Pointers for a lease...

#1

What are some of the key parts of an oil/gas lease that the owner of minerals should plan for?

Samples:

Should I demand my Royalty % be based on what immediately comes out of the ground or after production deductions?

Should I demand only a 3 year lease?

Should I stipulate that I am not responsible for any expenses incurred by company drilling?

Should I demand the company carry insurance for "incidents" during my tenure with said company?

Should I demand the company meet me at a bank to cash a cashier's check for the lease bonus, signing papers there?

Should I start high in negotiating lease bonus, playing the game?

Should I demand that I have the authority to send an auditor to verify my interests are accurate at least once a year?

Located in South Kountze, Hardin County, Texas. 106 mineral acres to lease.

Any advice is appreciated; I cannot afford an oil/gas attorney... flying solo on this...

#2

Here is one resource: Hints on Negotiating an Oil and Gas Lease

I am not sure how much an oil and gas attorney would charge you. My guess is around $500 for an uncomplicated lease. Suggest you reconsider your position and get expert assistance given horror stories like this

Shale gas was going to make them rich. Then the checks arrived

Remember that there is no such thing as a "standard lease" and that any lease which is presented to you by an oil company will likely be very lopsidedly crafted to the company's benefit and your detriment.

Do not hand over your signed lease without receiving a check in immediately payable funds. I would suggest getting a cashier's check made out to you [if possible] if you use a different bank than the oil company.

#3

Thank you so much. I really appreciate the info.

#4

You are welcome. Forum member Wade Caldwell is an oil and gas attorney and gets great reviews on this site. I have no idea what he might charge. In my opinion, your 106 acres could represent a lot of value in the initial bonus and in future royalties so it is imperative to get expert assistance. Maybe you could make a deal with an oil and gas attorney to give him/her a percentage of your royalties until a fixed amount is paid back. So the attorney would get say $3000 over time instead of $500 up front and you would benefit from a lease which better protects your interests. A win-win!

#5

Helpful...

#6

106 mineral acres is not a small amount. You have leverage in negotiating a good deal. If I were you, the first thing I would tell any company wanting to talk about leasing would be "I expect whoever I sign a lease with to pay my attorney fees up to $XXX amount". Before you talk about bonus or royalty, tell them it is a requirement. If they say we don't do that, ask them to call you back if they change their mind and hang up the phone.

I flew solo on my maiden mineral leasing trip. That lease is still active 10 years later. It was a bad deal. You will live with a bad deal for many years if they drill a well. I don't recommend it.

#7

Yvonne, you are much better off paying an oil and gas attorney to negotiate your lease. The money you would pay an attorney to negotiate a good lease is chump change compared to what you would have to pay an attorney to get you out of a bad lease. I've answered your questions from your original post, but you will want an attorney to draft the specific provisions for you. I would take Boris' suggestion and ask the company to pay up $X,XXX for your attorneys fees on top of whatever bonus you agree on.

  1. Should I demand my Royalty % be based on what immediately comes out of the ground or after production deductions? You want your royalty to be based on minerals "produced and saved," and you should prohibit post-production deductions. My oil and gas lease provisions on royalty and costs are over two full pages, and this is where a good lawyer will pay dividends.
  2. Should I demand only a 3 year lease? - 3 years is my max term. No option to extend.
  3. Should I stipulate that I am not responsible for any expenses incurred by company drilling? - not necessary, but you will want an indemnity for any losses caused by their operations.
  4. Should I demand the company carry insurance for "incidents" during my tenure with said company? You can ask that they name you as an additional insured party on their general liability policy and provide you with a certificate of insurance. They may not want to go to this trouble for 106 acres but you can always ask.
  5. Should I demand the company meet me at a bank to cash a cashier's check for the lease bonus, signing papers there? You should not turn over a signed lease without having a cashier's check in hand. Where and when they meet you to exchange the lease for the check is up to you.
  6. Should I start high in negotiating lease bonus, playing the game? Most of the time companies can pay more than their first bonus offer. The royalty is more important than the bonus, that's where you should negotiate.
  7. Should I demand that I have the authority to send an auditor to verify my interests are accurate at least once a year? Yes.
1 Like
#8

Yvonne,

I'm reminded of something Buddy Cotten (professional mineral manager) posted on this board a few years ago. I'm paraphrasing his words..."everything in a lease is negotiable except your name and your land's legal description."

Much, if not all of your concerns and more can be addressed by a competent oil/gas attorney. Wade Caldwell is our attorney and is one of the best in the business in my opinion. Whatever your decision, I wish you the best.

#9

Thank you

#10

Thank you

#11

I would wager that you can go to an attorney and get them to take their fee out of the bonus you receive. You want an attachment that overrides the their one-sided lease with any wonderful items your attorney or you want to include. If you still want to audit, make sure you put that in your lease or they will laugh at you just like they do all the other royalty owners. Bob Malone, Oil and gas auditor

#12

Thank you

#13

Dear Ms. McMahon,

You might find the attached file illuminating. It is far from perfect and is weighted assuming that the mineral owner is also the owner of the soil.

I did have a client tell me that an attorney quoted to him a price of $4K to negotiate and prepare an Oil and Gas Lease. The attorneys' rate was $450 per hour.

Best,

Buddy Cotten
#14

Thank you

#15

Buddy Cotton, Fantastic as usual. Bob Malone