I’m new to oil/gas royalties. Finally inherited what was originally my Grandparents wells. I’m trying to right down questions that will save me money by not running to attorney on every little thing - like this:
I’m confused. The majority of my lease offers have been “$XX for x/xx per nma for a 3 year lease”
But I have been coming up seeing answers to questions pertaining to this like below:
“The reason the higher royalty is more attractive for most people is because in the long run it can provide a greater return. Also, if a successful well is drilled you will be stuck with the option you chose. Not only will you be bound, but your heirs will be stuck with this as well. Also, it can last many decades and generations.”
I totally understand sentence 1. However…
Am I thinking of something else I’m signing that pertains to sentences 2, 3 and 4? I don’t recall signing anything with the verbiage that it’s generations. I pay great attention to what I’m signing and have looked through all of my papers I have signed and nothing is jumping out at me (I only started signing things in the last two months so i was able to do this with no problems)
In Texas, all of our leases have a clause that aintains. the lease as long as there is viable production,called HBP (for held by production) We inherited minerals that have been HBP since the 1930’s, so yes, what you sign now may affect your great, great-grandchildren and beyond.
That is a great question. Most leases will have the following verbiage similar to this, “this lease shall be extended for so long thereafter as oil, gas, or other hydrocarbons is produced.” This is known as the habendum clause. It keeps the lease in place after the initial typical three-year lease. Many people are under the mistaken impression that the lease is only for the three-year period. But the “so long as” language means it can last for decades.
This can bind the royalties to the lease for as long as there is production. This can last decades. In fact, at least one well in Pennsylvania has been producing for over a hundred years. Also, no company would want to take a lease if it could be renegotiated every time that the ownership changed because the new owners would invariably demand a higher royalty.
Watching this forum, you will often see someone who inherited minerals inquire about renegotiating the lease or a pooling order. Unfortunately, the new owner is stuck with the lease or pooling order that was binding on a predecessor.
That is why so many on this forum are passionate about making sure that the lease is a good one.
This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.