Relevant Lease Terms

Most of my family's property came up for re-leasing in 2012-13, as seems in keeping with many others. However, among us, leases are expiring on a somewhat significant amount of acreage that is legally divided among the 3 remaining interest holders - soon. Our holdings appear to be in quite a "hot" spot, and we are fielding significant offers. I've kept track of MBarnes list of clauses . . . is it possible that someone has drafted an effective lease to use as a format for this entirely new area of plays that drop into the deeper formations (southern Grady, northern Stephens), as well as those described in earlier leases? We do have some professional guidance, but this is where I've learned the most, and applied it to the benefit of my family. If anyone is willing to share, but would like to do so privately, "friend" me. I will somehow make sure you receive value for value!!! And I'm sure many uninformed owners who have been somewhat taken advantage of would benefit from similar information. Thanks!

I sure could use the help. I know very little when it comes to leasing and what would be advantageous for my little bit of family. I’m setting still til I see something relevant to my needs

Hello Donna ,

As this thread was started ... I would contact M Barnes and see if she will friend you on here ... She is a valuable asset on this Forum and very generous with her knowledge , thank goodness for all !!!!

As LB Fields stated above , M Barnes will probably have a *list* of clauses that you might consider including in any up-coming leasing ..... it could amount to THOUSANDS of dollars ...... Good Luck !!!!

There are a variety of lease clauses that you can try to get. Pick which ones are must have and which ones are like to have. The larger your royalty acreage position the more clout you will have and vice versa.

Here are links to 3 web pages with lease clauses and/or info. I personally insist on a strong no deducts clause, and a pugh clause.

http://www.mineralrightsforum.com/profiles/blogs/ten-oil-gas-lease-clauses-recommended

http://www.landmen.net/clausesforms/clausesforms.htm

http://www.gdhm.com/images/pdf/jbm-ogleasechecklist.pdf

A western Oklahoma mineral owner intent on collecting a bonus and reserving a royalty rate in the old oil business where only one in 8 wells was competed as a producer and only 1/3 to one half of completed wells were economic and just about anybody could put the money together to drill; was on the right track. Wells were short lived and large fields few and far between causing most leases to turn over quickly. But with new drilling and permeability enhancement technology, a better understanding of where the oil is concentrated and how it got there, the ability to get it out with increased density wells, competed wells may cost 10 times more to drill and complete but they also produce 10 times as much oil over a decades long time span; the intent of the mineral owner must shift to enhancing the long term benefit from minerals that may never be leased again.

The financial and technological capability of the operator are now more important than the amount of the bonus per acre since the long term income potential with a quality operator may be 20+ times the bonus on a per well basis and the probability of getting the royalty is nearly 7 times what is was in the old oil business. Remember that the bonus is only paid for the right to drill the first well, Thereafter it is the royalty that gets paid on each new well. Today operators don't just hope they can find a lucrative field, they are making lucrative fields through technology.

Rather than putting patches on old lease forms the industry has drafted to benefit them in the new oil business, think about how to enhance the long term income of the mineral owner on a risk/reward basis, enticing a qualified operator to use its strengths to develop your minerals in an ever declining risk scenario for the operator. If you can afford to share in the low risk development of your minerals and are a sophisticated investor, reserve the right. In your area, the next lease you sign may very well be your last. Make it count for the long run.

Don't think you can "out lawyer" the industry, it can't be done. Instead work with industry but understand why they want your minerals and its risk and act accordingly. The mineral owner has the supply and the production company has the demand. Find the fair ground where you can work together.

Gary is right. The industry has drastically changed over the last few years. The horizontal drilling into unconventional plays has turned leasing strategies into a whole new ball game. The risk game as simplified in some areas and become more complex in others. Sophisticated investors can participate in wells, however I would suggest getting excellent legal and accounting advice ahead of time. You can make a lot and you can lose a lot. Be prepared for wells costing more than the initial plans offered. "Stuff" happens…You may want to put those minerals into a separate LLC for various legal and insurance reasons.

For the mineral owner not interested in participating, then you need to be very informed about the leasing decisions you are making due to the long term impact-maybe beyond your lifetime. Some of the clauses offered by a "standard" lease offered by a landman are not to a mineral owner's favor. Some are neutral and most leases are missing some clauses that benefit the mineral owner, hence the need for a very good Exhibit A addendum. You also need to consider very good estate planning and make sure you have clear title records.

Martha Barnes

Certified Petroleum Geologist (and soon to be Certified Minerals Manager)

Thanks to you all, so far. M, we are definitely not at the level of participating, although I may have a sore from the past to pick with Ward about that, someday. Laura, I sent your links to the few family members and friends who need to read them, and who are willing to let me be obsessive without locking me up (not my usual M.O).

I understood when I first had a moment between returning from India and burying my step-father that THIS is an extraordinary event, here in Oklahoma. And it's pretty much a gamble, as well as a "make it up as you go along." Hey, I'm old, but now it appears that I am allowed the rest of my life to attend to this responsibility . . . this ocean of life-sustaining fuel that (sorry, gotta' say it ) has been hugely usurped from the people who lived here before us. If anyone lives near Tulsa, Jim Bridger's nephew will be in town Oct. 3, performing his Smithsonian Awarded ballad, "Lakota." Uh. Oh. Banish me to the advertising page!!! But I STILL want to see or lend to a current, relevant deed template!

And sneaking in before the expiration of my option to edit - CONGRATULATIONS, Martha! I will Goggle Certified Minerals Manager to understand more, but I have a long history advocating education and experience, regardless of the stakes. And this industry needs clarity, as well as guidance and support on both sides.