Two year option terms unveiled

Oil and Gas Leasing Help
1

I was asking for a higher bonus payment for a two year option and was given this lessee-derived language:

“Lessee is hereby given the exclusive right and option to extend the primary term of this lease as to all or any portion of the land covered hereby for an additional two (2) years from the expiration of the original primary. This option may be exercised by Lessee at any time during the original primary term hereof by paying the sum of $250 per net mineral acre to Lessor and other parties designated by Lessor. Payment shall be considered made and option exercised by mailing payment to last known address of Lessor and/or assigns. If this option is exercised as to just a portion of the acreage, Lessee shall execute and place of record an instrument identifying the land on which the option has been exercised. Should this option be exercised as herein provided, it shall be considered for all purposes as though this Lease originally provided for a primary term of five (5) years.”

Something wrong seems cloaked in these words, am I being hoodwinked again? Any thoughts out there? Thanks--Amy

2

Sure, Amy. They want to be able to cherry pick the acres that they want. If they want an option on your lease, I would at the very least want them to have to take all of the acres again. Best thing would be for no option to extend at all though.

Amy, I have no idea what ALL is in your lease, I'm starting to suspect that there are things scattered throuout it.

Things that should not be in your oil and gas lease are: Providing you own surface.

Easements for water or electric, they are a surface agreement matter, an oil and gas lease should just be oil and gas.

Pipeline right of way, is another separate agreement, has nothing to do with your minerals, it's a surface agreemen matter.

If the lessee wants to retain the right to use your well as a salt water injection well in the unfortunate event your well is dry, what would that have to do with production of your minerals? Time enough to come to an agreement in the event it works out that way.

Water well, surface again, and shouldn't have anything to do with your minerals. If you see any of these things in your lease, tell them you want an oil and gas lease only, you don't want to throw in the free lease of your house, car, water or dog, just oil and gas. If they want to negotiate for those other things, you can still form an agreement for them, but they are not freebies thrown in with your oil and gas lease.

Amy, after you scratch out consecutive and alter the shut in clause and insert CUMULATIVE, after you change the continuing operations clause from whatever it is to 90 days while making sure that actual work and at least moderate expense is required for it to be considered continuing operations, not just pulling a permit, keep reading the lease. I bet there are more nuggets of pure gold in there.

3

http://www.mineralrightsforum.com/profiles/blogs/3-year-plus-2-year-kicker

4

Amy,

Speaking of vagueness or outright subversity, I recently reviewed a lease submitted in Divide County ND for a 5 year primary term but the clock didn't start running on the 5 years for almost a year after the date of the lease. Tricky way to get a "free" year on the lease. The mineral owner was certainly surprised and unsuspecting.

You are right to beware of obfuscation in leases. Make them rewrite it so the understanding is clear to you. If you have a lot of acreage, have an industry professional look it over.