There are some “gotchas” on Mr. Lucas’s Ex A. No offense intended if you love that Ex A…here are my thoughts
Depth clause- “penetrated” should be “producing”. The oil company would love to have “penetrated”. That way they could hold everything they drilled through as long as one horizon produces. The mineral owner doesn’t want them to hold lower horizons if they are producing from only upper horizons. Ideally, the mineral owner only wants them to hold the currently producing horizon. Hard to get a upper depth zone limit though. Also, sometimes a straight pilot hole is drilled deep, then the horizontal kickoff is drilled into a shallow zone later.
Shut in -“consecutive”. Better to use “cumulative” Theoretically, a company could shut in for 729 days-two years minus a day- turn on the well and “make a profit” for a few days shut in the well for another 729 days, forever. With “cumulative”, they only get two years of total shut in time.
NO Deductions clause-the “however” part at the end after the semi colon just gave them the right to put all sorts of costs back in that you will not be able to trace. I strike that whole last part because I don’t think they can enhance the value enough to charge me 50-80% of my royalty in deductions. If you choose to leave that part of the clause in, you better cite the court case that will give you some slight protection, otherwise you have none. They used the words, but didn’t quote the case.
Mittlestaedt v. Santa Fe Minerals, Inc. 1998
Also, it is very helpful to add a Commencement of Drilling clause.
Here is the Ex. A I try for in Hughes. You may not be able to get all of them, but no harm in trying. Also, I am always improving it, so not set in stone. 0_O%26G%20Exhibit%20A%20.docx
Thanks to M. Barnes and Angela Havel for putting these documents on the forum. BIG help to me going forward as I have floundered around in the past re getting all clauses, worded correctly, in leases. A big thanks!
Do not take the two year extension. Make sure you get a good lease with no post production costs. This is gas territory and those can eat up your your royalties.
Angela, thank you so much. I am actually in the process of executing a couple of leases today and this would be great for me. And, I have no doubt, others as well. We should both check that M. Barnes recommended changes (below) are in the typed-out document. Thanks again!
Received lease offer for Hughes 6-8N-9E for $200/ac, 3 yr term + 2 ($300 bonus if extended), 3/16 royalty. Stephens Land Company. Wondered if this is a fair offer for that section, any help would be appreciated.
This is the same offer I got from Stephens for this tract. I took it but I am not taking anything less than $300/NMA anywhere else in Hughes. Note that 8N-9E and 8N-11E and 9N-11E are hot properties over the last month or so.
The longer one that was posted was a better one (except for the changes needed to the clauses I mentioned below) and had the commencement of drilling and warranty clauses added. Again, I would not have ANY deductions in my leases if I can help it.
Here’s the retyped Exhibit A clauses in a PDF document. I made the two changes Martha pointed out (changed “consecutive” to “cumulative” in “Shut-in” clause, and deleted everything after the semi-colon in the “No deductions” clause.)
Note that the Pugh clause refers specifically to Oklahoma. I don’t know about you, but we have mineral interest in a couple of other states, so I wanted to alert everyone the wording on that one would need to be revised if you were leasing in another state.
M. Barnes and Angela Havel, do you know where I can get a copy of the Exhibit A clauses document that is the actual wording and not a picture pasted on PDF file? Thanks for any assistance on this. Robert
@ M Barnes I have cited Mittlestaedt v. Santa Fe Minerals, Inc. 1998 and one company continues to charge in excess of 50%. We have called and sent certified mail, return receipt and they simply choose to ignore us.
Claudia, that is the problem with Post production costs. Extremely difficult to track legitimacy even with M v SF. If it makes you feel better, I have negative royalties in some places where my folks had old leases. Not happy about that!
Ask what they are offering for 1/5th. They are out there.
If they want to drill in your area, make sure you get a separate surface lease from the mineral lease. They may drill multiunit wells, so possibly drill through your minerals at depth, but not have the rig on your property but rather next door.
So many folks around the Holdenville area have had seismic work done the past couple of months. Silver Creek is now looking to put rigs on. I haven’t done this in a while and will need to work out a surface agreement. I didn’t sign a lease a couple months ago before the seismic, do ya’ll think I can still sign a lease as well as a separate surface agreement? Anyone have any suggestions on a surface agreement? Thanks folks.
You can’t deny it on your land because the mineral rights have first preference and the OCC will decide where the best location for the drilling pad will be. I was just saying that the surface lease and mineral lease need to be separate. Also, in the case of a muli-unit well that goes through two sections, your surface location might not be picked. They want a nice flat spot away from water and buildings. A surface lease is much more detailed than a mineral lease. You might want to talk to your neighbors and an attorney to get a good surface lease if needed because you really need to protect your agricultural and water rights and home if you live there.