Oil Company Leasing vs. Holding Company Leasing - Grimes County

This is one of those hypothetical questions but here goes...

Shouldn't you be able to receive more bonus money and royalty percentage from leasing your land directly to an oil company that does actual drilling in your area versus a holding company who leases your land then flips the lease to the oil company thereby leaving out the middle man?

As an example, if you were offered $500 per acre bonus money; 20% royalty; 3 year term; from a holding company who plans on flipping the lease to someone else, how much do you think the oil company leasing directly with the landowner should pay per acre for the same 300 acre tract as well as royalty amount?

Your thoughts are appreciated.

Captain Skittles:

I know exactly where your thoughts are coming from on this matter but over the years, I have found that most oil companies hire these "brokers" to do the ground work in forming their mineral leases. I'm sure there are some out there in the business of leasing for investments in order to "flip" for a profit, but lately, the brokers will tell me whom they are working for and all paperwork is generated in the oil companies behalf. You can always contact the oil company directly thus skipping over the broker but I have a feeling that the bonus/% amount will be about if not the same. These oil companies let these brokers take care of the leasing as not to tie up their own people in the area of record research, etc.

First, if you can ascertain that the person/company trying to lease your land is a "flipper" I strongly suggest you don't do it. It is best to lease with the exploration company directly as you suggest, but often times this isn't possible (at least in early stages). It is often common that the exploration company (producer) will hire a landman company to lease anonymously on their behalf. Whether a flipper or a landman firm; they in essence are a middleman which would add costs to the gas/oil exploration company.

But a landman has the direct line to the client where a "flipper" is a speculator. The speculator will simply lease and lease as much as possible with the intent of some day finding someone (anyone) that would pay MORE so they make a profit. By contrast, a landman firm will have an payment schedule agreement already in place prior to the leasing action starts.

So knowing that what does a mineral owner (MO) do? I strongly encourage a MO to research who is trying to lease their minerals. Determine if they are flippers/investors, landman (directly for client) or the gas/oil exploration company directly (producer). If you can determine they are flippers, then walk away. If you can determine they are a shell (a new company recently formed to lease, then walk) and look to do business with established landman firm or best yet a producer directly. That doesn't necessarily mean that a small producer is better then a landman firm representing a big gas/oil client. So it is necessary to study the offers carefully.

So keep in mind that a landman firm or a flipper are providing a service to the final client and that is they have amassed a large MO acreage holding. Typically done anonymously and early in the leasing rush for a lower amount. This mass holding is worth something to the "client" and why they pay the landman or may acquire a flippers holdings. The key is a mass holding with 1000s of acres involved.

So specifically the question you have posed. If you have 300 acres and have an offer from a flipper can you contact a gas/oil exploration company directly and do better. Generally NO. Unless your tract is adjacent to mineral acreage that they currently hold. In this new shale exploration with horizontal drilling the drilling units typically require 640 acres or 1280 acres.

However, a possible strategy is to form a landowners group and try to get 1000s of acres with as much contiguous acreage as possible. Then you could assemble a bid package and submit it to major gas/oil exploration companies that have some activity or interest in the area. The more land the better. I was part of a 7,000 acre landowner group and we obtained offers from several big companies before selecting one. So the amount of acreage helped and then establishing a bidding environment helped to improve the terms; bonus, royalty and addendum details.

good luck.


In the past when I was a contract landman working for different companies, I was often asked who I was doing the leasing for. I would have to ask for permission to release that information to a landowner. I never had a client that refused to let me release the information. Sometimes, they wanted me to wait a while until they had a good footing in the county and sometimes they had me get the mineral owner to sign a document stating that they would not release the information to anyone else, but in any case, I was always able to work it out so that the mineral owner knew exactly who they were working with.

It is actually much cheaper for a company to contract a land broker to do their leasing than it would be to employ a large land department full time. By contracting a land broker, the company only has to pay landmen for the period of time that they are leasing rather than having to hire several landmen for a leasing project and then lay them off when they have all of the leases that are required for drilling (I can only assume that if a landman knows that every lease they take gets them closer to being laid off, they would slow operations down a great deal.)