When to retain an attorney when leasing?

1. Realizing that there are a lot of variables that come into play (location of mineral interest, amount of a mineral owner’s net acreage, etc.) ……. just in general in today’s market, when it comes to negotiating a lease is there a rule of thumb as to what is considered a great, average and low bonus amount per acre? In general ……. and then in particular, in Pecos County, Texas.

2. Same question for a royalty rate…… and length of lease and lease options?

3. How do you decide when it’s cost effective to retain the services of an oil & gas attorney when negotiating a lease? Is it based on the amount of the mineral owner’s net acreage, etc? Is it based on the amount and terms of the initial lease offer? Other? If yes to any of these, in general what’s the threshold at which you should retain an O & G attorney? Any feel for range of attorney’s hourly rates that are fair?

4. If retained by an individual mineral owner, can a landman be just as effective as (and less expensive) than an O & G attorney when it comes to helping an individual mineral owner negotiate a lease (assuming the landman would not have any conflict of interest)? Review terms of a proposed lease to make sure the mineral owner is getting the best terms? What’s a feel for range of a landman’s rates?

5. Is it customary and acceptable for a potential lessee to see if a mineral owner will accept general terms such as bonus amount, length of lease and royalty amount prior to submitting an actual lease to the mineral owner for review?

Hi, I wanted to know if you had received any advice or answers to your very good questions? I don't see any comments but they could be private responses and I was curious.

I just went through a rather lengthy lease process and did wind up using an attorney and a Landman. I am sure I got the best possible lease but it did cost me. I was getting nowhere with the Landman who was leasing for the Oil Co. and I felt "out gunned" if you know what I mean. So in an effort to get better at this and for the future. I saw your forum questions and would also like to know what you get in response. Kelly

My two cents...

With regard to question 1 & 2, rule of thumbs are really tough in this business as terms (royalty rates bonus rates and length) will have a huge range across the state, even within the county in some areas. That is my one problem with some of the advice given on message boards. It is not always reasonable to compare lease terms that can be in the same county but may be 30 miles away. There is something to be said for getting a deal done!

With regard to question #3 &4, having dealt with dozens of different attorneys over the years I can tell you the results do vary quite a bit. Generally speaking lawyers can provide you with a decent lease form, but are not necessarily great negotiators. Its an information game and most lawyers cast a pretty wide net in terms of what they deal with, small town lawyers especially, and researching market value for leases is not something they are necessarily good at or trained to do. Small town lawyers may be a little more familiar with going rates, but boy some can be terrible! Lawyers that focus on Oil will be better (generally speaking) but also harder to find and more expensive. Sometimes they can also be unreasonably difficult to the oil company. A good Landman can be very effective, as many are professional information gatherers, but again your results will vary. They will be cheaper and probably get you on average better results but they can be hard to find and harder to vet, so exercise some caution there. There really isn't much of a barrier to entry to call yourself a Landman so hard to know what you are getting. I would guess an average Lawyer will charge about $200/hr, and a Landman would be about half that amount. So if you have 5 acres of minerals and your offer is $300/ac you may want to negotiate yourself, but if you have 40 acres it may make sense to get some help. Feel free to PM me and I'd be happy to recommend someone on either side.

Finally #5, yes that is somewhat customary. They need to have the terms in order to send the paperwork so it makes a certain amount of sense to get that worked out beforehand. You can always just tell them to put it in writing and you will be in touch, that is a reasonable response.

Thanks, It still feels like a moving target for each lease. I think we did well enough but in the future I hope to get better and be as informed as I can be. I think keeping intouch with discussion forums etc. should help and our family friend in Dallas who has been a Landman and in the biz for 30 years should help. Not real fond of attorneys as a rule.

I think since this lease had a Landman who wasn't going to let us know who he was negotiating for leads me to feel he will be marketing all the acreage they leased. So in an effort to protect us from getting into business with less than desirable oil/ operator company that was fruitless. Any suggestions on that and how to get them to divulge that information would be appreciated.

Thanks for sharing and look forward to future discussions. Kelly

Re #3 - !/4 royalty rate is standard these days. 3 years. Do not consider an option to extend unless there is a very large increase in the bonus.

Re #5 - Never agree to specific terms in a phone call - with the exception of specifying that you will not accept less than 1/4 royalty in Pecos County. Too often there is a problem later about who said what. Tell the landman to send offer terms by email or letter and that you can then respond. Do not worry about the lease form that he will send as it will absolutely be operator-friendly. There is no such thing as a standard form. All these companies write their own forms and add the words "Producers Eighty-eight" at the top.

Kelly L. Borelli wrote: "I think since this lease had a Landman who wasn't going to let us know who he was negotiating for leads me to feel he will be marketing all the acreage they leased. "

Or the client is a larger oil company and doesn't want lessees to see $$$, e.g., lessees will settle for less bonus, etc. if it could be Aunt Bea's Oil Co. rather than Exxon is my guess. Shielding the development of a new play from competitors is also most likely very important.

Thanks for everyone's comments ...... and thanks for getting that ball rolling, Kelly. It seems some of the most difficult things are determining what current bonus rates, royalty rates and lease duration offers are in areas where a person owns mineral rights. Add to that list how to properly vet a landman if you chose to go that route for assistance with any lease proposal you might receive. Any additional thoughts/advice would be welcomed ..... and thanks again for everyone's initial comments.