership and some of the properties of a corporation. It requires an establishing document, formal registration, and files an annual tax return. The property interests of the family members have to be transferred to the LLC by quit claim. This all means that there is a one-time legal cost, and the cost of filing an annual tax return. An Oklahoma LLC does require an Oklahoma address, and for that we use the Oklahoma-based (Ada) accountant who also does the tax returns. Someone (presumably an appropriate family member, working for free) has to manage it (i.e., negotiate leases on behalf of all the members, collect royalties, distribute net receipts, do basic accounting, and arrange the tax returns). If none of this has yet scared you off, I can recommend an Oklahoma law firm that does this sort of thing regularly, and charges quite fairly, IMO. Also an accountant, for that matter. Again, I have no personal interest in whether or not you do this or use these folks. They're just people who have done well for me. As a point of comparison, my step-mother needed to file a quit-claim deed on a single property to convey it to her daughters, and paid about the same amount that this law firm charged me to research, prepare, and file two quit claims on each of some 100 properties in 13 different counties (using a total of about 14 documents). You can pay a great deal if you use law firms that don't do this as a major piece of their business. :)

That is a lot of information. Thank you for sharing. Question: If I own minerals in Oklahoma and Texas, do I have to have a LLC addresses in each state? Or two separate LLC?

Carol: Our family also owns minerals in both Oklahoma and Texas. We do it all through our Oklahoma LLC.

Rudy: it would be great to get the names & contact info for the lawyer and accountant you used. Thanks!


I also run the family LLC. I agree with Rudy. It is worth it if you have many mineral properties, but maybe not worth it for only a few due to the hassle factor. However, having the titles stay in the same entity for many generations is quite helpful and consolidating interests under one name gives you more bargaining power (although yours is small due to the size of acres.)

Back to your original question. Make sure you lease each section separately. First offers are usually a bit low to the final offers. You want to make sure you get what the market is getting. A good comparison of that are the OCC pooling orders in the vicinity-especially the eight sections contiguous to yours. For example, section 32 just pooled for $250 3/16th or $0 and 1/5th. 31 pooled for #250 3/16th and $50 and 1/5th. The drilling in this area is both vertical and horizontal. I think they may go for horizontal on your sections eventually, but it depends upon the geology.

As far as lease terms, the lease they send you will not be in your favor, so don't sign it and give up. It can be negotiated. If you want to send it to me, I will look it over and tell you the "gotcha's". The clauses you mentioned are important, but there are a few more that you need. Lots of us can help.

Thanks for the info. We have additional family mineral rights in Texas so I think the LLC is a great idea and will look into it. Mr Barnes - I am the original poster (Kathleen) - are you willing to look my contract? If so what's the best way to send it to you (I can scan it in). Also, how do you know what the pooling prices are for that area? Is that available online somewhere? thanks!

If you friend me -touch the blue icon next to this and request Friend-then once I accept, we can chat there and you can send me the contract. It will be super important in here to get no post production charges.

Yes, the pooling prices are public knowledge on the OCC website. I have a paid service that I use that is much less hassle, which is how I found the amounts listed above.

Rudy could you send me the law firm and accountant information that you use? Thanks!

I will research the activity in this area and will repost on this site the information.

I believe M. Barnes has everything covered. Great advice!!!!

I never assume a negative as in “I don’t have any leverage”. I approach things with winning in mind!!! Can’t think of a reason to do otherwise. Some of the heirs might be interested in selling their interest to another family member. Generally speaking, the more acreage, the more leverage however there are always exceptions to the case.

PS. Kathleen, you’ve obviously been doing your homework I would put your clauses in the form of a rider and attach to any lease you may execute.