This is my first experience in the oil and gas lease arena. My parents, both in thier mid 70's, live in a small town in Kansas and they were approached by a landman with an oil and gas lease proposal. The oil compnay is T-C oil out of Refugio, TX. This company, through a landman broker, has been trying to get multiple farmers in a certain land mass to sign their lease. Some have already done so. My parents ground is part of thier "target area". Here's my question. The lease they are asking my father to sign is a producers 88 or a David Carter lease which was revised in 1 0f 1983. Based off my research, and based off what I have read in this one page very fine print lease, this lease heavily favors the oil compnay. Being a novice in this business, I was wondering if anyone had a sample lease with the appropriate addendums? Being in a small town, there is no knowledgable mineral attourney's in this area. In addition, they are offering a 3 year primary term lease and a bonus payment in the amount of $25 per acre. The royalty they are offering is 1 / 8 share. Again, based off my research, this seems low. In the lease, they say they can unitize land but no more than 645 acreas can be in one pool. The total acreage in question is 3 1/2 sections or a little over 2000 acres. Does anyone know why they would limit each unit to only 645 acres and not pool the total 2000 acers? I want to make sure my parents interests are protected and any help would be greatly appreciated. Thank you in advance.
Highly recommend a mineral attorney. Don’t worry about local guy to you, doesn’t have to be. I have property in Texas but live in FL. Found an attorney there and he was great. Got more than I was originally offered for the lease so even with his fee, came out way ahead. He also insisted on some items in the lease which I would never have thought of. Get the lawyer!
Robert,
Unless you are in an undeveloped county and in an area with no production, the producer's 88 and the lease terms will not protect your parents in today's oil and gas market. If the "88" has been modified to "05, or '09 or HD (horizontal drilling) is is even more in favor of the lessee. With wells and acreage in Platt, Stanton, Kingman, and Anderson Counties, KS where there are many productive fields, I think the terms are at the bottom end of reasonable and basically a starting point for negotiations. Be aware that your parents have an extraordinary amount of acreage to offer and that fact should be dealt with separately in lease negotiations.
I can recommend Jim Cress, a mineral attorney with the national firm of Holme, Roberts, & Owen in Denver. Jim stays pretty busy but has protected clients nationally, internationally and throughout the West. Jim has access to many experienced attorney's in the firm and perhaps someone near you. In his absence, you may contact Frank Erisman, Jim's former partner and mineral attorney, now retired who, after decades in the business knows everyone.
Get some legal to protect your parents right to royalties. The amounts saved in their case could be staggering.
The super lowball amount the company is offering is ridiculous. Whatever your parents do now may tie up their minerals for the next 30 years or more. As others advised, please do not attempt leasing without a good oil and gas lawyer; it will be money well spent.
To answer your question about why the company wants to limit a unit size to 645 acres, the last thing a mineral owner would want is to have all 2000 acres in a unit. This would mean the company would tie up all your parents' acreage with one well, instead of possibly three wells or more. It is much better to be paid royalties on three good producing wells, rather than just one. The number of acres to a unit can be negotiated when leasing. A consideration would be 320 acres or less for an oil well with a pugh clause to release all acreage outside of the 320 acres pooled. This is an incentive for the company to drill more wells, especially in a productive area. Your parents have enough acreage not to be pooled with anyone else, but this would have to be negotiated when leasing. There is just too much at stake to try to lease this acreage without an attorney.
Gary,
Thank you for your reply. After reading my origional post, I was unclear when speaking about the amount of acreage my parents own. To clarify, T-C Oil is trying to lease 3 1/2 sections from multiple parties. The total amount of acreage my parents own is only 80 acres out of the total of 2000 + / -. Based off this, does this change your opinion on how hard I push to get the lease changed? Here's my concern. When looking at the "target drilling area", my parents land sits on an outside corner and could be easily eliminated from the project if my lease change requests are too broad in nature. I guess I don't need to worry so much about it as the current lease as it stands is very vauge. Please let me know your thoughts. Thank you again for your time and advice.
Best regards,
Bob
Gary L. Hutchinson said:
Robert,
Unless you are in an undeveloped county and in an area with no production, the producer's 88 and the lease terms will not protect your parents in today's oil and gas market. If the "88" has been modified to "05, or '09 or HD (horizontal drilling) is is even more in favor of the lessee. With wells and acreage in Platt, Stanton, Kingman, and Anderson Counties, KS where there are many productive fields, I think the terms are at the bottom end of reasonable and basically a starting point for negotiations. Be aware that your parents have an extraordinary amount of acreage to offer and that fact should be dealt with separately in lease negotiations.
I can recommend Jim Cress, a mineral attorney with the national firm of Holme, Roberts, & Owen in Denver. Jim stays pretty busy but has protected clients nationally, internationally and throughout the West. 303-866-0290, cressJ@hro.com. Jim has access to many experienced attorney's in the firm and perhaps someone near you. In his absence, you may contact Frank Erisman, Jim's former partner and mineral attorney, now retired who, after decades in the business knows everyone. 303-475-1211 frankerisman @gmail.com.
Get some legal to protect your parents right to royalties. The amounts saved in their case could be staggering.
Gary L. Hutchinson
Minerals Management
Thank you so much for your reply and advice. Please read my reply post to Gary above. Does that change your opinion on what steps I need to take?
Best regards,
6th Generation Texan said:
The super lowball amount the company is offering is ridiculous. Whatever your parents do now may tie up their minerals for the next 30 years or more. As others advised, please do not attempt leasing without a good oil and gas lawyer; it will be money well spent.
To answer your question about why the company wants to limit a unit size to 645 acres, the last thing a mineral owner would want is to have all 2000 acres in a unit. This would mean the company would tie up all your parents' acreage with one well, instead of possibly three wells or more. It is much better to be paid royalties on three good producing wells, rather than just one. The number of acres to a unit can be negotiated when leasing. A consideration would be 320 acres or less for an oil well with a pugh clause to release all acreage outside of the 320 acres pooled. This is an incentive for the company to drill more wells, especially in a productive area. Your parents have enough acreage not to be pooled with anyone else, but this would have to be negotiated when leasing. There is just too much at stake to try to lease this acreage without an attorney.
Thank you
W Kornmayer said:
Highly recommend a mineral attorney. Don't worry about local guy to you, doesn't have to be. I have property in Texas but live in FL. Found an attorney there and he was great. Got more than I was originally offered for the lease so even with his fee, came out way ahead. He also insisted on some items in the lease which I would never have thought of. Get the lawyer!
Hi. I have a good websight, but it is for Canada, and they have all the adendums spelled out for freeholders. If it helps take a look at the Canadian group I started, and follow the FHOA (free hold owners association). It's all the same lingo and mostly the same business principals. Canada differs from USA as their government gives a royalty holiday to the oil companies, and that makes it harder for the free holders. But the free hold friendly lease may help you .