Memorandum of Oil and Gas Lease - Whys and Wherefores

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As lease forms become more complicated and longer, it is more the fashion to file a "Memorandum of Oil, Gas and Other Minerals" in the public records where the property is located, in lieu of the original document.

Why would an oil company file a lease in the first place? To impart constructive notice to innocent third party purchasers of the existence of such a lease.

But has he? It depends on the state. A Memorandum of Lease is not a contract, nor a conveyance, it is only a notice that a contract exists. In a pure race to the courthouse state, you could easily argue that if you leased the same lands covered by the Memorandum and filed it of record (the lease) you would be a winner.

To counter that, the Memorandum should contain words of grant, words of consideration, property description and a reference to another document. Now the Memorandum has met the elements of contract and conveyance.

What are the reasons to file a Memorandum of Lease?

In no particular order:

1. It's cheaper to file a 2 page Memorandum of Lease rather than a 40 page lease form. The lessee may have 100 such forms to file and at an average savings of around $150.00 per form, that adds up to some real money.

2. The Lessee would not want ANYBODY to know what lease terms and clauses it has agreed to, revealing to the general public clauses and royalty that it has a history of accepting. The filing of a Memorandum keeps those terms private.

3. The Lessor likewise would not want to place a proprietory lease of record. One that he may have paid an attorney thousands of dollars to draft for him. That would equate to just giving away what he has paid for.

The existence of a Memorandum of Lease is a quick clue that the Lessee is one that can be dealt with. Just because Original Oil and Gas Leases have been filed, does not mean that the Lessee is trading tough on his form. It could just mean that the Lessors are not talented at negotiating oil and gas leases.

Remember, the oil company has the money that you want, they have the expertise and budget to exploit your assets and the landman will negotiate more leases in one week than 10 landowners will negotiate in a lifetime.

If you have a private form oil and gas lease, do not be put off because the Lessee wants to file a Memorandum of Lease. It actually works to both parties benefit.

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Buddy,

Would you consider an Oil and Gas Lease with a "pooling clause" something to be cautious about? And, if so, how do you negotiate around them or with them? My mineral rights are in Wyoming and Chesapeake seems to insist on having that clause in their leases. I have three pooling documents which I've not signed on property in leases with Chesapeake which are expiring in 11-11 and 2-12 and, even though they have the "right to renew for 2-yr." clauses in their leases, they will not say if they are going to exercise that right and I think they are depending on the pooling leases to take over (at NO compensation) for another 5-year term. This certainly seems like an unfair leasing practice to me on Chesapeake's part since I didn't receive my pooling docs until about 5 to 6 months prior to the first lease's expiration date! Do you have any thoughts on how to negotiate these leases with pooling language embedded in them? I've just had another call today about another new lease in the works. Thanks!

Gratefully,

Millie

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Dear Ms. Sparks,

First, you have some of the most beautiful eyes I have ever seen.

Second, yes. Great caution must be exercised in the pooling language of leases, especially in forced pooling states. There are ways to make it fair to all parties. Actually, any operator prepared oil and gas lease requires great caution. Many are hypnotized by the cash bonus and lose sight of the fact that the real money is in the ground. Something that the operator knows all too well.

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Thanks for the info. I'm really playing catch-up on all this oil and gas business, especially since learning what a colossal difference that little pooling paragraph made in tying up so much property. Didn't see that coming and the landman didn't happen to warn us about it either... There hadn't been oil activity on my Dad's property since he was alive in the '70s; we'd always had him to worry about the details. I think from reading what you attached that you suggest never signing a long lease with an extension. And I believe I understand the reasoning all too well. But the question I still have is what to do with the pooling language. If the length of the lease can be kept to 3 years, does that pretty much keep the pooling thing under control too?

I really appreciate your quick response to my question and am so glad I found this forum. Thanks again for giving me your time (and for the nice compliment)....

Gratefully,

Millie

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Is there a difference between a memorandum of oil and gas lease and a memorandum of oil, gas and mineral lease? Thank you