I'm putting together my own custom oil and gas lease for use on my familys property. I've been spending time looking at a bunch of lease examples that I can find online and would like to know if there is any particular lease language that is mandatory by either state or federal law? I've noticed a lot of the same lease terminology in the majority of leases I've read so far and got to wondering if they're put in the lease because law dictates or because it befifits the leesee. I haven't found any referance to mandatory verbage yet, but thought this would be a good place to pose the question.
Thank you in advance for any help and I'm looking forward to chatting with folks here in the future.
Hi Chip, John Swicegood here. I am new to this as well. I signed some leases last year and I know they could of been better. I had no one to really talk to, just the land man which one can imagine the conflict of interest. I was working night and day and really unable to seek out an Attn. They were not big interest, so there was only so much I could do. So, I do not mind sharing what I signed, the good and bad of it, I have looked on line and there is some good stuff out there. I would love to see what you come up with, best, jrs [email protected]
Chip, 99.99% is to benefit the lessee, some, like the distance of the well from existing structures or potable water wells is state mandated.
I recommend that people get help, even if you spend the entirety of the bonus on getting help, if a well is drilled it could prevent you from being charged to death and losing 50% or more of your royalty.
The bonus is usually less than 1% of what the lessee expects to make off your minerals.
The only thing you can trust an oil company to do is maximize their profit. Even the better operator may take charges for 50% of your royalty, ones like Chesapeake will take 98% if you don't have EFFECTIVE clauses protecting you. Clauses offered by the operator LOOK good but generally are not effective, you have to have your own.
The money is in the ground, not the bonus. If you don't get a well in the first lease cycle, you can recycle the language from the first lease you got assistance with. Money well spent.
With regard to mandated language, in California there are very few requirements but many provisions are mandated whether or not they are in the lease. Some provisions, such as an attorney fees clause, are not required but if they are not included they are non-existent. In California most often it is the lessor that is having trouble with the lessee. Thus, if the lessor must sue there is almost no ability to obtain attorney fees unless there is a provision in the lease to do so. Surface use is another big issue here that should be taken care of on a case-by-case basis.
Therefore, RW is correct in that it is worth the while to have someone review a lease for your benefit in every situation since each state and even each parcel of land may have unique issues that should be addressed individually. That said, I see the same form over-and-over again which then is revised accordingly. Thus, some standardization is a good thing.
Ms. Pledger is absolutely right, there are things that are not spelled out in many leases that the lessee may do if there is no lease language absolutely forbidding it, like sell to an affiliate at half price and base your royalty on that half price received and then there is marketing costs which could be another 48% of your royalty for gathering separating, compressing, dehydrating and moving your gas to market, oil has some charges but gas has some real royalty check killers. It's how the guy with 4 wells on his farm can receive royalty checks in Pennsylvania for $0.10 a month. You can't only watch for what a lease says, you have to know what is assumed without it ever being mentioned. I recommend getting professional help with a lease.
The link below will allow you to download a lease that a Mineral Owner named Christine put together with the help of her attorney. It is one of the best I have ever seen as far as protecting the Mineral Owner's rights an suggest you consider all it's provisions.
Thank you for the lease download. It looks good and I may just use some of the wording too. Everything looks pretty straight forward and simple which is what I'm aiming for.
Much appreciated!
Chip
Charles Emery Tooke III said:
Hey, Chip -
The link below will allow you to download a lease that a Mineral Owner named Christine put together with the help of her attorney. It is one of the best I have ever seen as far as protecting the Mineral Owner's rights an suggest you consider all it's provisions.
Thank you everyone very much for your replies. They're all really helpfull. Once I have a draft of the lease completed I plan on taking it to an attorney for overview and editing as needed. I was thinking of posting it here as well, assuming thats allowed, for others to view and offer additional thoughts and suggestions based on their knowledge. I've gotten the same opinion that typical lease wording is by far and large in favor of the leesee just like Mr Kennedy mentioned. The lease that just expired on our property was the age old "Producers 88" lease that the Leesee further modified to benifit them even more. Fortunatly for us, the leesee outsmarted themselves with their wording allowing for it to terminate.
My goal is to have a lease that is fair for all involved, very specific and clear to whats allowed and whats not without any opportunity for arguement on interpretaion of language or claims of ambiguity and without all the automatic continuation clauses past the Primary Term that seem to be so popular.
I'll have more questions that I'll post as I go along and look forward to more interaction with everyone.
If I were you, I would use extreme caution in preparing a lease form and just as much caution as "taking a clause here and there' to make your on form. The form must blend and not be contradictory and yet encourage exploration. You will not see the real good forms of record by and large. The good forms are kept off record and only Memorandum(s) are filed. Mr.Tooke gave you a decent form, if you do not own surface interests.
Buddy made a good point about Christine's Lease. It is a good lease (I think an excellent lease) if you do not own the surface.
If you do own the surface, you have a whole different set of issues to consider and address and you will need to address them in the Lease.
If you do own the surface, what does your family do with it? Issues regarding lands under cultivation are very different than those that need to be addressed in a cattle operation.
My apologies - I should have thought of that before.
My family does own the surface rights and the property is leased to a local farmer and used for cash crop. I definitly want to insure that the farmers usage is encroached upon as little as necessary for well operations and am really interested in suggestions of the things I need to address and include to assure that.
What are Audit Rights? I haven't heard of these so far and how should I apply them?
My intention is to set the new lease up so that it cannot be assigned or sold to another party by the original leesee without permission from my family. That way we can assure it benifits all involved and not just the leesee out for easy money.
Another question. Across the board I see written "A Primary Term of X and as long there after as Oil&Gas are produced in paying quantities" or something worded similar that makes the lease automatically continue past the Primary Term. Is this a legal requirement? Meaning allowing someone to continue to hold onto the lease because it started producing or just something thats been/become customary?
Mr. Cotten, do you know of an online resource where I could view one of the "Good Forms" that you mentioned? I'd really like to see one or more and can understand how those are kept off record or be made really hard to find because they're not pro leesee. I want to create the kind of lease agreement in the manner that you mentioned IE: well structured and encouraging. But I also want one that lets the crooks out there know that they won't be able to take advantage.
Hi all, I own working interest in about 11 acres in Doddridge. I know mineral rights and working rights are different. Antero has offered 3000.00 an acre plus 2% Overriding Royalty. Do I need a lease as complicated as Christine's? Also I assume it is something I should run by an attorney.
Peter, is this to buy out your working interest? I would say if the productive capacity of your acres were decent that they are about $10,000 per acre light on the purchase price and the ORRI should be 5%.
I'm not quite certain I understand what kind of interest you have, the above applies to a working interest on producing acres.
Can you describe your situation? Do you have unleased acres under a producing well?
Did you or a predecessor in title participate in the cost of drilling a well?
It is a lease for the working rights in perpetuity. The working rights were bought by my father in 1967 with a group of 16 others. It is not currently producing. It was initially for oil exploration, and it did produce for a period of time,but then went dormant. When my father bought it they were unaware of the Marcellus field below their wells. Antero is planning to drill a horizontal well, but it hasn't started. So, I think the answer is we are kind of at ground zero at this point. Thank you greatly for your quick response. Peter
Chip, as it may take a couple years for the operator to make the cost of the well back and their habit of not drilling wells until the lease is almost expired, there will almost always be the words "or as long thereafter as oil or gas are produced". The lessee will not go for it if they are not allowed to drain it to the dregs. Even if the lease is for 10 to 20 years, they might just be getting the minerals into full production with the greatest profit yet to come, they would not look favorably on having to stop, or in gifting you with all the work and producing wells drilled up to that point because the lease ran out.
Audit rights are exactly what they sound like, you have the right to look at the books to see if you are being cheated, over billed, double billed, what have you. It's extremely difficult to prove any hanky panky is going on if you can't look at the books. If it took a lawsuit just to look at the books, how likely would you be to start a lawsuit?
Chip Reinhart said:
Hi Everyone,
My family does own the surface rights and the property is leased to a local farmer and used for cash crop. I definitly want to insure that the farmers usage is encroached upon as little as necessary for well operations and am really interested in suggestions of the things I need to address and include to assure that.
What are Audit Rights? I haven't heard of these so far and how should I apply them?
My intention is to set the new lease up so that it cannot be assigned or sold to another party by the original leesee without permission from my family. That way we can assure it benifits all involved and not just the leesee out for easy money.
Another question. Across the board I see written "A Primary Term of X and as long there after as Oil&Gas are produced in paying quantities" or something worded similar that makes the lease automatically continue past the Primary Term. Is this a legal requirement? Meaning allowing someone to continue to hold onto the lease because it started producing or just something thats been/become customary?
Mr. Cotten, do you know of an online resource where I could view one of the "Good Forms" that you mentioned? I'd really like to see one or more and can understand how those are kept off record or be made really hard to find because they're not pro leesee. I want to create the kind of lease agreement in the manner that you mentioned IE: well structured and encouraging. But I also want one that lets the crooks out there know that they won't be able to take advantage.
OK Peter, I have a firm grasp of where you are at now, I would still stick with $10,000 plus per net mineral acre and 5% override, at least to start.
I would go ahead and start seeing if anyone else would want to buy your interest. You might put your interest up for auction and tell Antero thay can bid on it if they like. It does not hurt to have more than 1 buyer.
$3,000 is not a great deal more than what some people are leasing for. I think you can do better than $3k if you can get a competitive bid. I would hate to deal with a single buyer when there is a market out there.