Oil & Gas Leasing: Top 10 Things to Do
Every day across America, mineral owners are contacted with oil leasing or gas leasing proposals regarding their oil and gas mineral interests. Unfortunately many of them don’t do their homework and miss available opportunities. However, those willing to do a little homework can maximize the benefits from their mineral ownership by employing these tips.
Determine if There Are Other Family Members Who Have Been Contacted
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 you’ll be able to negotiate a better deal. Gas leasing and oil leasing often involve many within the same family.
Determine Exactly “Who” You’re Talking to
The entity or individual who initially contacts you could be one of various stripes. Ask questions to ascertain which of these you’re dealing with:
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 negotiate 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.
An entrepreneur/middleman – at times, a landman will be working for their own account, taking gas leases or oil leases in their own name (or their own company’s name) with the intention of re-selling (flipping) the lease to another entity, likely an oil company who actually has the capacity and intention to drill.
If You Have Multiple Tracts of Land, Demand Separate Oil and Gas Leases for Separate Tracts
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 Your Lease Paperwork
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 about an oil lease or gas lease. You’ll save time and be more prepared to deal with upcoming questions.
Google the Parties Involved
- The person’s name who contacted you
- The oil company’s name
- The local newspaper near the property (articles on recent drilling activity etc.)
- The name of the geologic formation to be drilled (ask the landman what it is)
Research Current Wells in the Vicinity
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, you’d like a well drilled on your minerals so that you enjoy economic gain, then remember the end game – you’ll ultimately need to arrive at lease terms suitable to all parties. You’ll likely get there with more money in your pocket if you’re nice along the way.
Consider Whether You’d Like to Create a New Business Entity
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 an oil lease or gas 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, you’ll need to transfer mineral ownership into a new entity BEFORE entering into a lease.