My father and uncle owned mineral rights to 20 acres in Coalinga -- Section 4, Township 22 South, Range 16 East, MDB & M. I have received a lease offer from Onshore Leasing offering 1/6th royalty, $40 per net acre annual rental (paid five years in advance), and 5 year term.
My cousins consulted an attorney friend who told them this was a standard lease and if we do not sign we become something like a partner in the venture and could be asked to contribute money to the expenses of the venture and share in profits, if any.
I'm concerned about signing a 7-page lease that I don't fully understand, especially the Warranty of Title section. Should I look for an attorney who specializes in this to review the lease? We now have only a few weeks before the lease is due.
Thanks,
Mary G.
Mary:
Welcome to the Forum. While oil and gas leases are "standard," they are particularly one-sided for the benefit of the oil companies. That said, however, WHICH oil company it is makes a difference. You may know, Onshore is a lease broker. In regard to this lease, they are working for an oil company to obtain the leases in the area and then will assign them to the oil company. As a potential lessor, you have the right to find out who the oil company is. I would ask them.
Onshore has been working for Vintage Petroleum, a subsidiary of Occidental Petroleum ("Oxy"), which is an international oil company. As such, they are a well known, well respected company and this knowledge should help allay many of your concerns. The fact that it is a 7 page lease says that it is likely a Vintage lease.
Whether you own any surface rights separately from your mineral ownership may make a difference in whether you want to enter into this lease without further review. In addition, a consideration regarding your percentage of ownership in those 20 acres may also help you decide if this is something worth further review.
Finally, regarding not signing the lease, your lawyer friend is partially right. If you do not sign a lease you and the oil company were to drill a well in any event (which is usually not typical) you would be considered a joint working interest owner with the oil company. As such, the expenses for drilling a well (which can run into the millions) can be deducted from your ownership interests before you are entitled to any income from a successful well. This does not mean that the oil company can seek a payment from you, however. Just that you won't be entitled to any income until the oil company is reimbursed for all of its expenses of production from the income generated from a successful well. If, however, you sign the lease, then only minor, marketing expenses can be deducted before you are entitled to receive your royalty share.
I hope this is helpful.
Jean Pledger
Jean,
Thanks for your response. My share is 25% of the interest in 20 acres, and we don't have any surface rights. I'll ask the Onshore landman who contacted us what oil company he represents. Since so few acres are involved, my main concern is whether signing the lease would be committing myself to an expensive title search or some other responsibility I've overlooked.
Thanks,
Mary Gilstrap
Jean M. Pledger said:
Mary:
Welcome to the Forum. While oil and gas leases are "standard," they are particularly one-sided for the benefit of the oil companies. That said, however, WHICH oil company it is makes a difference. You may know, Onshore is a lease broker. In regard to this lease, they are working for an oil company to obtain the leases in the area and then will assign them to the oil company. As a potential lessor, you have the right to find out who the oil company is. I would ask them.
Onshore has been working for Vintage Petroleum, a subsidiary of Occidental Petroleum ("Oxy"), which is an international oil company. As such, they are a well known, well respected company and this knowledge should help allay many of your concerns. The fact that it is a 7 page lease says that it is likely a Vintage lease.
Whether you own any surface rights separately from your mineral ownership may make a difference in whether you want to enter into this lease without further review. In addition, a consideration regarding your percentage of ownership in those 20 acres may also help you decide if this is something worth further review.
Finally, regarding not signing the lease, your lawyer friend is partially right. If you do not sign a lease you and the oil company were to drill a well in any event (which is usually not typical) you would be considered a joint working interest owner with the oil company. As such, the expenses for drilling a well (which can run into the millions) can be deducted from your ownership interests before you are entitled to any income from a successful well. This does not mean that the oil company can seek a payment from you, however. Just that you won't be entitled to any income until the oil company is reimbursed for all of its expenses of production from the income generated from a successful well. If, however, you sign the lease, then only minor, marketing expenses can be deducted before you are entitled to receive your royalty share.
I hope this is helpful.
Jean Pledger
Mary:
Your concern is understandable. You discussed your concern with the Warranty of Title section. I typically delete the portion that discusses you warranting title, although I will leave in the right of the oil company to pay any liens, etc. and deduct them from your royalties. This is a protection that the oil company seeks in order to secure its interest in the lease.
I wish you well in your endeavor.
Jean