My Sister and I have interest in a few counties in Texas and are constantly getting offers from landmen. My sisters husband does our negotiating and more often the not passes on OGL leases even when the terms (1/4 royalty 2 year term etc.) and bonus offers are at or above the going rate. When I question him on why we are not signing the lease, he says Its not a good company, I would not understand...etc.. I do not work in oil and gas and currently live out of state but can someone explain to me why we are not not signing perfectly good leases and taking good bonus checks? I don't want to cause family strife, but Im ready to sign. Any advice would be greatly appreciated as I continue my due diligence.
Aaron, can you name any of the companies?
If Chesapeake is one of them, your sisters husband would be right in my opinion as it's tough to make money with a company you are likely to need or at least desire to sue them.
Some of these leases could be from companies near bankruptcy seeking to build up their inventory?
Some of the offers might be from companies or individuals who want your lease without paying for it for 3-6-9 months to see if they could re-sell it at a profit and if they can't you will have been tied up and in the end receive no money and possibly have your title clouded which you might have to go out of pocket to sue them to clear your title.
There may be concerns that the lessee plans to drill only one cheap mediocre well to hold the lease so the lessee could sell to someone else in the future when the value of the proven acres appreciates. There are many ways to make money in oil and gas but for a lessor (you) to make money there needs to be production. You wouldn't make any money off of the re-sale of your lease or proven acres.
Perhaps the lessee wont agree to a time limited shut in clause without which you may only receive $1 per net mineral acre per year for a decade or more.
Just this morning I was warning someone of having their well drilled by a company I considered to be "Hack" drillers who I believe would leave considerable resources in the ground for which as lessor they would never be paid. I might well choose a lower royalty from a more competent operator and come out ahead than to have a hack driller have control of my minerals for a couple of generations.
There are many reasons why one might advise against leasing to a particular lessee. Sister's husband may be right or he may be wrong, tough to tell from where I'm sitting with no more to go on than what you have given.
I'm glad you are looking into the situation for yourself. I have wanted my family to get informed for years.
Arron,
I agree with Mr. Kennedy. It's better to not sign a lease than to sign a lease with a bad company that will steal your royalty monies. There are a lot of decent companies out there and there are some bad ones. You can thank your sisters husband for looking out for your interests.
Clint Liles
Most important factor in leasing are the specific written lease provisions which set out your rights and protections. For example, does the royalty provision provide that your royalties will be cost-free? When are the payments due (1 month, 2 months, 3 months after production?) Are you going to be paid for lease-use gas? Language providing for market value royalties. No matter how nice the landman may be, in the end it is the written lease that will determine how much you are paid over many years. If production is established, this is a very long-term contract and there are no "do-overs." Whether you own large or small mineral acreage, the lease is likely to be assigned to other companies over the years and you may or may not like the operators. Hopefully your brother-in-law has experience in the oil and gas leasing or has a good legal advisor. Consider joining NARO and attending a state or national conference to learn about oil and gas leasing and how to manage your minerals. There is a lot of material on this website and the internet which can help your learn about owning and managing your minerals. You can never have enough knowledge.
Let's keep it simple. Why would you sign a great lease with the devil?
Dear Aaron,
I own 100% of my land's minerals and surface rights. A landman came a-knocking about a year+ ago. He promised "big things" if I signed that day. I told him I would get back to him. So, over the next year I did a lot of due diligence and got a lot of excellent advice from the great people on this forum.
Eventually, I was able to make up my mind and make a decision. A neighbor reminded me just yesterday that I was the only landowner in the pool who didn't sign. And, today, I still stand firm on that decision. It's not always about the $ sign.
It appears that your sister's husband knows how to negotiate wisely. Continue on with your due diligence and you may learn what he already knows.
Good luck,
Pat
Aaron,
Based on your comments and two of the counties being Ward and reeves, I have deduced that your Brother-in-Law is looking toward the capture massive long term benefits being developed in the New Oil business, b) understands that haste makes waste, and has a good understanding of the pitfalls of greed, and is using good judgement over arithmetic to make decisions.
I find that owners who accept leases based on averages always loose out. That is the way the lessee's want it. 35 years of experience allows me recommend that you leave things in BIL's capable hands.
Bloomberg shows West Texas Intermediate at $50.85 and natural gas at $2.96 this morning. You have a valuable product in your minerals. They need to come out of the ground when the prices are much higher. What do you have to lose by waiting?
Landsmen show up with a mouth full of promises, but then the checks come in looking bad. A bad deal is worse than no deal.
By the way, I have found that money spent on a good minerals lawyer is money well spent.
Good Luck
Robert Gill
Thank you Gary,
The brother in Law is currently charging me 20% for negotiating. Is this a fair deal?
WHO KNOWS??? MAYBE HE IS Afraid of being wrong??,, Maybe he does not know what he is doing??
WHO KNOWS?? 1/4TH ROYALTY, 2 YEAR TERM, GOOD $$$ SOUNDS GREAT TO ME!! A GUESS----HE MAY BE AFRAID THAT TOMORROW SOMEONE WILL OFFER A LITTLE MORE AND HE IS AFRAID TO SIGN TODAY!! IN THE MEANTIME, YOU COULD HAVE USE OF THE $$$. I WOULD HAVE TO TELL HIM TO PASS THE OFFERS ON TO ME TO EXAMINE AND DETERMINE WHAT TO DO----WITH MY PART! THIS ESPECIALY IF I NEED TO $$$ OR HAVE ANOTHER INVESTMENT TO MAKE.... GOOD LUCK!! JOHN ps. this is fairly common among relatives!
What kind of family charges each other for this kind of help? Get yourself an oil and gas lawyer. Make sure you understand the terms of the contract. Keep your copy of the lease; don't let someone else keep it for you.
For all of you on here talking about how smart this brother-in-law is, what do you know about him? I'm not sure we know anything? And 20% is highway robbery for negotiation. Also, pigs get rich, hogs get slaughtered. Your BIL may be waiting on a deal that may never come. I agree with John Broyles and Robert Gill. Get a good atty (if the property is big enough to justify the expense) and negotiate your own deals. I can't see why that should cause family issues unless your BIL is unreasonable (but I'm not trying to downplay the family dynamic - I know that can be incredibly tough at times). You haven't given us background on him as to why he is the almighty O&G negotiator. And for 20% - he better be almighty.
Best of luck!
20% of profits is what highly successful hedge fund manager's get. To do that they must raise the money on a promise, find the deals within the hedge fund mandate, evaluate the deals for the benefit of the hedge fund subscribers, hire the lawyers to document the deals, negotiate the best deals possible for the fund, manage the deals made and distribute the profits before ever getting the 1/5 share of the profits generated on the invested capital. they share the profits with the staff.
Hedge fund managers risk their reputations and their time. It sounds like BIL isn't risking anything and is getting a bonus to boot by increasing the value of his sister's land by representing yours as well. Unless he is a geologist, engineer, mineral economist or former operator with close business contacts as I am, he should be splitting his bonus with you; not charging a commission for holding an auction. I'd be upset if I were you.
In my practice, I always work to get my client what he or she wants from the minerals. Sounds like BIL is only considering what he wants and using your acreage to get it. Most of the advice I put out to inherited mineral owners is without charge and when an owner has enough acreage and communicates his objectives to me, I bring him the complete deal for approval and then share the proceeds 90/10 after closing. I then continue to make certain the buyer/lessee lives up to the deal.
To keep peace in the family, I do those for free. It makes good will.
Gary L Hutchinson
Minerals Managment
I would say no, that is not reasonable. I think I now know why you call them sisters husband.
If you get lease offers in your own name, you could get some help here on the forum. If you were willing to give up 4% royalty I think you could negotiate some outstanding terms. Terms that in the end protect your net royalty like no deductions other than taxes clause.
A BROTHER-IN-LAW THAT WOULD CHARGE YOU 20% IS A REAL CLASS A JERK AND POSSIBLY A MEMBER OF THE DEMOCRAT PARTY
CLINT LILES
Dear Aaron,
There are many provisions in an O&G lease that one should consider before signing. It's just not the $ part. Negotiating lease terms is time consuming.
Look at it this way ... providing you three own these mineral interests, undivided, and the lease has all three names on it ... then it should be a three-way vote on who does the negotiating. For your one-third interest, you could assert that you would feel more comfortable hiring an O&G attorney ... one who could be an objective negotiator for all three..
Remember ... providing that all of you own one-third interest, then your sister's husband is also negotiating on his best behalf. If that's the fact, then you might want to ask him why he's "ripping" you off while he's also negotiating for himself.
Ask him for an accounting of his time.
Good luck,
Pat
Bwahahahaha. Clint, tell us what you really think! Linton
Hahahaha! He just did.
Pat
Is he charging 20% of the bonus or also 20% of the royalties? Maybe the bonus if total money is small and he is spending a lot of time. But if he is taking the royalties for decades, that is outrageous. Also, he should be forwarding 100% of correspondence from and to the landman. He should be explaining in detail to you what factors he is using to assess and compare the offers and the explicit written terms of the leases. As family and as your hired representative he has an ethical and fiduciary responsibility to keep you informed and to educate you so that you can eventually manage your own properties.
Thank you all for responding. Im not happy in my current situation, when I told the BIL I wanted to be more involved he tried to bully me into selling. That is not option for me so I’m going to reach out to a OG lawyer for future negotiating advice.