Hi everyone! First, my apologies if my upcoming question has been answered here somewhere already. I’m a newby to all of this and in a time crunch. I live in Arkansas. I have oil and mineral rights in Montana. Last week I received a phone call followed by a contract with a check in the mail a few days later to lease my mineral rights to a company. I think I need an attorney or at least someone more knowledgeable than I to look the contract over before I sign or go any further with it.
Question is: Do I get a local-to-me attorney in the state I reside in or do I get an attorney from the state my mineral rights are in?
(They are offering me a one-time payment of $50/acre for 5 year lease - thats what the check was for that was included with the contract. Then they are offering 1/6 royalties over the course of 5 years. Anybody have any thoughts or feelings on if this is a decent offer?)
I appreciate your time and any advice anyone may have! Thanks and have a blessed day!
You can observe qualified professionals (often with localized expertise) who provide services to mineral owners right here on The Mineral Rights Forum. You will notice them in 3 different places on the site:
How many acres do you own? At $50 an acre, an attorney might be what your bonus is for if you own a small amount of areage. Id ask for a 3 year OGL with 3/16ths royalty, given that its Montana, I doubt that will happen so Id then ask for a 3 year OGL with a 2 year option at 150%. Ask for a depth, pugh, no deductions clauses. If you dont need the money right now, ask for a 1/4 royalty with no bonus.
BIG RED FLAG-You absolutely need to have an attorney look over any offer like that. I am very wary of any offer with what looks like a check attached. I immediately mark through the check with a black marker. Many of the ones I have received have had language that makes it look like a lease, but was actually a deed when I read the fine print. Had a few with a $500 “check” that would have really been a deed for hundreds of acres. The item that looks like a check may actually be a draft with very onerous time frame requirements.
You need an attorney in the state where the mineral acres are located. Most draft leases are not in the mineral owner’s favor and need quite a bit of editing to protect your family for the decades to come.
First, the offer is for too long a time frame. I never lease for more than three years. Also, the low offer indicates a potentially gassy area (to me). If you list your county, section, township and range, then folks on the forum can give input on the activity in your area. There may be other agents leasing in the area.
Richard and Martha, it seems the status quo response is to hire an attorney. Above, I stated the owner should ask for a depth/pugh/no deductions clause amongst other things. Since you all know what you’re doin, I’m curious as to why you’d hire an attorney (I was one and retired) on a standard paid up ogl with the 3 additions added? At $50 an acre, there’s not gonna be a lot of wiggle room no matter what attorney you hire. If Lessors ask for the clauses I mentioned, I don’t see the need for an attorney to be involved? But I’m cheap and don’t like paying someone $200 a hour to do something I could do. Genuinely curious to hear your thoughts, thanks!
Bob, You are skilled enough to know how to edit a lease.
I tend to look at the situation from a generational viewpoint since our family has been doing this for 100 years. We have wells that are very low income, stuck with a 1/8th lease, but decades old. We also have new wells with modern leases at 1/4 that were very carefully negotiated.
We are mostly in OK where post production costs on gas can be high. (WV can be astronomical). If an attorney can word the lease correctly and not have any post production costs, limit depths and prevent any costly legal fees tied to a warranty of title (plus about 15 other clauses that I care about), then our royalties will be higher over the next few decades. We have moved from simple, single vertical wells at 40 acre spacing to two-four section horizontal wells with multiple infill wells and significant royalty potential. I look at the issue from a royalty increase over decades lens, not a bonus/ac lens. Just my opinion…
I agree that very low net acres and low product prices may not justify an attorney in some cases. I have read a lot of leases in a lot of states with different statutes than OK and have never seen a draft lease from an agent yet that couldn’t have a lot of improvement in the mineral owner’s favor. Novices should not cut and paste into a legal document, so I recommend a professional. I consider good legal advice an investment for the next generations’ welfare.
Your post is mixing 2 different provisions. The 5 year primary term is the time that lessee has to drill a well and establish production. You will not receive any royalties until a well is drilled. Then the lease will continue until all wells cease producing. I have seen leases from the 1920’s that are still in effect today.
Thank you for sharing such helpful information! The check IS in fact a draft I discovered after you guys had mentioned this.
My mineral rights are in Sheridan county, Montana.
Township 33 North, Range 57 East of the M.P.M. Section 18: S1/2NE1/4, N1/2SE1/4
And
Township 34 North, Range 57 East of the M.P.M. Section 31: Lots 3, 4, E1/2SW1/4
Thanks again for all your time and help! It is very much appreciated! This is an awesome online community and I have learned so much already!
Kprince…thank you for identifying that your minerals are in Sheridan Cnty, MT that is easily 395 miles “north” of 2 counties that I have inherited mineral rights. Told since 2014 that the likelihood of any exploration being done just off the Canadian border still has my wondering “will it” though?
If anyone knows of “any” activity off the Canadian border, it would be nice to see it posted!
Definitely get an attorney. I got scammed by a similar offer that ended up not being a 3 year lease, but rather 3 years or as long as production runs. They tricked me into basically selling my interests to them by telling me they would explore and give me 25% of the production. They were NOT drillers, and production had already begun. They used a company name that sounded very much like a legitimate company but it was not. Be extremely cautious.
Sorry to hear of your misfortune there… That’s pretty sorry that there are so many folks in this world that’ll go to so much trouble to screw over another! I do thank you for your advice! I wish I were knowledgeable in this field like so many people here are where whether or not to get an attorney were an option, but I am quickly learning that I am far too green yet to even consider trying to do it on my own! However, lol, I found my (deceased) mother’s contract/lease that apparently she negotiated and looks like she received a fair deal. A thought crossed my mind, a potentially hazardous “what if” (lol). What if I word-for-word duplicated her good contract (changing names, dates, etc., of course) and mailed THAT contract back to the landman? Kinda like as my counter-offer. This may be the stupidest idea ever, I don’t know, but I’d love some feedback on how many ways this could go wrong or hopefully a ‘hey, that’s a grand idea!’ but I’m not gonna hold my breath on that one lol.
Thanks again for your response! You guys here are the greatest and most helpful ever!!
I was having a looksie on the GIS map on the Montana oil and gas website. Now, please keep in mind I am still very new to all this, but it appeared that, from what I could interpret, the wells in my general vicinity were about 50/50. Half being dry holes, half having produced oil. But what has to be kept in consideration is that some dry holes were deemed “dry holes” 20, 30, 40 years ago, such as 2 wells that already exist on my parcels. My pondery is, are they still absolutely gonna be dry holes? Or can time change where the oil is at? (I know, I probably need to study up a bit, maybe purchase me a geology or a science book and try to get a basic understanding before I post my thoughts, lol).
Thanks for your response! And again, this is the BEST online community of folks EVER!!
Would you actually want to lease with the same company that was trying to speculate with your minerals? My opinion only on five year leases with low offers. Too much can happen in five years. Anyone that sends a draft is also on my “don’t deal with” list. I would hunt for another agent if possible. I don’t lease if it doesn’t look like drilling is coming within three years. I want market rate closer to the time of drilling. And anyone who is trying to rush me gets a slow down from me. I understand that they are usually under a time contract to get their deals done, but it doesn’t necessarily make me speed up.
On the copy and paste, it would depend upon how good the lease really was. Your opinion of her lease (as a new owner) may not be quite as informed as an attorney who is experienced in the business and up to date with new statutes, other clauses to include, etc. Older leases may not have current language.
Time can change what is considered economic. What was considered “dry” a few decades ago may be able to be recovered using modern technology. We have gone from vertical holes with a certain spacing to horizontal well bores that may be one-four sections long with extensive perforations enhanced by fracking. The newer technology generally does not use the old wells as they are not designed for the newer drilling and larger size casing needed.
Get familiar with the corporation commission for your state. They may have publications. The Montana Geological Society has some excellent references. A good small reference book is “Look Before you Lease” by Jim Stafford.
No leases in the last three years in 33N-57E-18. Three old dry holes.
No leases in the last three years in 34N-57E-31. One old dry hole. Huntington Energy had som leases in 34N-56E-25 catty corner to the NW in 2022.
Closest horizontal drilling is six miles to the west and 16 miles to the east.