I currently have a lease on 95 acres with 1 year and 2 months remaining. Another company has started pad construction with 3 current wells permitted within several hundred yards of my property, and that company has contacted my lessee about acquiring my lease. My lessee has not accepted the company's offer and it has since expired due to not including midstream rights with the land sale. The drilling company has now offered me a top lease at a substantially higher bonus and royalty than my current lease includes. I'm meeting with them on Tuesday to discuss.
Although I know if I accept the top lease offer, I'm required to notify my current lessee and they have right of refusal. My current lessee has no drilling activity in my area, and I don't expect any to occur within the next year of my lease. If my lessee decides to match the top lease offer, does that acceptance override my current lease with them at the new terms?
If they decide not to match the top lease offer, would the new company normally include my land in the current drilling unit even though my lessee has renewal rights in 1 year and 2 months when my lease expires?
If they do drill my land and subsequently begin to market gas prior to the expiration of my bottom lease, are they required to meet the royalty terms of the bottom lease until their top lease activates in 1 year and 2 months?
In the event they drill and include me in the unit, but my current lessee renews my lease in 1 year and 2 months, how is that gas marketed and royalties paid for the extracted gas from the new driller?
I know I'm in a hot zone right now and want to have some semblance of an idea what the scenarios are prior to finalizing anything. I would think a decent top lease offer would press my lessee to sell all rights to the driller rather than receive nothing due to not matching a top lease offer and allowing my bottom lease to expire in 1 year. Thanks for any responses.
Dave, I hope you have read your lease carefully. If your current lease has an option to extend, your lessee has first option on your property until the last day of your current lease. I have even heard of leases where they have an option to extend for even a year after your current lease expires, although that was in Montana.
With no option to extend your lease after the primary term expires, your lease would have to say that your current lessee has first right of refusal or he would not have that right. If your lease does not say you have to inform your lessee of the acceptance of the toplease offer, you don't have to tell them anything.
If your current lessee does have first right of refusal or option to extend, that right will extend to the last day of your current lease unless your lease states otherwise.
If your property is drilled under the bottom lease, the toplease NEVER goes into effect, you are stuck with the royalty of the bottom lease for as long as oil/gas are produced and possibly longer if there are other terms in your lease.
Usually the operator markets the minerals and pays you and your lessee.
I think it likely that the company that wants to toplease you has done their homework and that they can do so but I would not put my complete faith in it. Before signing a toplease, you need to determine that you can legally do so. I hate to say it but you probably need a lawyer or the help of an experienced mineral manager.
Likely, the company seeking the toplease will not want to pay you until the bottom lease expires. I call this giving a free lease from the mineral owners perspective. I would not doubt that that there will be language in the toplease that the top lessee can change their mind and release the toplease without paying. They may never pay. You need to get something, cash in hand before you hand over an executed toplease and I do not mean 10%. I mean that you should get 30% and hopefully that will cover your legal fees. I hope this helps. I want you to be safe and not sorry.
There has been a good deal of discussion of topleases on this site and I think you will find it rewarding to do a search.
Thanks. I do believe my current lessee will pass on both matching the top lease offer, once notified, and extending the lease once expired. With that, if drilled gas gets marketed prior to the bottom lease expiration, does the drilling company pay my current lease holder, who in turn is required to pay me the current royalty rate? Would I receive some sort of verification for reference of what I should receive once payment is made to my lessee?