I received an offer to lease and the front page reads like this .
They want to lease for $500.00 per net mineral acre signing bonus, a 25% royalty, with a primary term of 3 years , with the option to extend the primary term for an additional two years.
This I understood .
Next page is where I need help understanding what it means.
This is on the payment request form.
It reads:
Lessor, for and in consideration of Ten and No/100 dollars ($10.00) and other good and valuable consideration
Paid by Lessee, the receipt and sufficiency of which are hereby acknowledged has executed a Paid-Up Oil and Gas Lease dated effective June 8, 2017. (The “Lease”) , by which Lessor has leased all of its interest in and to the oil, gas, and all other minerals in, under, and which may be produced from the following described land (the
Leased Premises") to Lessee.
This is what I need explained to me so I understand what is to happen.
I would appreciate anyone explaining the $10.00 part to me.
Traditionally, the 10.00 is added in, so nobody can see what the real payment was. Please note, it does not include the 500.00 / NMA, so as your neighbor, I cannot review your lease to see what you received and base my negotiations on.
One aspect that bothered me, admittedly I only saw what you shared, but at what rate is the two year extension?
That alones sets off alarm bells in my opinion. I would urge you to spend $500.00 to have an attorney review the offer, it is a cheap insurance payment. Those two years is sufficient to pay for the attorney in the long run.
In order to have a valid contract, "consideration" has to be received, so $10 has traditionally been used. It also as the other responder said, to allow the details of your lease to be hidden from other landmen, etc. You are giving a "paid up lease" which means they can sit on it for three years before drilling. In older leases, the term might be a year or 18 months to force drilling. You can accomplish this by adding a continuous development clause to your lease. I would hesitate about the extension. I don't know where your property is, but $500 might be low to start with. I would make sure that the extension will be granted at the payment of $xx dollars per acre, in addition to the payment for the initial term.
I would also focus on reducing any post production costs in the royalty section
You are welcome to email me directly on this site if you are sincere in requesting names of attorneys that I have used, typically for less than $500.00, to review leases. Even if three times that price, two years of an extension with unclear language, will pay for the expense associated with reviewing a lease.
You shouldn't accept their lease. It will protect their interest at your expense. Have your lawyer prepare a lease that protects your interest. You should have a Pugh clause included in the contract. You should have a clause requiring them to have liability insurance. If someone got hurt on the rig, you could be stuck big time. You need to make sure that they clean up the mess that they will make. Pipes should be buried below plow depth. How will they access the property? That needs to be in the contract. You don't want those big trucks driving all over the place. Beware of production and transportation costs. They will eat up all of your royalty.
There are a whole lot of issues that need to be addressed. That is why we have lawyers. It will be money well spent.
If you own the surface rights you should take all this into consideration, but if not you don't need to worry about most of the things brought up here.
I would tell them you are not interested in including a two year option in the lease. You want the option of negotiating a brand new lease at the end of the three year term, if they don't drill. You don't want to be locked in at a set price per acre for an additional two years, the going rates could have changed dramatically in those 3 years and you could be leaving money on the table.
You should also include a pugh clause and no-deductions clause among others. Do a search on the forum and you should be able to figure out the clauses to include.