I am wondering how common it is to be asked to sign a Letter of Intent (LOI) prior to signing an O&G lease? The amount of mineral acreage is high, but only about 40 acres is definitely free to lease. The remaining acres need to be researched and old nonproductive leases terminated if possible. The O&G Co is offering good terms on all the acres and will pay the bonus within 30 days on the clear acres, 90 days on the acres they will research and work to clear. They want an LOI that we will lease any and all acres they clear to them.
Personally, I do not sign letters of intent as that would prevent me from talking to other leasing agent who might offer better terms as drilling gets closer (exactly what they are trying to prevent). If you have not leased before, recommend that you get a good oil and gas attorney to review the draft lease as they are rarely in the mineral owner’s favor and require quite a bit of editing. A local attorney may have knowledge of better offers in the area. Also, NEVER hand over a lease without getting paid the same day. Your attorney or accountant can hold the signed lease until payment is received. You do not want a lease to be filed without you already having the funds in the bank. (30 days often means six weeks of business days. 90 days means months of waiting time!)
I understand that title must be run in order for them to be able to pay and that takes time, but protect yourself by getting good legal advice on the clauses and not handing over a lease without payment. The wording in the lease clauses is way more important than the bonus they may be offering.
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As a Landman myself I would never sign a lease without funds in hand!
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You want the oil company to clear up all the mess for free? You should at least give them right of first refusal!
Basically if they want to lease it will be the day the landman first contacts me! If it takes 3 months to complete the title search that’s just TOUGH! Landmen tend to take their own “sweet time”!
Landman do not necessarily take their “sweet time” title can be complicated. Most mineral owners do very little to themselves to insure they have clear and marketable title, usually their attitude is “oh well, the oil company will take care of that”
Retired Landman
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What does this mean?
This I have found to be a common obstacle in both mineral rights sales and leases. Do not underestimate the complexity of title issues. In our case, the ownership dated back to the 1870s and we are still have some unresolved details. We were missing a signature on a bank document that was simply a clerical oversight. There has also been conflicting information and other discrepancies. On occasion, I know of offers that have not been realized due to the complexity of title. It’s not cheep or easy to work out title on some of these leases and sales and no one works for free.
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Drill a $30,000,000 well and not be pretty sure of the title before the project was started? As long as the company can “stall for time” before they have to pay it seems that’s what a lot of them will do.
There are two different title opinions in the timeline of a well. The first is called the drilling or leasing title search. Some landmen do a spectacular (but quite tedious) job of clearing title before leasing. Some do not depending upon the requirements they are given and the timeline which they are given. Leasing bonus amounts are only a small portion of a company’s budget for a well, so depends upon how much they care about accuracy at that point in time.
The second title search is the very important one. It is the Division Order title opinion and is done by a different attorney’s firm because it is tied to who gets paid what amount for the successful well. This is the one that really counts.
Both can take weeks to months to accomplish based upon the complexity of the area and the generational complexity within certain families.
To me it means if I am contacted with a proposed offer to lease my mineral rights on March 1st and It takes them two months to do the title and bring a cashiers check the lease start date WILL BE MARCH 1.
Ive never had a problem with getting the start date of a new lease, but all my leases title verfications are 30 days or less. It takes awhile after you sign a lease for 30mm well for the title attorneys to render a title opinion and then the operator to go through the regulatory process. You could solve all the problems you are griping about before signing the lease with simple neogtiations.
Very good analysis. Often owners sign an affidavit of heirship and get a bonus only to be told that a probate is needed later on. Sort of “shoot first and ask questions later”.
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