I have read and heard many conversations about negotiating leases on your mineral interest in regards to deductions-cost and whether the production is paid at the mouth of the well or as a product the company sold. I have came up with a few examples of a lease exhibit A that dictates how royalties should be paid and depths dropping out after certain periods of time, etc.
The problem I’m having is every time I submit this exhibit A to a leasing company they always want to re-write it for their benefit. I have yet to get one to accept my terms. How are the rest of you getting terms you want negotiated in your favor? I am not having any luck at all. Thank you in advance for any suggestions-advice.
Dear Jay,
The answer falls into a couple of areas.
The acreage position that you either own or control.
Their perception that you are not retractable on this item.
Where your property is located.
Having a lease form that multiple 'difficult or heartburn inducing" provisions. That way you can sacrifice a pawn to win a king.
Having an already established reputation for being firm om those points. In the alternative, hiring someone who does have a track record of successful dealing with that group or in that area.
Sometimes the land strategy does not lend itself to gaining favorable clauses
Best
Buddy Cotten
It's possible that what you want is too onerous since everyone is rejecting it or modifying your provisions.
They may figure that it is better to not lease you, than for your terms to ruin their objectives.
Thank you Buddy and Dave. I will look it over again and punt. I don’t think it’s too onerous since it came from an Attorney.
They are not always whatever the opposite of onerous is.
Jay:
As an attorney, I agree with Buddy and Dave. And Dave (being very polite) is correct about us not necessarily being the "opposite of onerous." Sometimes you can lawyer a deal to death. I have negotiated on both sides of leasing, both with and without lawyers on the opposing side. Remember, the ultimate goal is to obtain a mutually beneficial lease, remembering too that the oil company is taking all of the risk and the mineral owner is gaining from that endeavor. Of course, the oil company would not have the play if it weren't for a lease and therefore the oil company needs to treat the mineral owners fairly. But, as both Dave and Buddy point out, this does not mean that every mineral owner will get the exact same thing.
Wishing you well in your endeavors.
Jay,
The oil companies can lawyer you to death. My exhibit A is as follows. I do not request formation above, production to be released. No matter how deep they drill, everything 100ft. below the deepest production is released at the end of the primary term.
EXHIBIT “A”
This Exhibit "A" is attached hereto and made part of that certain Oil and Gas Lease dated __________________________, by and between
, as Lessor and ______________________ as Lessee covering lands located in Section ____-___-___ all in County, Oklahoma.
The following provisions are part of this oil and gas lease and, if there be conflict between these provisions and any of the foregoing provisions, the following provisions shall apply and take precedence.
-
The royalty payable under this lease shall be calculated to all oil (including but not limited to condensate and distillate) and gas (including casing head gas) and shall be paid on the gross proceeds sold, less a proportionate part of the applicable severance and/or excise tax or tax of a similar nature. LESSOR's royalty interest shall be free from the cost of selling, producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting and marketing said oil and gas, condensate, distillate, and any other substance covered hereby.
-
Notwithstanding anything to the contrary contained in said Oil and Gas Lease, in the event a portion or portions of the land herein leased are pooled or unitized with other lands so as to form a pooled unit or units, operation on, completion of a well upon, or production from such unit or units will not maintain this Lease in force as to the lands not included in such unit or units.
-
Notwithstanding anything to the contrary in said Oil and Gas Lease, this Lease may be maintained after the expiration of the primary term by the shut-in royalty payments as provided in said Oil and Gas Lease for no longer than twenty four (24) consecutive months without the express written consent of the LESSOR, which will not be unreasonably withheld, if consent is justifiably for the benefit of LESSOR.
-
This Oil and Gas Lease shall terminate as to all depths 100 feet below the strata graphic equivalent of the deepest producing formation upon the expiration of the primary term.
-
LESSEE, its successors and assigns shall indemnify and hold LESSOR harmless from and against any and all liability for loss or damage to any property or person, including the United States of America, arising out of or in connection with the operations of the leased premises whether through negligence or otherwise, including but not limited to those operations which result in any way, directly or indirectly, in violation of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA 42 U.S.C., Article 9601, el seq., as amended).
-
Notwithstanding anything to the contrary contained in said Oil and Gas Lease, LESSOR does not in any way warrant or agrees to neither defend the title to the lands herein described nor indemnify LESSEE of any adverse claims thereto.
-
If any party to this Lease must bring a civil action to enforce any provision herein, the prevailing party shall be allowed their reasonable attorneys fees and costs including appeal.
8. PAYMENTS TO LESSOR. Lessee covenants to pay Lessor as follows:
(A) SIGNING BONUS: Lessee agrees to pay Lessor a signing bonus in the amount of __________________ Dollars ($_________) by company check or in United States Currency. The bonus payment shall be paid to Lessor at the time that Lessor delivers this Lease to Lessee. All bonus payments, rentals and royalty payments made to Lessor under this Lease are non-refundable. Failure by Lessee to pay the bonus payment as set forth above shall render this Lease null and void. Should Lessee file this Oil and Gas Lease of record, or a notice or memorization of same prior to paying the signing bonus as provided above, Lessee shall pay to Lessor treble the amount of the signing bonus as liquidated damages and the lease shall continue to be null and void and of no further force or effect.
Signed for Identification by:
______________________________
I think under 4., stratigraphic might be better, as one word.
Tom Ed Moore said:
Jay,
The oil companies can lawyer you to death. My exhibit A is as follows. I do not request formation above, production to be released. No matter how deep they drill, everything 100ft. below the deepest production is released at the end of the primary term.
EXHIBIT “A”
This Exhibit "A" is attached hereto and made part of that certain Oil and Gas Lease dated __________________________, by and between
, as Lessor and ______________________ as Lessee covering lands located in Section ____-___-___ all in County, Oklahoma.
The following provisions are part of this oil and gas lease and, if there be conflict between these provisions and any of the foregoing provisions, the following provisions shall apply and take precedence.
The royalty payable under this lease shall be calculated to all oil (including but not limited to condensate and distillate) and gas (including casing head gas) and shall be paid on the gross proceeds sold, less a proportionate part of the applicable severance and/or excise tax or tax of a similar nature. LESSOR's royalty interest shall be free from the cost of selling, producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting and marketing said oil and gas, condensate, distillate, and any other substance covered hereby.
Notwithstanding anything to the contrary contained in said Oil and Gas Lease, in the event a portion or portions of the land herein leased are pooled or unitized with other lands so as to form a pooled unit or units, operation on, completion of a well upon, or production from such unit or units will not maintain this Lease in force as to the lands not included in such unit or units.
Notwithstanding anything to the contrary in said Oil and Gas Lease, this Lease may be maintained after the expiration of the primary term by the shut-in royalty payments as provided in said Oil and Gas Lease for no longer than twenty four (24) consecutive months without the express written consent of the LESSOR, which will not be unreasonably withheld, if consent is justifiably for the benefit of LESSOR.
This Oil and Gas Lease shall terminate as to all depths 100 feet below the strata graphic equivalent of the deepest producing formation upon the expiration of the primary term.
LESSEE, its successors and assigns shall indemnify and hold LESSOR harmless from and against any and all liability for loss or damage to any property or person, including the United States of America, arising out of or in connection with the operations of the leased premises whether through negligence or otherwise, including but not limited to those operations which result in any way, directly or indirectly, in violation of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA 42 U.S.C., Article 9601, el seq., as amended).
Notwithstanding anything to the contrary contained in said Oil and Gas Lease, LESSOR does not in any way warrant or agrees to neither defend the title to the lands herein described nor indemnify LESSEE of any adverse claims thereto.
If any party to this Lease must bring a civil action to enforce any provision herein, the prevailing party shall be allowed their reasonable attorneys fees and costs including appeal.
8. PAYMENTS TO LESSOR. Lessee covenants to pay Lessor as follows:
(A) SIGNING BONUS: Lessee agrees to pay Lessor a signing bonus in the amount of __________________ Dollars ($_________) by company check or in United States Currency. The bonus payment shall be paid to Lessor at the time that Lessor delivers this Lease to Lessee. All bonus payments, rentals and royalty payments made to Lessor under this Lease are non-refundable. Failure by Lessee to pay the bonus payment as set forth above shall render this Lease null and void. Should Lessee file this Oil and Gas Lease of record, or a notice or memorization of same prior to paying the signing bonus as provided above, Lessee shall pay to Lessor treble the amount of the signing bonus as liquidated damages and the lease shall continue to be null and void and of no further force or effect.
Signed for Identification by:
______________________________
2. Might be considered unreasonable in that they are paying for a lease that will extend through the agreed upon primary term. There would be no good reason for them to agree to give up any acreage under lease prior to the expiration of the primary term. 2., as stated, would require them to do that.
I would only agree to accept 2., if in the last sentence it was amended to read, will not maintain this lease in force beyond the end of the primary term.
Tom Ed Moore said:
Jay,
The oil companies can lawyer you to death. My exhibit A is as follows. I do not request formation above, production to be released. No matter how deep they drill, everything 100ft. below the deepest production is released at the end of the primary term.
EXHIBIT “A”
This Exhibit "A" is attached hereto and made part of that certain Oil and Gas Lease dated __________________________, by and between
, as Lessor and ______________________ as Lessee covering lands located in Section ____-___-___ all in County, Oklahoma.
The following provisions are part of this oil and gas lease and, if there be conflict between these provisions and any of the foregoing provisions, the following provisions shall apply and take precedence.
The royalty payable under this lease shall be calculated to all oil (including but not limited to condensate and distillate) and gas (including casing head gas) and shall be paid on the gross proceeds sold, less a proportionate part of the applicable severance and/or excise tax or tax of a similar nature. LESSOR's royalty interest shall be free from the cost of selling, producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting and marketing said oil and gas, condensate, distillate, and any other substance covered hereby.
Notwithstanding anything to the contrary contained in said Oil and Gas Lease, in the event a portion or portions of the land herein leased are pooled or unitized with other lands so as to form a pooled unit or units, operation on, completion of a well upon, or production from such unit or units will not maintain this Lease in force as to the lands not included in such unit or units.
Notwithstanding anything to the contrary in said Oil and Gas Lease, this Lease may be maintained after the expiration of the primary term by the shut-in royalty payments as provided in said Oil and Gas Lease for no longer than twenty four (24) consecutive months without the express written consent of the LESSOR, which will not be unreasonably withheld, if consent is justifiably for the benefit of LESSOR.
This Oil and Gas Lease shall terminate as to all depths 100 feet below the strata graphic equivalent of the deepest producing formation upon the expiration of the primary term.
LESSEE, its successors and assigns shall indemnify and hold LESSOR harmless from and against any and all liability for loss or damage to any property or person, including the United States of America, arising out of or in connection with the operations of the leased premises whether through negligence or otherwise, including but not limited to those operations which result in any way, directly or indirectly, in violation of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA 42 U.S.C., Article 9601, el seq., as amended).
Notwithstanding anything to the contrary contained in said Oil and Gas Lease, LESSOR does not in any way warrant or agrees to neither defend the title to the lands herein described nor indemnify LESSEE of any adverse claims thereto.
If any party to this Lease must bring a civil action to enforce any provision herein, the prevailing party shall be allowed their reasonable attorneys fees and costs including appeal.
8. PAYMENTS TO LESSOR. Lessee covenants to pay Lessor as follows:
(A) SIGNING BONUS: Lessee agrees to pay Lessor a signing bonus in the amount of __________________ Dollars ($_________) by company check or in United States Currency. The bonus payment shall be paid to Lessor at the time that Lessor delivers this Lease to Lessee. All bonus payments, rentals and royalty payments made to Lessor under this Lease are non-refundable. Failure by Lessee to pay the bonus payment as set forth above shall render this Lease null and void. Should Lessee file this Oil and Gas Lease of record, or a notice or memorization of same prior to paying the signing bonus as provided above, Lessee shall pay to Lessor treble the amount of the signing bonus as liquidated damages and the lease shall continue to be null and void and of no further force or effect.
Signed for Identification by:
______________________________
Dave,
You are correct. I have it corrected on my final form and should have changed it. My final has a specific oil company, section, township and range. I need to edit it for my next lease.
Well my Exhibit A is not too far off from your's Mr. Moore. Sounds like it's a who you know and how well you play situation. I'll try a few other attempts. Thank you all.
Check clause 8. You might mean triple instead of treble.
Tom Ed Moore said:
Dave,
You are correct. I have it corrected on my final form and should have changed it. My final has a specific oil company, section, township and range. I need to edit it for my next lease.
Dave,
I always have other lessees waiting in line. 8 could be entirely omitted if the bonus is enough. 1/4 is now my standard for Grady and McClain County, OK
Dear Mr. Pruitt,
"When did Royalty quit being cost free?"
This is an excellent question you posed.
Royalty is one of the five elements of the mineral estate.
A "royalty" is usually defined as "The landowner's share of production free of expenses of production." That is the affirmative side of what a "royalty" is. (Patrick H. Martin & Bruce M. Kramer, Williams & Meyers Oil and Gas Law 920 (2012)).
What happened to the royalty being free of expenses of production? You are allowed to re-define terms according to contract and that is just what happened from day one. That is why one man's definition of a thing does not meet another mans definition of the same thing.
The Oil, Gas and Mineral Lease is what happened to the royalty being free of expenses of production.
This is my philosophical argument to have a royalty free of costs as defined in my lease. I argue that they are taking the usual definition of royalty and changing it away from the definition so much that the term royalty really does not apply. It should be more closely alligned with a gross profits interest the way the application is made. That is not the transaction that I want.
This is also my argument when we own a NPRI. By definition, the interest is cost free - no matter what the lease provides. I argue that the lease could set the quantum of the interest, but it does not set overrule the definition of law as to what a royalty interest only -- unless potentially you ratify a lease in a very broad manner rather than ratifying the lease for pooling purposes only.
Buddy Cotten
Jay Pruitt said:
When did Royalty quit being cost free?