Should I sign the lease?

I received a “paid up oil and gas lease” for mineral rights inherited from my father who of course inherited from my grandmother. Murphy District, Ritchie County. I received 5.22266 net acres (1.5625%) of 334.25 total acres of the subject property. I’m sure the lease is in the best interest of the oil company, HG Energy. Royalty payments are “12.5% on the net amount computed at the wellhead” Of course net includes deduction of all post-production costs. The letter states “best and final lease offer” but then goes on to say that if I choose not to execute, then in accordance with the “Co-Tenancy Modernization and Majority Protection Act” I can elect for production royalty of 12.5% on the “gross proceeds received at the first point of sale” along with a lease bonus $1,044. No delay rental payment or other non-royalty mineral payment.

Is there a benefit to signing the lease or not, and/or selecting the cotenancy election for production royalty instead? Clearly, I know nothing about oil and mineral rights. Is it worth having a lawyer review for such a small percentage? Thanks!

In addition to the royalty rate and signing bonus/rentals amount, there are a couple of other items you should consider.

If the lease contains a clause allowing the oil company to automatically extend or renew the lease “as is” at the end of the initial primary term, are you sure you want to agree to that? Without a signed lease there can be no agreement for automatic renewal or extension.

Also, is there any language in the lease that states outright that at the end of the primary term any lands not inside a proration unit or inside a pooled unit will automatically expire as to all depths beneath that acreage not included in a unit (Pugh clause)?

Along that same line, is there a clause in the lease that says that at the end of the primary term (or a date one or two years later) all depths beneath the deepest depth drilled (or deepest producing depth on that date) in any producing acreage will automatically expire (known as a depth Pugh clause)?

I am not familiar with the current statutes in West Virginia concerning oil and gas leases, so if I were analyzing a WV lease for an employer I don’t know if I would be required to look for Pugh clause language in the lease or if WV law already requires depth release, like Oklahoma does, for instance.

I think it is always a good idea to have an attorney review any legal document. There is a law firm, Windom Law Offices, in Ritchie county. The lawyers there would be familiar with the situation. If I were to get such a lease, that is what I would do. The Co-Tenancy law is rather new so I would welcome expert advice.

This topic was automatically closed after 60 days. New replies are no longer allowed.