I receive an offer that we are negotiation for an oil lease on my land. I'm unsure how a Paid Up Lease works. How is it calculated and is it a 1 time payment or an annual payment. They show that they are going to cut a check for the Amount offered per acre. They want a 4 year lease - will I get this every year or is it a 1 time shot? What should I look for in the lease?
Mike, the paid up lease is supposed to be paid in advance for the whole term, 4 years in your case. You will receive only 1 payment unless they drill, produce and pay royalties during the terms set forth in the lease. Be wary of clauses in the lease that may extend it past the primary term without production or payment, such as continuing operations. I think 60 days is more reasonable than 180 days or more for continuing operations. I think you should also limit the total amount of time any well could be shut in, I think 2 years cumulative would be reasonable. You can negotiate more shut in royalty than the $1 per acre per year. If you get a well, it will give the lessee incentive to produce. There are many gotchas, don't sign the lease until you understand all it is saying. Unfortunately, you can't just hire a lawyer, although it may be a good idea to consult one. I think many people have taken leases to a lawyer and the lawyer determined that there was nothing illegal in the the lease and that their client could sign it, but the lawyer never mentioned that the client would be making a horrible bargain. I think there is no substitute for educating yourself so you can make an informed business decision.
great advice r w kennedy - I reallly appreciate
I have an lawyer that specializes in oil leases that is reviewing it for me - i'm just trying to learn as much as possible
A "Paid Up Lease" means that they pay a one-time lease bonus at the time of lease execution.