What are successful proven steps that you use for getting a lease that is beneficial for you?
Do you call them first and ask them what clauses you want included (if so, which clauses)?
Do you ask them who they are working for?
Do you find e-mail beneficial?
How many times do you typically have to go back and forth?
When or how do you know that you are out of time and should sign?
Mary:
You need to contact them in regards to lease contents (Pugh Clauses, etc.) to make sure the lease contains clauses which protect you. Most likely, you are dealing with a broker who is working for an oil company and yes, you can ask who they are working for but if the bonus/acre; % royalty; length of lease and lease terms (desired clauses) are what you want, this doesn’t really have a great importance. You will have to deal back and forth until you are satisfied that the lease terms are what you want but don’t take the first offer as you should shop around with other companies (market your minerals). Again, you should sign when you’ve exhausted all negotiations and you are satisfied with the terms. Each broker/landman has a ceiling on terms they will agree to and you need to push the matter to highest amount. The biggest mistake that people make in lease negotiations is getting scared they will miss out and sign a lease too early. Good luck!
Hi Mary,
I’m a novice myself, so I just use common sense and negotiate in the way that I’m most comfortable. Here are a few of my personal negotiating practices.
I’m much more comfortable writing than I am speaking. So, yes, all of my negotiations are done by email. Plus, I think people are more likely to tell the truth if there’s a paper trail. If a landman phones and leaves a message, I respond by email. I’ve been through several lease offers and never spoken to a landman … but it’s personal preference.
I gather as much information as possible about the current market conditions before I respond to the first offer … i.e., nearby activity such as drilling permits and producing wells … as well as bonuses, royalties and terms being offered for similarly sized interests. I let the landman know what I found … then I simply ask him/her to match the highest ones.
My research also includes a wish list of protective clauses I want in the lease … which I consider more important than the money. I negotiate for them, but the exact wording is best prepared by a professional.
I like to drag negotiations out as long as possible … in case the market in question becomes even hotter while we’re talking. But this is a delicate maneuver which can backfire if there’s bad news.
I never lie, exaggerate, threaten, bluff, etc., in a lease negotiation. I treat the landman with the same respect I wish to be treated. I try to give him/her a way to save face so that they can comfortably back down from a position they have previously insisted on.
Early on, I do a lot of soul searching and decide on my personal bottom line … the minimum deal I will accept for various combinations of bonus, royalty, length of term, and lease clauses. This is tough because I have to be excruciatingly honest with myself about the point at which I can walk away forever without a penny … and be at peace knowing I didn’t allow myself to be taken advantage of … didn’t sell my self-respect for money. (Of course, I don’t share my bottom line with the landman.)
If my bottom line is never met and I’m forced to walk away, I don’t slam the door behind me. I politely make it clear that I’m not able to accept their final offer, and that they won’t be hearing back from me. But I don’t say, “good-bye forever,” … because nothing lasts forever in this world.
And one last thing … when I post on O&G forums, I use a pseudonym so that my landman doesn’t get a peek at my bottom line.
Best of luck,
Ray (pseudonym)
Ms. Web, I think you need to market your lease far and wide. I doubt you will wind up with less money for having more offers.
If a pooling order has been started (I received a Notice of Hearing) I’m stuck with that company to do the drilling right? Are you referring to selling my interest for a one time payment, when you say I should market? Thanks for your patience and advice.
r w kennedy said:
Ms. Web, I think you need to market your lease far and wide. I doubt you will wind up with less money for having more offers.
Mary:
Mr. Kennedy was referring to “leasing” your minerals when he used the term “market” them.
Mary Web said:
If a pooling order has been started (I received a Notice of Hearing) I’m stuck with that company to do the drilling right? Are you referring to selling my interest for a one time payment, when you say I should market? Thanks for your patience and advice.
r w kennedy said:
Ms. Web, I think you need to market your lease far and wide. I doubt you will wind up with less money for having more offers.
I think Ray gave a pretty good response!
Ray,
Thanks for your detailed response.
Thank you, Matt and Mary!
There’s one other thing I should have added to my list of negotiating tips. As Mr. Kennedy mentioned above, I like to market my minerals to other companies during the process to try and get a bidding war started.
Last time I leased, I put together a list of about 20 companies who were drilling in my county. Being in Texas I was able to get this from the RRC website from both the drilling permit and the production sections.
You could phone or email, but I chose to send a letter to each company stating that we had received an offer and before we made a decision, we wondered whether they had any interest in leasing our tract. I gave them my email address to respond to.
Most didn’t reply, but a couple were kind enough to email me saying they weren’t currently leasing but gave me the name of several companies who were. Another company got back to me a month later saying they had misplaced my letter when they moved recently, and wondered whether I had leased yet, so at least I knew my letters had gotten to the right people.
The county wasn’t particularly active at the time, and the whole exercise didn’t result in any other offers, but at least I knew I had left no stone unturned and I felt better accepting the one offer we had.
Hi Mary,
Like Ray, I went to the Railroad Commission web site and looked for the current operators in my County who had applied for drilling permits. Then I went online and obtained an email address and/or telephone number and contacted six companies. I told them I had X numbers of minerals for lease in X County and had received an offer for another company. However, I wanted to know if they had an interest in leasing my minerals before I finalized the deal. I heard back from one of the major companies in one month and had several phone and email conversations with their head landman. Their current operations are in another part of the County and they decided not to venture out in my direction at this time.
I have been contacted by two other companies who I did not contact and am currently negotiating with them. Sometimes I communicate with the landmen on the phone, and other times by email. A month may go by before I hear from either of them regarding my counter-offer or before I have responded to their offer/counter-offer. This process has been going on since last fall. Obviously none of us are in a big hurry and we have not come to terms on all of the terms (bonus, royalty, lease term, and lease clauses). Both sides have to give and take.
I believe that I am much closer in reaching a potential deal with the company who has made the best offer. We have been communicating for six months. My attorney is involved whenever I call upon him for his advice and to review and revise the lease form. My training and experience allow me to handle much of the negotiations, rather than having to hire an attorney to handle it all.
The process is not a fast one and I am not in a hurry. An Oil and Gas Lease should not be entered into lightly. You are giving up 75-80% of your minerals or more and it may be for years to come if you are held by production. I want to do it right or not at all. My parents minerals were tied up for 30 years and I learned first-hand the pitfalls of some poorly written lease clauses, and by an oil and gas attorney nevertheless. I have spent years educating myself and still have a lot to learn.
As far as when it is time to quit, I would say whenever you either reach a deal that you can live with and have had professional guidance, or when it is clear that the company is not going to meet your terms and you walk away. It also depends on what state your minerals are in and the ramifications of forced pooling, etc. I happen to be in a situation in Texas to where I can walk away from a deal and wait until next year or the year after. The oil and gas is in the ground and not going anywhere. Whenever drilling gets closer and good wells are brought in, my lease will become more valuable. If there are a lot of dry holes, then I may be kicking myself in the rear. I don’t think this is going to be the case though. I have just enough gambler in me to ride it out.
6th Generation Texan wrote:
As far as when it is time to quit … It also depends on what state your minerals are in and the ramifications of forced pooling, etc. I happen to be in a situation in Texas to where I can walk away from a deal and wait until next year or the year after.
Good post, 6th Gen!
I’d love to know how the issue of forced pooling in Texas fits into your “holdout” analysis.
Are you open to being a carried working interest if it should come to that … even with the possibility of a Rule 37 exception … in which case (if I understand correctly) an operator could potentially take your minerals without paying you a penny if your interest is not the actual drill site or serving as a corridor for horizontal drilling?
It seems to me that if I’m not open to signing a lease during negotiation because the lessee won’t give me the clauses I want … especially a liability clause that protects my personal assets from lawsuits due to their negligence … then I won’t want to sign or ratify the same lease if I’m later force pooled. I’d become a carried working interest against my will … and have to put my minerals in an LLC to get my liability protection. They would have me over a barrel.
What am I missing?
Ray,
I am in an area where only leasing is taking place and very little drilling activity. I believe it is heading my way, but it may be a year or two. This gives me the ability to wait. There are just some things that a mineral owner couldn’t and shouldn’t compromise on, like the example you gave regarding the negligent acts of the operator. I wouldn’t want to lease to anyone that wouldn’t absolve me, the Lessor, from their negligent acts. As far as Rule 37 goes, I would have to cross that bridge when it happens. There is always that risk for any of us, but if I lease to another operator, they will have to offset the well of the other operator that is closer than 467 feet from my property.
Ray H. Joyson said:
6th Generation Texan wrote:
As far as when it is time to quit … It also depends on what state your minerals are in and the ramifications of forced pooling, etc. I happen to be in a situation in Texas to where I can walk away from a deal and wait until next year or the year after.
Good post, 6th Gen!
I’d love to know how the issue of forced pooling in Texas fits into your “holdout” analysis.
Are you open to being a carried working interest if it should come to that … even with the possibility of a Rule 37 exception … in which case (if I understand correctly) an operator could potentially take your minerals without paying you a penny if your interest is not the actual drill site or serving as a corridor for horizontal drilling?
It seems to me that if I’m not open to signing a lease during negotiation because the lessee won’t give me the clauses I want … especially a liability clause that protects my personal assets from lawsuits due to their negligence … then I won’t want to sign or ratify the same lease if I’m later force pooled. I’d become a carried working interest against my will … and have to put my minerals in an LLC to get my liability protection. They would have me over a barrel.
What am I missing?
To anyone,
When a bidding war is in play on negotiating terms of bonus/royalty, how long do you play the game? Do you play until one side backs off and says no to further increases? I know the answer should be a simple yes, but it isn’t that simple if it feels uncomfortable. Fear you may have both offers disappear is part of it.
My husband likes the one company better, and their offer is currently the highest, and he’s ready to accept it. The game player within me says, what if we can get more from the other company?
We are both pleased with terms as is, but more is usually nice. The clauses we asked for are in both offers.
I’d love any input of this situation.
Thanks
Ms. Snues, I doubt you need worry about both offers disappearing, or if they did that you would not later receive yet more offers. People may point out that drillers have fled ND before, and yes, drill rigs are mobile but the infrastructure is being built now. You can’t move pipelines and facilities so easily. Good luck with your negotiations.
Very good advice throughout this entire thread. Most everyone here sounds like they are negotiating solely for their own property and that may be because y’all are mostly rural but is it possible for you to join with some neighbors and increase the acreage you’re negotiating for?
In early 2008, I negotiated for urban drilling in the Barnett Shale in North Texas and we joined several neighborhoods together and represented 2200 acres. I found that size was one thing the landmen feared - bigger was better! We actually demanded and got to negotiate directly with the presidents of competing drillers and we only accepted sealed bids by a closure date. That tactic worked back then because it was a gold rush mentality but it might be something to consider as a point of leverage.
Mike:
Depending on when the seismic work will be started, it could take 6 to 8 months to get the results back and be reviewed by the operator. In the meantime, other offers may come your way so if you get an offer that you’re satisfied with, the gamble factor will be out of the picture. Good luck!
Mike R said:
I have a 65 acre tract just south of the Angelina River (JR Crofton Survey in Angelina County) which EOG has recently expressed an interest in leasing. I own 100% of the minerals / surface and it recently came off lease from Chesapeake. The tract is located within / adjacent to a 1,800 acre tract that EOG recently leased from Cameron Mineral Trusts.
EOG, through a contract landman, contacted me and offered a 25% royalty with a $750 acre bonus. I declined the offer and asked for 25% cost free royalty with a $1,500 per acre bonus (comparable to the EOG bonus offered to Cameron Minerals). The landman didn’t decline but mentioned he would need to “write up a report” for EOG’s review. This discussion occurred over one month ago and no contact has been received regarding a counter proposal. I’ve decided that this first approach was more of a “fishing expedition” and they were probing whether the tract could be picked up on the cheap.
A 3D seismic survey is planned for this area and EOG and Goodrich Petroleum are paying for the survey (Global Geophysical is performing the shoot). Also, this area of north Angelina County is shown within EOG’s “sweet spot” on their management presentations.
I’ve decided to sit tight and wait for the seismic to be completed (taking a gamble that the seismic results will generate a more serious response).
Mike
Snues said:
To anyone,
When a bidding war is in play on negotiating terms of bonus/royalty, how long do you play the game? Do you play until one side backs off and says no to further increases? I know the answer should be a simple yes, but it isn’t that simple if it feels uncomfortable. Fear you may have both offers disappear is part of it.
My husband likes the one company better, and their offer is currently the highest, and he’s ready to accept it. The game player within me says, what if we can get more from the other company?
We are both pleased with terms as is, but more is usually nice. The clauses we asked for are in both offers.
I’d love any input of this situation.
Thanks
Thank you for this! So helpful!