I was just offered a leasing agreement with Dudley Land Company for my 20 mineral acres (part of 160 acre tract) in Oklahoma 16-T3S-R12E The terms are for a 3 year lease 100.00 per mineral acre and 1/8 royalty I asked the representative if the terms were negotiable and was told yes but due to the current market they will probably not be open to better terms. Does anyone out there have any insight? Thank you for your help
Welcome to the the community.
Leases must be carefully examined. Bonus and royalty is one item to consider. Others may have more knowledge of whether $100 per acre is fair. However, a 1/8th is a very low royalty. In the long run this is usually the most important because the lease may last for decades if it produces.
Also, there are often onerous terms in leases. The devil is in the details. There is no such thing a a standard lease.
Here is an excellent resource. Oil and Gas Leases – Tips on Mineral Lease Negotiating
That township and range had some drilling in 2009-2011in the Big Fork and the Arkansas Novaculite reservoirs. Section 16 had no wells in that time frame and only a small number of leases. Some were at 1/8th and some were at 3/16th. Personally, I usually go for the higher royalty if I know there is going to be drilling. The bonus will be lower, but in the long run, it usually pays off better to have the higher royalty. If it is really wildcat area, sometimes I will take the 1/8th since the bonus may be all I will ever get. Sometimes, I will not lease until closer to actual drilling. If I am offered a 1/8th lease, I always ask what they are offering for 3/16ths.
As Richard said, the details of the lease are critical. The draft lease (which varies from company to company) they like to place in front of you will be all in the operator’s favor and not in the mineral owner’s. It can be negotiated.
The critical issue is that you do not want to be charged for post production costs among other things.
I always ask who are they leasing for (Dudley is a land company), when do they expect to drill, what horizons are they going for, how far along in their leasing program are they, are they currently running title, how long will it take to pay, etc. If they won’t tell me, then I may not lease. I prefer to know who I am dealing with. You can ask for a copy of the draft lease and then read the article above and come back here for questions. I do not accept a draft order of payment. Never hand over a lease without getting paid. Lots more tips to share, but you are at the very beginning of the process.
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Thank you so much for your reply. We were approached about 10 years ago regarding this property and according to the article, we (my brother, sister and I) did everything wrong! So I am really going to make an effort to understand. When you say “what horizons are they going for” what does that mean? Also what does currently running title mean? Thank you once again for your expertise and time!
What “reservoir horizons” are they going for? Since this area has been dormant for years, that is a good question to ask.
The leasing company is supposed to go to the courthouse and make sure that the title is clear in order to lease. They trace the title (run title) of the minerals all the way back to statehood. Some companies are great at it and some companies are sloppy. Since it is expensive to “run title”, they do not usually do a full bore job of it until you actually agree to lease. They do a quickie look to see if they should contact you.
The title issue is why they may want you to sign a draft payment letter. Some companies will lease and file a lease and then do the title and they might find out you don’t own the minerals. Then you don’t get paid for the lease, but it is already filed at the courthouse and various legal hassles begin. That is why you never hand over a lease until your are paid.
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