Oil And Gas Lease Negotiating Top Ten Things To Do
This fact alone will guide much of your thought and action. If the range of economic impact is small (possibly insignificant) consider the opportunity cost of your time. On the other hand, the economic impact of the oil and gas lease may be large enough for you to devote substantial time and brain power to the transaction.
There is power in numbers. When an oil company is leasing in an area, this is not the time for you to be a Secret Sam. Share and share alike with your neighbors. Talk about which companies have contacted you, the specific person, the terms they are offering, the timetables being proposed etc. Knowledge is power. Aunt Edna, Uncle Ernie, Cousin Clem – call them all. Make sure you know which other family members are in the mix.
To the extent possible, speak to the oil company as one voice. All else being equal, the larger the mineral interest, the more likely youll be able to negotiate a better deal. The entity or individual who initially contacts you could be one of various stripes. • A contract leasing agent/broker – These are usually independent contractors working on behalf of either an oil company who intends to drill, or for a larger land brokerage firm who has been hired by the oil company.
They often have incentives (as you might guess) to get the best oil and gas lease for the oil company. • An employee of the oil company sometimes an oil company will have “in house” landmen pursuing leases. Simply put, this minimizes the chance of there being problems down the road.
Development of an oil or gas field is a dynamic process that unfolds over time – as in years. By matching one oil and gas lease to each contiguous tract, the issue of whether a tract is held by production from another tract is all but eliminated. Gather any and all supporting documents related to your ownership (both mineral and surface).
This may include: deeds, deeds of trust, maps, wills, previous leases, mineral or royalty conveyances, easements, ratifications etc. Take time to review these prior to entering into substantive talks. Youll save time and be more prepared to deal with upcoming questions. Perform an internet search on items and individuals associated with the deal. All wells are not created equally! The internet offers a relatively easy way to get a feel for any current wells in the area of interest.
Go to the website of the State Regulatory Agency which oversees oil and gas activity in the appropriate state. Use the search function to search for things like currently producing wells, the names of Operators in the area, recent drilling permits etc. Be a snoop. Good manners are never out of fashion.
Courtesy and integrity always count. Offer to buy (or make) the coffee and cookies should you meet personally. If in fact youd like a well drilled on your minerals so that you enjoy economic gain, then remember the end game – youll ultimately need to arrive at a lease with terms suitable to all parties.
Youll likely get there with more money in your pocket if youre nice along the way. IF the size of the deal is significant enough, and IF there are financial planning or succession implications to the receipt of income, now is the time to think about these issues. Once the lease is signed, the oil company will be issuing bonus payments and future royalty payments to the entity or name listed on the lease. If you desire otherwise, youll need to transfer mineral ownership into a new entity BEFORE entering into a lease.
