Proposed "Exhibit A" from oil & gas lease draft

[wildstar1063]

Here is the proposed text from the Pointer oil and gas company regarding our interest in sections 5 & 6-4S-1E. I was just wanting suggestions on any changes we might need to ask for.

DEPTH CLAUSE: In the event this lease is extended by commercial production beyond its primary term, then at the expiration of the primary term this lease shall terminate as to all depths located one hundred feet (100’) below the stratigraphic equivalent of the base of the deepest formation penetrated in the well or wells located on the leased premises, or land spaced or pooled therewith. In the event Lessee shall have commenced the drilling of a well, pursuant to the terms of this lease, within the primary term, this provision shall not take effect until such well is completed. PUGH CLAUSE: That this lease shall expire two (2) years after the expiration of the primary term as to all lands not included within a producing unit, from any well drilled on the above-described lands or on lands spaced, unitized or pooled therewith, during the primary term. Provided; however, if the Lessee, its agents or any party acting in agreement therewith, is then engaged in drilling, reworking or any other operations which by the remaining provisions hereof would otherwise be sufficient to extend this lease beyond its primary term, then this provision shall not take effect and the lease shall not terminate as aforesaid until such operations are completed. GROSS PROCEEDS CLAUSE: It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil proceeds accruing to the Lessor under this lease or by state law shall be without deduction for the cost of line fill fees, midstream storage, and blending incurred by Lessee while transporting the oil, in whole or in part, to a downstream sales point; however, in no event shall oil royalty be computed based on a price greater than that received, or a volume more than that sold, by Lessee. It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all gas proceeds accruing to the Lessor under this lease or by state law shall be without deduction for the cost of producing, gathering, compressing, storing, separating, treating, and dehydrating the gas produced hereunder to the inlet of a downstream processing plant; however, processing and transportation downstream of the tailgate of a processing plant shall be deductible for all purposes, and in no event shall Lessor receive a price greater than the price received by Lessee.

[M_Barnes]

First thing is do not lease those sections on the same lease. Put them on separate leases. Not speaking as an attorney, but have many years of experience. That Exhibit A has quite a few phrases that need to be changed and is missing many clauses that you need to protect you. Each clause has something not in your favor-especially the last one! I am going to venture that the draft lease they sent has about another ten items that need editing. The best thing you can do is invest in a good oil and gas attorney to review the lease. A few hundred dollars invested upfront will save much, much more in the long run.

[wildstar1063]

They are split into two separate leases, one for each section. The exhibit A is the same for both, so I only copied and pasted one. I had them send me the proposals in an email, and they came as a PDF . As far as hiring a lawyer, we don’t have the money right now, that’s why I was asking here to see if I could get the benefit of others experience.

I could upload the whole thing, if the forum system will allow it.

Thanks

Chuck E.

[M_Barnes]

This Ex A is not a good document for a mineral owner. I am not giving legal advice, just pointing out the phrases that are problematic. BOLD-bad, WHY-In brackets.

DEPTH CLAUSE: In the event this lease is extended by commercial production beyond its primary term, then at the expiration of the primary term this lease shall terminate as to all depths located one hundred feet (100’) below the stratigraphic equivalent of the base of the deepest formation penetrated[“producing” is a better word as it limits it to a shallower depth] in the well or wells located on the leased premises, or land spaced or pooled therewith. In the event Lessee shall have commenced the drilling of a well, pursuant to the terms of this lease, within the primary term, this provision shall not take effect until such well is completed.

PUGH CLAUSE: That this lease shall expire two (2) years after the expiration of the primary term as to all lands not included within a producing unit, from any well drilled on the above-described lands or on lands spaced, unitized or pooled therewith, during the primary term. Provided; however, if the Lessee, its agents or any party acting in agreement therewith, is then engaged in drilling, reworking or any other operations which by the remaining provisions hereof would otherwise be sufficient to extend this lease beyond its primary term, then this provision shall not take effect and the lease shall not terminate as aforesaid until such operations are completed. [This one is pretty standard]

GROSS PROCEEDS CLAUSE: It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil proceeds accruing to the Lessor under this lease or by state law shall be without deduction for the cost of line fill fees, midstream storage, and blending incurred by Lessee while transporting the oil, in whole or in part, to a downstream sales point; however, in no event shall oil royalty be computed based on a price greater than that received, or a volume more than that sold, by Lessee. It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all gas proceeds accruing to the Lessor under this lease or by state law shall be without deduction for the cost of producing, gathering, compressing, storing, separating, treating, and dehydrating the gas produced hereunder to the inlet of a downstream processing plant; however, processing and transportation downstream of the tailgate of a processing plant shall be deductible for all purposes, and in no event shall Lessor receive a price greater than the price received by Lessee. [This phrase just put back in all the post production charges.]

Ex A is missing several clauses such as the no warranty, commencement of drilling, access to data, limits to shut in time and amounts paid, among others.

If hiring an attorney is not feasible at this time, then pooling is an acceptable option for me. I actually prefer it in many cases.