My mom inherited some mineral rights from my dad a couple of years ago after he passed and there are a few wells that are currently producing on a tract of land she now owns. These wells and leases were signed by my father and have recently started producing in larger amounts than ever before.
She has received a Production Sharing Agreement from a company that is looking to drill a couple of more wells on this land and is looking to pool land she owns along with some adjacent land she has no interest in. The document looks straightforward, basically dividing up the revenue from these future wells depending on the ownership interest in the Sharing Tract, multiplied by the “allocation factor,” defined as a fraction (numerator of which is the length of that portion of the productive drainhole length lying within the sharing tract, and the denominator being the total productive length).
My question is should we be asking this company for a Signing Bonus up front like other typical leases? Or since in this case we’re not really negotiating what the royalty percentage is, do we not do that?
She would be wise to get an oil and gas attorney to look at the PSA. Especially if adjacent land is included that had not been leased before. This agreement could hold the family for decades, so needs careful attention.
We signed a PSA several years ago with Centennial in Reeves County, TX. It has proven very lucrative. We did also have a landman (woman) review it at the time as this is before an attorney was hired.
It is perfectly acceptable to ask for a signing bonus in a production sharing agreement, even if you are not negotiating the royalty percentage. In fact, it is common practice for oil and gas companies to offer signing bonuses to landowners in exchange for the right to drill on their property.
The amount of a signing bonus can vary depending on a number of factors, including the size and location of the property, the potential for oil and gas production, and the terms of the production sharing agreement. However, signing bonuses are typically in the range of $100 to $1,000 per acre.
In your case, since your property is already producing oil and gas, you may be able to negotiate a higher signing bonus. You may also want to consider asking for a signing bonus in addition to a royalty percentage, as this would give you a guaranteed upfront payment, as well as the potential for ongoing revenue from the production of oil and gas.
If you decide to ask for a signing bonus, be sure to do your research to determine a fair market value for your property. You may also want to consult with an attorney who specializes in oil and gas law to help you negotiate the terms of your production sharing agreement.
Here are some tips for negotiating a signing bonus:
Do your research. Before you start negotiating, find out what other landowners in your area have received in signing bonuses. You can also research the average signing bonuses for similar properties in other parts of the country.
Be prepared to walk away. If you are not happy with the company’s initial offer, be prepared to walk away from the negotiation. This will show the company that you are serious about getting a fair deal.
Be willing to compromise. It is unlikely that you will get everything you want in the negotiation. Be prepared to compromise on some things in order to reach an agreement.
If you are unsure about how to negotiate a signing bonus, be sure to consult with an attorney who specializes in oil and gas law.
If the minerals are currently under lease, then the oil company lessee will not pay a bonus for a PSA. It is important to have a legal advisor review the PSA to make sure that it does not alter or amend the underlying lease in a way that is unfavorable. For example, the PSA for a horizontal well should only apply to wellbores that cross the multiple tracts. It should exclude the current or future vertical wells or horizontal wells that are only on your minerals so that you continue to receive the higher royalty decimal on the existing wells. Another consideration is that it is limited to a specific producing formation, rather than all depths. This is not a walk-away situation.