Hello - I’ve have recently been offered an oil / mineral lease. The terms are basic and do not include items beneficial to the lessor such as
Royalty offered is AFTER production costs. There is no Pugh Clause that I can see. Offer is a single lease for multiple parcels, and most other recommendations from this forum are not included
The signing bonus is barely enough to cover legal fees for professional contract negotiation.
What happens if I simply do not sign the lease?
@Ricky, you may be able to negotiate on items you are interested in on the lease, including the signing bonus. If you do not sign the lease, you may still have the option to sell your interests, or to be included in a possible “force pooling” / “mandatory unitization” and the rules for these depend on which state your interests are in. If you decide to be force pooled, you do have to be attentive to pooling notices, since if you are totally unresponsive your interest may default to being a carried working interest. Consulting an attorney who is familiar with your state’s force pooling laws is a good idea if it is possible.
Thanks for the reply. This is in Wentzel Co. WV.
Hi, Ricky, some more information would be helpful. What is the gross acres of the tract, what is your net ownership? What district is your interest in. There are a lot of factors which determine the market value of a lease interest. I have received offers on my properties varying by thousands of dollars per net acre over the last 1.5 yrs but have some leverage as most all of my interests are either 1/2 or 1/4 of the interest. If they are makign you an offer that is being accepted by other interest holders in your tract, and you elect not to lease, I would count on them pursuing statutory compliance if your interest is on the smaller side.
@Ricky, there are some helpful articles out on the WV pooling rules. WV_Pooling_Article is one.
@Ricky Welcome to the forum! There are a TON of clauses within a O&G lease and these clauses vary from company to company. Not all of the advise in this forum is applicable or even possible depending on the operator, location, and parcel.
You are correct in saying that these leases will appear “basic”. These forms are used for thousands of people, but you are well within your right to make a counter offer and see if they are willing to negotiate with you. Their first offer is not usually their best offer.
In most WV leases I see that royalties are paid less production costs. The most common being 12.5% royalty with 12.5% of production cost deducted. Occasionally though, you will come across a lease that does not have deductions. This is one of those negotiating factors and some companies may agree while others may not.
Pertaining to a single lease for multiple parcels, what would the benefit be for negotiating separate leases for each individual parcel? If they are all within the same district, or owned by the same operator, a single lease will encompass all of your needs. I’m sure that if you negotiated what you wanted and specified that you need that written up individually per parcel, they would make that concession. That’s an administrative task but I do not know of any real world implications from them being listed together.
Signing bonuses are often proportional to mineral value. If you have a small parcel of land there may not be an incentive for them to offer anything substantial. On larger or more valuable plots though I have seen lease signing bonuses of over $4,000 per net mineral acre that they own.
To finally answer your question though. If you do NOT sign a lease, they will find a way around you. Within a single parcel you only need 75% ownership to force a lease to happen. Likewise within a drilling unit, you only need a certain percentage to consent for them to approve a permit and drilling to begin. When this happens, you will be compensated at the highest negotiated rate of all of the other owners and those funds will likely be held in escrow for you to claim at some point.
There are many oil and gas attorneys in WV but there are also many operators, mineral investors, and similar folks who could either help you out, or buy you out of that interest. If you are considering selling, doing so before signing a lease will likely be your more lucrative offer. I know that the company I work with will pay more for unleased parcels since we have more negotiating power than a single owner does.
Great article, I hope you find it useful.
Hello - the gross acreage is over 100 acres but my interest is small 0.8 net acres. It is not contiguous, there are a dozen parcels but all within the same general area.
I would like to see the royalty either 15% or 12.5% but without deductions (current offer is 12.5 with production costs deducted). No extension of the primary 5 year lease term. Maybe a little higher signing bonus than $2K. And I’m wondering about the stratification, why are people worried about which shale deposits are being harvested.
There is a delay rental clause which I do not understand, as this is a “paid-up” lease. The shut-in is tied to this delay rental and specifies a $5 per net acre per year.