Section 6 & 7, Twp 11N, R 9W

Hello, My wife owns the mineral deeds for the above sections which were passed down to her. We are not “oil” savvy We just got an offer from Unit Petroleum on a Form 88-390 “Oil and Gas Lease (Paid Up)”, for a 3 year lease for 3/16th, covering: Lots 5, 6, 7, 8, 9, SE/4 SW/4 and S/2 SE/4 of Section 6 and… the N/2 NE/4 of Section 7.

According to our records from past leases her (deceased) mom had, it shows for section 6, the Paul Lacy B 1-6 well, the Lacy B 3-6 well, the Powers 1-6 well, however we don’t know what Lots these are on. In section 7 the Davison Nelson #1-7 and the Earles 1-7 wells. Currently we have no active leases with anyone in either Section.

Our questions are:

  1. In a past Forum conversation someone said not to accept a Royalty less than 1/4. Does that still stand?
  2. There is a sentence that states “Lesee shall have the right to use, free of cost, gas, oil, and water produced on said land for its operations thereon, except water from wells of lessor.” In another Forum conversation someone was talking about using the water and should the Lessor be paid for it. Is this something we should have a clause added or was that something else?
  3. What does it mean “Oil and Gas Lease (Paid Up)”? And why would this not be a Division Order?

Thank you. Ron Wilton

Hi Ron:

I own minerals in the same tracts as your wife, although I haven’t received any offers to lease. The wells you mentioned are no longer producing, but haven’t been plugged by Devon Energy. The wells covered the entire section so no matter where the minerals are located with that section, they shared in the production. Many people prefer the 1/4th royalty option as it has the potential to pay more in the long run. Others chose a combination of royalty and bonus money as they either need the money now or don’t want to take a chance on a dry hole. You should strike the clause that allows free use of gas & oil. Since you don’t own the surface, you own no rights to water. And lastly, a Paid-Up lease just means the lease terms include what are called “rentals”. In theory and the old days, mineral owners where paid a bonus for the first year of the lease and were then paid one dollar per mineral acre on the yearly anniversary date to keep the lease in effect. That is no longer done, at least in most places. Division Orders are issued when there are new wells with new production or a new operator may want a new DO executed. Hope this helps.

While the author who said never accept a royalty less than 1/4 royalty may be correct, if no one is offering you a 1/4 royalty lease, you can’t abide by that advice.

someone could say, never sell a house for less than a million dollars. But, if no one is offering a million dollars for your house, that advice isn’t particularly helpful. The market value, whether it is what Unit is proposing or someone else is offering, is the market value.

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Need to get an attorney to add the necessary clauses to any lease you may agree to. I always start my offer at 22.5% and haven’t had to go below 1/4 for 6 years now. Remember it’s the wild WEST out there for this oil and gas business. No one is on your side, and if you don’t know what to ask for you will be taken advantage of.

Key items to have in the lease are )no deductions )no warranty )depth and about 15 other items…
I think it’s better to have a lower bonus and a higher royality…

Remember you need an Exhibit added to your lease… that contains those items to protect( favor ) you.