We have been approached to lease Township 10North, Range 59 Section 17 all in Fallon county Montana. This is a 4 year lease at $50/Acre for the first year with a 15% royalty. there is then a side letter agreement that on the first year anniversay the lessee will pay an additional $50 acre. If this is not paid the lease would then be null and void. There is an additional exhibit "A" with additional provisions: a) continous drilling program indicating the lease shall not terminate if the lessee in engaged in the drilling or reworking of any well on the leased premises...... and b) extension of the primary term to four years beyond the primary term for an additional payment of $100/ Acre. Any advice? It seems that Exhibit A ties this up for too long a period but since we are new at this any input would be appreciated.
I would say the side letter agreement wasn't worth the paper it was printed on without notorized signature. Sounds like misdirection. An option to extend for 4 years beyond the primary term for $100 a year doesn't sound very good. Sounds like these people do not have any money and are trying to keep the bulk of payments for what they want in the future, like someone buying a house they can't afford. The thing that may allow then to afford these payments in the future is the value of your acres rising. I won't say you can't work out a deal with these people, but make sure it's ironclad that if they miss a payment anywhere that the lease is void, that they sign and notorize the side agreement and it can be recorded along with the exhibit on the lease with the words that the payment is required on time or the lease automatically terminates without notice and for good measure I would throw in that if I had to sue them for breach that the lessee would owe you damages of $5,000 a day. I know they would scream, but all they have to do is what they say/agreed they will do and it wouldn't matter. I think it's better to not lease than to lease to someone you may have to sue because even small companies are riding on the coattails of the legal groundwork that larger companies have done.