Leasing to the Operator vs any other entity


#1

I’m past the initial lease negotiations and finalizing the transaction. Are there any advantages or caveats to leasing to the producer vs any other entity? What are the pros and cons to each?


#2

The terms of the lease are the most important issue. The operator must abide by them even if they come from another lessee. Sometimes, the operator is fine to lease with. Other times, you can get a better lease through a different lessee who might want a small working interest in the well, but not want to operate.


#3

Thank you for the input. Of course producer is trying to convince me I am better off signing with them!


#4

The most important item is whether they are trying to charge you post production charges and other things that are not favorable to you. There is no such thing as a “standard lease”. You didn’t mention which state. What state are you in. The laws are different by state.


#5

I am in oklahoma. Have a clause regarding that to prevent those pesky extra charges/deductions!


#6

Excellent, then if you have no post production charges, a commencement of drilling clause, a depth clause, a limited shut in time frame, no warranty of lease, no two year extension and no top lease clause, then go with whomever gives the highest bonus for the highest royalty.