Survey - mineral rights holders -

Oil and Gas Leasing Help
1

Hello:

I’m a mineral rights holder in Kern County, California. We do not own the surface rights. Is it common for mineral rights holders to also be paid for a survey?

My situation is that a land agent has requested us to sign a release for a seismic survey. We do not own the surface rights and we have not leased the mineral rights. The mineral company doesn’t want to pay us anything but argues that we may get income eventually if the survey looks good. The property is near an old oil field. But only a limited production 50 years ago on our property.

I’ve heard that it’s best in such cases not to sign unless the mineral company first leases our mineral rights. Do you feel that’s true?

If we can’t get the company to lease from us, should they be paying us for the right to do the survey and if so what would you recommend?

Thanks,

2

Dear Mr. Taylor,

My general rule of thumb is to do nothing without an associated benefit.

There are far too many unasked and therefore unanswered questions to arrive at a reasonable conclusion, but, having said that, I would not permit my property without compensation.

3

Thank you for your insight. That is useful.

A follow-up question, if you don’t mind.

Our property is in an area that is a patch-work of parcels, some owned and leased by the BLM and maybe 25% privately held.

It appears that most or all of the BLM properties have been leased. I find it very hard to get info about what the private parcels are being leased for.

Two questions: First does the BLM allow the public access to the terms of its leases? Second, all other things assumed equal, if the properties on either side of us are BLM, would it be appropriate to ask for the same terms to lease our property as BLM parcels are being leased? Of course some of the BLM leases could be 20 or 30 years old.

I’m hoping to figure out what reasonable terms would be to ask for in a lease.

Thank you again,

Mark Taylor

Buddy Cotten said:

Dear Mr. Taylor,

My general rule of thumb is to do nothing without an associated benefit.

There are far too many unasked and therefore unanswered questions to arrive at a reasonable conclusion, but, having said that, I would not permit my property without compensation.

Best wishes,

Buddy Cotten www.cottenoilproperties.com

4

Dear Mr. Taylor,

It is allowed for the BLM to disclose lease terms. However, the terms may be a result of a lottery, which tells nothing. My preference is to make my own deal and not be inextricably linked to another’s negotiation.

If you have say, 40 acres of minerals or more, I would seek the advice of a local oil and gas attorney or landman for a nominal fee.

Mark Taylor said:

Thank you for your insight. That is useful. A follow-up question, if you don’t mind. Our property is in an area that is a patch-work of parcels, some owned and leased by the BLM and maybe 25% privately held.

It appears that most or all of the BLM properties have been leased. I find it very hard to get info about what the private parcels are being leased for.

Two questions: First does the BLM allow the public access to the terms of its leases? Second, all other things assumed equal, if the properties on either side of us are BLM, would it be appropriate to ask for the same terms to lease our property as BLM parcels are being leased? Of course some of the BLM leases could be 20 or 30 years old.

I’m hoping to figure out what reasonable terms would be to ask for in a lease.

5

Thank you for your suggestions.

Two follow-up questions if you don’t mind.

Could you recommend one or more people in Kern County, California (lawyer or landperson) to hire for help with leasing?

We have already leased a neighboring property a few years ago (no oil drilling yet). We did use a lawyer to revise the oil company’s lease in that case but he has since retired. The cost was around $3500 - $4000. Does that sound reasonable? I share ownership with several other family members who have troubles sharing expenses so that makes cost more of a concern. Any quick tips for holding cost down in negotiating?

Have a good day,

Buddy Cotten said:

Dear Mr. Taylor,

It is allowed for the BLM to disclose lease terms. However, the terms may be a result of a lottery, which tells nothing. My preference is to make my own deal and not be inextricably linked to another’s negotiation.

If you have say, 40 acres of minerals or more, I would seek the advice of a local oil and gas attorney or landman for a nominal fee.

Best,

Buddy Cotten www.cottenoilproperties.com

Mark Taylor said:

Thank you for your insight. That is useful. A follow-up question, if you don’t mind. Our property is in an area that is a patch-work of parcels, some owned and leased by the BLM and maybe 25% privately held.

It appears that most or all of the BLM properties have been leased. I find it very hard to get info about what the private parcels are being leased for.

Two questions: First does the BLM allow the public access to the terms of its leases? Second, all other things assumed equal, if the properties on either side of us are BLM, would it be appropriate to ask for the same terms to lease our property as BLM parcels are being leased? Of course some of the BLM leases could be 20 or 30 years old.

I’m hoping to figure out what reasonable terms would be to ask for in a lease.

6

Dear Mr. Taylor,

Kern County is out of my area of expertise. As to keeping costs down, if your net mineral acres are significant enough, perhaps the oil company will pay the legal expense. Some will down here. The price that you mentioned seems absolutely exorbitant to me. We are used to much less. Around $1,000.00 or so.

Is there a reason that you would not want to use a form that a previous attorney already looked at and blessed? I would get the older lease form and begin there.

Mark Taylor said:

Thank you for your suggestions.

Two follow-up questions if you don’t mind.

Could you recommend one or more people in Kern County, California (lawyer or landperson) to hire for help with leasing?

We have already leased a neighboring property a few years ago (no oil drilling yet). We did use a lawyer to revise the oil company’s lease in that case but he has since retired. The cost was around $3500 - $4000. Does that sound reasonable? I share ownership with several other family members who have troubles sharing expenses so that makes cost more of a concern. Any quick tips for holding cost down in negotiating?

Have a good day,

7

Dear Mr. Cotten:

Thank you again for your suggestions.

Actually I was considering using the old lease as a model. From what I gather in other discussions the lease may be weak in a couple of areas. Also the lessor is using some tactics that make me concerned.

If you could give me your thoughts that could be very helpful. Apparently mineral rights holders in my State don’t have a network for assistance short of hiring lawyers who seem to charge substantial rates.

In a nutshell here is our situation. My family owns 40% of the mineral rights on about 400 acres. Currently the land is not producing oil. Part of it is on the edge of an old oilfield. The rest is maybe a mile outside. Roughly 40 years ago it did have a couple of wells and had modest production. There are a couple of wells maybe 1/2 mile away that are still active but with very low production. When the previous company quitclaimed the property, they told us there was oil there, but too hard to recover since it was very heavy. There is renewed interest in the general area by a couple of firms. They hope to find substantial deposit at a deeper level than drilled before. Last year a different company drilled a deep test well about 2 1/2 miles away which found some signs of oil but not commercially viable. They are considering drilling one or two other test wells.

About half of our land was leased a few years ago. The other portion has not yet been leased. The lessee is now asking us for two things: 1. a three year permission to do a seismic survey of the unleased parcels without compensation. 2. A three year renewal of the lease at original rates and terms. They don’t want to lease the other half now, but may depending on the results of the survey.

I have the following concerns about the current lease: the royalty rate maybe too low (now 1/6), the lease doesn’t have a “pugh” clause it doesn’t have a depth clause the pooling clause in it could be better. Our previous attorney warned that it was weak, but it was the best we could get the lessee to agree to. the annual rent is only $35 per acre. That’s not a big concern, but more would be good if it’s reasonable to receive.

Another member of my family spoke to the lessors and told them that we might want better terms. The lessors said that neighboring properties had been leased at 1/8 royalty. If we didn’t agree to renew at the old terms they could pump the oil under our property by drilling at an angle from the neighboring property. Then we wouldn’t get anything. I suspect the other leases nearby are old, long term ones negotiated before the current surge in oil prices.

The major problem is that we really don’t know what the fair market value of the property is. Needless to say I’m not happy with the tactics the lessor is trying to use.

In lieu of renegotiating the lease, I’m considering two things. The first is to contact other companies to ask if they are interested in leasing. If another company is, we can give the current lessor the option to match the new company. We might have better success if we lease all the parcels at once to one company. I imagine there are pros and cons to doing this. We could upset the current lessor in trying it. Please let me know what you think.

My second thought is to agree to renew with the current lessor, but only if the lease and survey permit are changed from three to two years.

One final question, if we did accept the current lessors 3 year lease and survey permit requests, would the survey permit interfere with our trying to lease the unleased parcel to a second company during the 3 years.

Your help is much appreciated.

Thank you for your time,