An oil company is asking us to sign a Surface Use And Damages Agreement and they do not hold the lease on our mineral rights. Should we contact the company that does have the rights leased to let them know that someone else is interested?
Thanks for any advise.
I believe that it makes sense to contact your lessee (oil company) because it is likely that when you gave them a lease they received an exclusive right to produce the minerals. However, it appears that they may be offering to utilize your surface to drill into adjacent properties. This could be within your rights to so allow, again depending upon what rights you conveyed to the lessee under the lease.
Hope this helps!
Bill:
I would contact the company that is the current lessee and find out why another company would be interested in such an instrument. Have you asked this company why they are interested in such an agreement? Could it be that this company bought out the existing rights from the other company? Be careful if or when you do sign such an agreement that it covers all topics which might impact you as a surface owner. Types of damages to a surface owner includes....loss of privacy, noise from equipment (compressor stations, etc), lower property values, soil erosion, road construction, construction of pipelines, impact on existing water wells, storage of their equipment on the property, damages to fences, impact on livestock if applicable and of course litter. These are just a few of the things I can think of which should be addressed in the agreement.
No, that wouldn't be the first thing that I would do. I would tell the second company that you have a current "lease" on your premises, or did you already do that? What was their reply? Surface and minerals are two separate estates. In general, signing an oil and gas lease would not preclude you from executing a surface type lease unless something was in there that conflicted with the terms of the first lease. To answer your question intelligently, one would need the most information possible. What would they need? They would need to read both the "Surface Use And Damages Agreement" and the original "lease on your mineral rights."
It is also possible that the second company was an assignee of the first. In that case, there would be no conflict of interest.
As to the second part of your question, you could make that contact, but they too would need to know more about the intent or motivation, and exact wording of the second proposed agreement, in order to determine if there may be anything contained therein which adversely affects their leasehold interest.
The original company still holds the lease and has not assigned those rights to the current company asking for the surface use agreement. This current company says they intend to drill and are interested in our property because of its location on the section line. My understanding is that this company holds the rights an a small tract in this section.
What are the terms of the offer from the second company? Did you mention the prior lease to them in an effort to flush out more information about their plans? If not, why not? If so, what was their retort?
The offer is $18,000 for damages and $50 per rod for pipelines. Yes, they were told about the prior lease and had no meaningful response. We did determine the name of the company they are representing who wants to drill.
Dave Quincy said:
What are the terms of the offer from the second company? Did you mention the prior lease to them in an effort to flush out more information about their plans? If not, why not? If so, what was their retort?
Here is what I would do, still being a little in the dark like a mushroom. I would tell No. 2 to email you a copy of what they want you to sign if they have not already sent it to you. Then I would send that, along with a cover letter to company No.1, Attn. Land Dept., as a matter of courtesy. I would ask them to review it, and see if you get any response regarding a conflict or objection to you signing it. You do not want to subject yourself to a possible breach of contract suit by No.1 if there is any language in the agreement No. 2 wants you to sign that may usurp any of the leasing rights in No. 1's lease. Plan B: Take instrument that you signed with No. 1 and Instrument No. 2 to an attorney, and seek legal counsel. If you want to make Plan B, Plan A, that would be fine as well.
Bill,
I have negotiated these on behalf of the Oil companies in the past. Add me as a friend and send me a message so I can tell you what I think is important. (if you want to)
Thanks for any insight you have on this.
I wouldn't worry too much about his insights until you address the issue of exclusiveness, which is common or typical wording in all oil & gas leases. The second company gave you no meaningful reply when you told them of the first lease? Interesting. Why, here is a clause right here from a standard lease: "Lessor grants, leases, and lets EXCLUSIVELY to Lessee, its successors and assigns, all of the land described in this lease, together with reversionary rights of Lessor, for the purpose of exploring by geological, geophysical, AND ALL OTHER METHODS, AND OF DRILLING, producing and operating wells or mines for the recovery of oil, gas ....."with all related incidental rights, and to establish and utilize facilities for surface and subsurface disposal of salt water, and to construct, maintain and remove roadways, tanks, PIPELINES....etc"
The above language, even though abbreviated, is not uncommon in oil & gas leases. If the first company has an exclusive right on any of the above, how can the second company approach you about drilling or surface damages and the construction of pipelines? Maybe you should get a more meaningful reply from them, and pass it on.