Lease renewal coming up

California Mineral Rights Kern County, CA
1

Hello everyone. I am helping my mother with her lease renewal. Her mineral rights are in Kern County CA Township 28S, R25E, section 19. Her current lease with Vintage Petroleum/Occidental is for $50/acre and 1/8 royalty and expires mid July. I’ve checked the CA Department of Conservation weekly reports over the past couple years and there have seen Notices to drill in sections 2, 3, 4, and 27, and Notices to rework in sections 14, 27, 28, and 34. These are all thousands of feet from our property and I have not figured out if they produced anything. The Operators listed in the weekly reports include Vintage Production, Plains Exploration, and JP Oil. With that in mind, I have several questions:

1) Are Vintage Production, Plains Exploration, and JP Oil all part of Occidental?

2) What does “Notice of Rework” mean?

3) How does one know if the oil/gas companies are actually horizontal drilling through your property or if they actually find oil under your property? Are the drill profiles officially recorded somewhere?

4) How does one go about getting a higher royalty percentage (say, 1/6)? Do you hire a negotiator? Do nothing and see what happens? Just ask?

5) Is there a trade-off between royalty share amount and leased $$/acre?

6) Has anyone added the Plugh Clause to their lease and how did you go about that?

7) Does anyone else have mineral rights in T28S and can you tell me how our lease compares to yours?

Thanks for any help on any of these questions.

2

Hi Charles,

Let me see if I can help some.

1. Plains (which is now Freeport McMoran), and JP Oil are not a part of Occidental. Vintage, however, is a subsidiary of Oxy.

2. Rework means that they have a well already which was a producer and something has either slowed or stopped production. So they "rework" the well to get the openings back open (they will sand/silt up), or pull some broken pipe to replace it, etc. Thus, these are not notices for the drilling of new wells.

3. Well profiles are given to the Department of Conservation, Division of Oil, Gas and Geothermal Resources ("DOGGR"), although they typically are not such that a lay person could interpret them. There is typically very little potential for an oil company to purposefully drill into your property if they do not have a right to do so, as the ensuing lawsuits are not such that they wish to deal with. There is potential for inadvertently drilling into your minerals, but even that is much less likely now with GPS and the high-tech equipment that the companies are using now.

4. You say that her lease is up for renewal. You can negotiate a higher rent/royalty. The rent at $50 is a decent price for Kern County. Royalty should be 1/6 (16.667%) up from 1/8 (12.5%)). Depending upon the size of the parcel and the percentage of interest your mother holds, you could negotiate to 3/16 (18.75%). If she has a large interest it may be worthwhile having a lawyer review it. You need to know, however, that the oil companies are less likely to make a lot of changes when they are renewing a lease. Therefore, I think that obtaining at least 1/6 is doable (this is the standard royalty rate now). Anything you get in a bump in the rent is a bonus.

5. Royalty is long-term but not guaranteed since no well may ever be drilled. The rents are guaranteed, however, at least for the first year.

6. Most California leases contain a version of a Pugh Clause, although we call it a "drill-string" typically. It requires the oil company to drill a certain number of wells and release those acres that they decide not to drill thereafter.

7. I can't help with this one. :)

Good luck. Hope this helps!

3

Wow, Jean that really helped. Thank you so much for sharing your knowledge and quick response. My mother received a couple phone calls last week from Maverick Petroleum who, from their website provides various land services including lease negotiations. I found a letter on the web from MP that was addressed to a property owner and they were attempting to assemble an Oil & Gas lease block. Do you know if this is a good thing to do? My mother only owns 25% of 110 acres. Another 25% is owned by my Aunt’s trust. Maybe it’s a good idea to assemble a block as there’s strength in numbers? Seems logical.

4

50% of 110 is fairly good. You are correct that there is strength in numbers. Maverick is a well-known, reputable land company.

Good luck!

5

Hello Charles, Our family has mineral rights in section 27, T 28S, R 28E. We are being asked by West coast Land Company to sign their lease…they say they have obtained 80% of leases in our area and we are the remaining 20% ostensibly. I really don’t know how to verify this. Our bonus is $35 per acre and 1/6 royalty. We simply asked for this amount of royalty. However the terms of the lease are not in our favor I believe. There is an automatic renewal at their discretion and they say represent a drilling company but won’t tell us who. They have signed themselves as lessee which makes me believe they plan to sell/flip a complete block of leases if they can get us on board. I am interested that you found a site with the Dept of Conservation that let you know there is drilling in section 27. That is a new source to check. So glad I read your post. Actually, I am considering upping the bonus amount and asking for 3/16 royalty. Is your Mother still with Oxy? On the lease agreements are they signed as lessee? We have never signed with a producer. Good luck. Mary

6

Mary, sorry it's taken me so long to respond. My family trust (mom), is listed as Lessor and Vintage Petroleum LLC is listed as Lessee. They changed the royalty to 1/6 AFTER we signed the lease and sent an addendum. The guy I spoke to said that there is interest in drilling in our area, but fracking is an issue. Hopefully it gets resolved and we start tapping into our own resources. Good luck.