I own a small mineral interest in 15-13N-7W Canadian (1.8181 nma).
I’ve received two different lease offers from two different companies for two different proposed horizontal wells which based on their description seem to be planned for the same strip of land in Sec. 15. The offers also differ significantly in their terms/options; one offering double the bonus of the other, and offering a larger royalty fraction, as well.
I haven’t encountered this situation before. Can I sign two different leases for the same mineral interest in the same lands?
No, you would not want to sign 2 leases covering the same lands. You can use the situation to enhance your bonus/royalties. Also, the devil is in the detail in leases.
When reviewing a lease, in addition to the royalty and the bonus (which is a one time payment) the following are key items to review:
Whether there is a depth clause, this protects you if there are formations that the lessee does not develop.
Top lease clause. Many leases provide cumbersome procedures in the event that you wish to lease different formations to new lessees.
A Pugh Clause. This protects in the event of certain spacing issues.
No Deduction Clause: This maximizes the royalties by requiring the producer to bear to cost of transportation, dehydration, and other expenses. Some modern leases have things titled “no deduction” but really do not protect the landowner.
Special warranty. Owners do not want to warrant that they have title to the property, the special warranty limits the owner’s liability in the event failure (or partial failure) of title to the minerals.
Cessation, Drilling and Reworking. Places time limits for the lessee to rework the well after production has ceased.
Free use or oil, gas or water: Clarifies how a lessee can use those items and possible royalties if used for production of electricity, crypto currency. etc.
Commencement to drill. Should require a rig on site.
Shut in royalties. Best to limit term that shut-in royalties can be paid.
I recently ran into proposed lease with the following language:
It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil, gas and other proceeds accruing to the Lessor under this lease or by state law shall be without deduction for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting and marketing the oil, gas and other products produced hereunder to transform the product into marketable form**; however, any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as they are based on Lessee’s actual cost of such enhancements.** In no event shall Lessor receive a price that is less than, or more than, the price received by Lessee.
I view this as a fake non deductions clause.
This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.
I received the same and like you, I was confused as well. Then I received an OCC notice that Paloma Partners has filed for a pooling application. I learned from a Landman trying to lease from me that Canvas Energy then filed for a pooling application as well. So they’re going to protest each other’s pooling applications and it will have to go before an administrative judge to sort out, unless they come an agreement.
Regarding Free Use of Gas for Crypto, also don’t accept payment for the gas they use for Crypto. Demand a royalty on the total coin that is mined, it’s much more valuable and make them report their total hash power and which mining pools they belong to, this way you are ensured of getting your proper share.
Canvas has a lot better track record of bringing in better producers than Paloma. Please don’t accept their lease without an exhibit making some changes in your favor as others have suggested. Even with that small amount of minerals, it might pay you to use a KNOWLEDGEABLE oil and gas attorney for help.
Crypto miners need plenty of cheap power to make the financials work. The traditional way was to work a deal with the electric company for cheap rates. The new way is to use gas at the wellsite, flared or otherwise. So crypto is courting o&g, and owners need to be aware and prepared.
technically, yes you can (ethically no). Oklahoma is a Notice State, which means the last buyer to pay fair value for the lease that does not have Constructive Notice that there are other/earlier interest, wins and will have priority /prevailing claim, over subsequently recordings. (i.e., if you lease to Company A, who fails to record their lease before you execute another lease to Company B, who records the lease promptly, then Company Bs lease is valid and binding and attempts by Company A to record their lease, even if executed first, would not prevail…In the end though, the language of the lease would then require you to refund Company A’s bonus money.
Gas can be routed into an engine and attached to a generator to produce the required electricity. Some engines, such as the Arrow A54, can run off wellhead gas.
