Magnolia Oil and Gas Lease Offers

I received a (Producers 88) “paid up” oil and gas mineral lease offer on my minerals and surface from Magnolia Oil and Gas, 1/5th royalty but no bonus amount or price per acre is listed or known. The lease also gives them total freedom to utilize surface without any additional compensation. I am in Rutersville (Franklin Lewis Survey A-64).

I’ve never leased the land before, and have no clue how to handle this. It’s only 30 acres, so hiring a lawyer is not cost feasable, any information would be appreciated.

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No, no and no…

There is no such thing as a standard Producers 88 lease even if it says so at the top. There are probably multiple clauses in that lease that are totally in the lessee’s favor and not in your favor.

You want your minerals and your surface on separate leases if possible.

Any legitimate offer will have a per acre price and the going rate is usually 25% in TX. There should be a per acre price and a bonus for the mineral lease and there should be separate compensation for a surface lease. Big red flags that this offer did not have those.

You absolutely need to be compensated for any surface damages. Good surface leases will protect you more than a simple blanket lease.

30 acres is actually quite a lot. In Texas, it makes sense to hire an oil and gas attorney because an attorney’s fee can be very small compared to the amount of money that you may lose on a bad lease.

If you are brand new, I suggest you read the Mineral Help at the top of the page. Read everything on the forum about your county and the surrounding counties near you. Read about leasing, surface issues, etc. Ask tons of questions, find out if there is drilling near you. Learn how to use the RRC database.

Don’t sign that lease. Every clause in there is negotiable and should be negotiated to be more in your favor. There are some attorneys listed in the directory above. Some of them may help you for a portion of the bonus so you won’t be out any up front money.

You might want to go to the University of Texas lands website and look at samples of their leases and compare to the one you have and you will probably notice quite a difference.

JK: I’m just another mineral owner, so I am no professional expert; but, as a mineral owner, with considerable experience over the past 40 years, IMO, you are looking at leasing your minerals in totally the wrong way. First there are rarely two mineral leases that are the same and very rarely are there two companies or leasing agents that do things these same way. Again, IMO, the mineral owner needs to make sure they aren’t doing something stupid when signing a mineral lease, no matter the lease bonus money or the % royalty since there are many aspects of a lease more important than the two money issues, so, again, IMO, no mineral owner should ever sign a lease without expert help. Doesn’t have to be an oil and gas attorney; but, we need expert help because the potential negative risk, especially for small acreage is greater than the short term rewards. Good luck!

I haven’t signed anything yet, and will not do so until I get exactly what I want. (Mainly no surface use under the minerals lease.)

I don’t need the money, and no one can replace the 200 year old live oak trees that give the property it’s true value!

I’m also haggling with Seitel Seismic over their seismic permit. Seismic is something I do have a great deal of expertise in having worked on a seismic crew as a Health Safety and Environmental manager for 10 years.

My main concern is whether or not Magnolia can force me. (I only own 25% of the minerals, 100% of surface w/ ingress egress control)

I pretty certain most of my neighbors have already signed from what I’ve seen on the lease alert website. How can I find out what everyone else is getting, or got without asking them?

Most people around me are pretty tight lipped about things like that.

The mineral rights have dominance over the surface rights, so you need to make sure you get a really good surface lease if you want to protect the trees.

I’ll never sign a surface use lease for any amount of money.

Can they force if the other minerals owners signed?

I think you can put on the lease not to touch live oak trees put a pink or yellow ribbon on the trees they are to be not touched whatsoever

As I said, the Mineral rights have dominance over the surface, so you would be wise to protect yourself with a surface lease, otherwise, they can use your surface however they want with regard to the drilling (within reason). It has been that way for centuries. Most of the mineral leases have rather generic wording to not drill within 200 feet of a house or barn, pay for crops, etc. If you have valuable trees, then you need to get an attorney and get a good surface use lease (and hope they have the drilling pad location not on your land.)

JK: Having problems getting this posted; but, here goes again. Sounds like you have enough experience to lead you in the right direction and will make the right decisions. You are very correct that even one of your giant live oak trees is worth more than the bonus you might get. With that said, having only 25% of your minerals could give you some major headaches, so get some expert help before it is to late. As for tight lipped neighbors and for what reason, I can’t understand; but, you are correct. IMO, that is very selfish and ultimately quite stupid. We should all be sharing and trying to help each other rather than playing the fools game. Get some help and Good luck!

JK,

I’ve done a lot of Right of Way work on properties in your immediate area. Odds are, some ranches I worked on are your neighbors. All of the leases I worked on are now operated by Encana. You are right, there are some enormous Oak trees in that part of the county. It was pretty standard practice for us to include language on behalf of landowners in our surface use agreement that stated if an oak tree was a certain diameter in width, (I can’t recall exact diameter but it was small, only a few inches), we weren’t allowed to cut it down. I can’t even ballpark how many times we had to reroute pipelines to avoid big old oak trees on those properties. Hopefully, you can request the same provisions and have Magnolia honor that.

My mistake, I thought this was a thread about Karnes and just realized you said your property is in Fayette County. I hope you can still get provisions in a surface use agreement to protect those beautiful big oaks. Best of luck.

JK

You said you own 25% of the minerals but 100% of the surface on your 30 acres with ingress and egress control. The question would be, do you have “full surface control”. It sounds like you do if you control ingress and egress but the wording in your acquisition deed could be important and there could be questions whether the party you received surface control from actually had full surface control that they could convey to you.

If you do have full surface control then, in my now-lawyer opinion, there is nothing that would stop you from requiring any mineral lease you consider to include a “no surface use” clause that prevents any entry onto the surface of your property and restricts any mineral development to directional drilling from a location off your property or through pooling. If you in fact have full surface control in my opinion the statements about the mineral interest being superior to the surface interest would not apply and the owners of the other 75% mineral interest couldn’t sign anything granting rights that would be superior to your control of the surface.

A Producers 88 (4-89) is a standard excepted format Lease for Your part of Texas. The base of the Lease will contain 14 Paragraphs. You can add an Addendum which overrides certain parts of the language contained in what is called the boiler plate (Standard Lease Language). As far as price per acre and bonus considerations they can be added within the body of the addendum and there is standard language for No Surface Use or No Surface Use Without Prior Written Consent of Lessor. Minerals and Surface are never separated in standard Leasing even if you hire an Oil and Gas Attorney. The Base of the Lease and the Addendum are covered in both. Do some research and find out what your neighbors and or what the averages are for your area. I have to also inform you 25% percent is not standard. The standard for a basic lease is 20% (1/5) that can be negotiated but is normal for an oil and gas lease. I am an oil and gas lease analyst as well as a lease holder. I read leases for a living everyday. I hope this helps but I would get examples of the addendum pages I spoke of and decide what language you require. You can also speak with the particular landman representing the Oil and Gas Company you are dealing with and voice your concerns and what needs to be in the lease for you to sign. A reputable Oil and Gas Company will respect your wishes and work with you as to the language that needs to be in the lease. At the end of the day they want to lease you…

They can force you, unfortunately. The mineral estate is primary in these situations and you can’t deprive 75% owners of the ability to develop their minerals. You are better off with an agreement in place, so you can have some control. Best to contact an attorney to negotiate.

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That’s “everyone else is signing it” flawed logic.

Just because numerous people were ignorant enough to sign it, does not mean it’s a good lease agreement.

From the lease agreement I recieved:

  1. Description. Lessor, in consideration of Ten Dollars And No Cents and other valuable consideration ($10.00 and OVC), in hand paid, of the royalties herein provided and the covenants herein contained, hereby grants, leases and lets exclusively to Lessee, for the purpose of exploring for, geophysically or by other means, developing, producing and marketing oil and gas of any nature or kind, along with all hydrocarbon and nonhydrocarbon substances, whether liquid or gaseous, produced in association therewith including sulphur, helium, nitrogen, carbon dioxide and other commercial gases as well as hydrocarbon gases (collectively referred to herein as “covered minerals”), and marketing or rendering more marketable or more valuable covered minerals, including without limitation laying pipelines for gathering and/or transportation and construction of treating, separating, dehydration, processing or other facilities and grants the right to inject water or other produced liquids into non-freshwater bearing formations underlying the leased premises, the following described land (the “leased premises”) in Fayette County, Texas, to-wit:…

  2. Ancillary Rights. In exploring for, developing, producing and marketing covered minerals, in primary or enhanced recovery, Lessor hereby grants and conveys to Lessee the free right of ingress and egress along with the right to conduct Operations on the leased premises as may be reasonably necessary for such purposes, including but not limited to geophysical operations and any other Operations on the leased premises, lands pooled or unitized therewith or lands adjacent thereto, and the construction and use of roads, canals, pipelines, tanks, water wells, disposal wells, injection wells, pits, electric and telephone lines, power stations, and other facilities deemed necessary by Lessee to discover, produce, store, treat, and transport production in connection with said wells. In connection with Lessee’s Operations, Lessee’s ancillary rights granted herein shall apply to both surface and subsurface of: (a) the entire leased premises described in Paragraph 1 above, notwithstanding any partial release or other partial termination of this lease; (b) all lands pooled or unitized with the leased premises; and © any other lands contiguous or adjacent to the leased premises described in Paragraph 1 above, notwithstanding any partial release or other partial termination of this lease, in which Lessor now or hereafter has authority to grant such rights. Such ancillary rights include, but are not limited to, the right to use the subsurface of the leased premises in connection with a well to be drilled under but bottomed off the leased premises. No surface location for a well shall be located less than two hundred (200) feet from any house or barn now on the leased premises or other lands used by Lessee hereunder without Lessor’s consent. In addition to the ancillary rights described above, Lessee shall have the right at any time to remove its fixtures, equipment and materials, including well casing, from the leased premises or such other lands during the term of this lease or within one (1) year following the expiration thereof.

Not a single word about compensation for surface use.

I’ve spoken with an attorney, and because I was granted surface control of ingress/egress over the minerals estate when I bought it, they cannot force me.

JK Mabry…The failed logic is understanding excepted standard formats for Oil and Gas within Texas. I did not say you needed to except certain language rather that this is a Texas Legal vetted format. It is been through the process many times. You as a Lessor can control the language within the body of the format. In an Addendum you simply outline your requirements i.e., No Surface Use, No Pipeline, Surface Use Damages, restrictions regarding use of water etc…, Bonus considerations, percentage per NMA, all are addressed within this format. The initial Lease you receive is a base to begin negotiations with.

Do not sign it or return it. You may want to send them a letter officially rejecting their offer. Ask for an offer of bonus money. just read some other posts where people were unaware that someone was drilling on their acreage. A producer 88 is about the absolute worst mineral lease form out there.

As one who has handled my family’s O&G interests for over 45 years, I can safely say there is no such thing as a “Standard Producers 88 Oil and Gas Lease” printed form. Our files go back to the 1930s with interests in 5-6 Texas counties, Oklahoma and New Mexico. When I cleaned up the files the last time, I had a dozen Producer 88s of which only two are identical. Those two were from the same printer in Rockdale.

I am a member of the State Bar of Texas and its Section on Oil and Gas (not board certified). Over the years numerous article writers agree that the typical Producers 88 lease has nothing in it that sets out the details of any obligations or responsibilities owed to the landowners other than the royalty percentage. As an example, in 1933, in a Texas Civil Appeals Court case (Flagg v Texas Co., 57 S.W. 2d 87) the Court ruled the an option to lease calling for the use of an 88 form lease was invalid because, it was too vague to be useful given the number of different “88” forms on the market. In other words, while there are similarities in all “Standard Producers 88 Oil and Gas Leases,” there are also large numbers of variations which are generally in favor of the oil company offering to lease your minerals. Hence why it is titled “Producer’s” and not “Owner’s” 88.

Companies regularly revised the form but still type “Producer’s 88” in the header creating the impression that the lease is a “standard” form. The “standard” form is substandard except for the company wanting your minerals. In that there is no “standard” lease form, a lessor who is asked to sign a lease should be careful and read the specific terms of a proposed lease, and be willing to negotiate its terms.

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Generally you are correct re: no standard “producers 88”. I did have a fun lawsuit once where there was an agreement to enter specific described Prod. 88 lease. My client was very old school and actually had a pad of tear-off “Producer’s 88” leases from Pound Printing Co. on Fannin Street in Houston - I believe 7/69 version. We of course argued that this was a definite, certain lease the parties agreed to enter. Now in then age of computers, there is definitely no standard form - and it appear variations have been floating around for years.