I often receive calls from property owners that are considering leasing their oil and gas rights. Typically, these mineral owners have already started negotiations with an oil and gas producer’s land agent. Many of the mineral-owning families in our area have had little experience with the oil and gas industry prior to the advent of shale extraction, and it is in the interest of energy producers that these owners sign on the dotted line before understanding the full details of their lease agreement – which brings me to my main point.
No matter what anyone tells you – friend, landman or otherwise – there is absolutely no such thing as a “standard” oil and gas lease.
In all likelihood, if an offer has been presented to you as being “standard form,” you should be on high alert. Energy production is an expensive business, and operators aim to protect their investment by retaining as much of the profit and discretion on the manner of production as the mineral owner will allow. In most cases, operators will be willing (and expect owners) to negotiate lease terms. You should not feel pressured to accept whatever terms that the land agent puts in front of you. Be particularly cautious when a leasing offer is framed as “take it or leave it,” or if the agent is pressuring you to sign quickly. A mineral lease is a prolonged business arrangement, and you probably shouldn’t go into business with someone that refuses to negotiate.
Leases vary widely based on the minerals targeted, the energy company, geographic region, size of the property, and other factors. In addition to consulting an expert in mineral transactions, you should perform your own research to understand the essential terms and avoid unwelcome surprises in the future. Some important considerations include:
Is the property described in the lease accurate?
How much is the royalty percentage?
How often will I be paid?
Does the lease provide for a bonus payment?
What is the length of the lease term?
Can the operator extend the lease term indefinitely?
What do the “pooling” and “unitization” clauses mean?
Does the lease contain a “Pugh clause?”
Can the operator install equipment on my property?
Note that regardless of whatever verbal negotiations have taken place between you and the land agent, the language of the lease ultimately controls, so it is critical that you understand what your lease means.
Our firm advocates for mineral owners when energy operators break their promises. If you feel that a company has breached your lease agreement, we’d be happy to take your call to discuss.