Mike:
Thanks for this info as I will put it in my notes for future reference. We have leased several times and each time I try to tweak the lease to my advantage. We have been leasing since 2004 and have yet to be drilled on. My minerals are located in Sheridan Co MT, Roosevelt Co. MT and Williams Co. ND and are situated near the border area. Looks like the drilling is picking up around my mineral acreage and I'm temp spaced in both areas. The ND lease expires in June of 2012 so maybe I will get a chance to negotiate a new lease. I believe our chances of seeing some drilling activity is getting better and could possibly happen in 2012. Thanks again for your info in regards to lease contents.
Mike Igau said:
Charles: I have taken an excerpt and modified it from an old lease that should address this issue. I am sure these provisons would need to be updated by an O&G ATTY.
Assignment:
"No assignment by Lessee of all or any portion of or interest in this lease shall relieve Lessee, or any assignee of Lessee, of any liability for breach of any covenant, warranty or other obligation of Lessee. Each assignee of all or any portion of the rights of Lessee agrees to be bound by the provisions of this lease to the same extent as if such assignee were an original party to this lease. Notwithstanding any assignment by Lessee of a segregated portion of this lease, default by Lessee or any assignee or subassignee of Lessee in any covenant or condition in this lease shall constitute default as to the entire lease. Lessee shall within thirty (30) days of the assignment of this lease or any part thereof notify Lessor of such assignment and furnish Lessor a true copy of any assignment."
charles s mallory said:Mike:
Good information on the "Assignment Clause" as I have never included this in any of my previous leases. I thought that I had all bases covered with "pugh clauses, etc.". Question: If this clause is violated, is this lease "null and void" and how does this work if Operator A sells to Operator B; Operator A being the original lessee?
Mike Igau said:Charles: This is why I pose the question to get input on why mineral owners don't challenge the land agents when they will not disclose who they are working for. Another case in point for me on this issue is when I received a call from a land agent wanting to lease a 150 acre tract down on the Gulf Coast (TX). She was reluctant to reveal her client. We had a very polite discussion and I had told her of our policy about disclosure and that we required that information before negotiations could take place. I suggested she contact her client and advise them of our request. Several days later I received a call from her client. It turns out it was a one person operation that was peddling leases. End of story. So why should a mineral owner put themselves in a vulnerable position not knowing who they are dealing with initially in any case?Our ATTY also advises that an "Assignment" clause be put into the mineral lease so the original entity will be required to notify the mineral owners, in writing, of any assignment, in part or whole, to any other entity or Operator.
charles s mallory said:Mike:
My minerals are located in the Williston Basin, both in ND and MT, and in this area, the clock is running on expiration dates on leases activated in or around 2008. So many undrilled acres exist and it is evident that there is no way these operators can drill prior to the expiration date in some cases. What I'm saying, in this event the operator (especially if a majority acreage is not held) will either sell their share to another operator (who has a majortiy hold) or negotiate a new lease at much higher bonus and % royalty amounts. I agree with you on the fact that some operators tend to have better production results than others but when you lease, you have no ultimate control on which operator will end up drilling.
Mike Igau said:Well, I care. If they don't divulge who they are working for I am not interested in leasing. I think it is an absolute insult to the mineral owner not to have that transparency and courtesy. There are Operator's I do not wish to lease too. How would I be able to determine the track record of any Operator or their financial status otherwise? Here is a case in point. I attended an Oil and Gas Seminar last weekend hosted by Allen Gilmer of Drilling Info. They track drilling activity and Operator's nationwide. His focus was on the EagleFord Shale in this Seminar. He was emphasizing how important it was to know who you are leasing too. He discussed an issue of what Operator's really know what they are doing with the very complex horizontal drilling techniques and how better to maximize production. He gave an example, noting EOG's successful performance and their ability to do the research in improving completion engineering practices. The point is he asked the question, would you rather have EOG drilling your mineral property at a 20% royalty or "mom & pop, Inc." drilling at 25% with sub par production? EOG's production performance is among the highest in the shale plays. Thus, this is an excellent reason to support disclosure as it impacts the term's a mineral owner is willing to negotiate. I understand that any entity can assign a lease and this has happened only once to us and it was to a better Operator, in our case.
charles s mallory said:I could care less who ends up with the lease as long as I get the bonus/acre, % royalty and lease term that I ask for. In the past, I have been told by the landman who they are working for and a couple of years later, the lease ends up with yet another operator. If Operator X originally obtains the lease and does not hold the majority of the acreage in an area, most likely they will in turn sell their part to the Operator that controls the area.