The Geophysical Option - and its misuse

Blogs
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Seismic Permits allow the seismic company - who is not necessarily an operator or is subcontracted to an operator, to conduct geophysical operations over lands owned by the mineral owner.

It varies from state to state what minimum percentage of mineral and surface owners of a particular tract must consent to such an operation. I believe in Louisiana it is 80% for both the mineral estate and the surface estate on a tract of land. In Texas, any undivided interest owner in the minerals can grant authority to shoot the seismic.

Pundits will say that "Do not ever grant a Seismic Permit! Get a lease instead!" This can be incredibly short sighted if the 3D shoot was not done by contract to an oil company. These are called "spec shoots" and the seismic company will shoot the land, much like a land developer building spec homes and hope to get them sold for a profit.

In a spec shoot, if enough people say NO (for whatever reason - no lease, etc), the exploration event does not occur and WORSE to the "holdout" is that the shoot goes forward without them and their acreage is shot around and no data collected, therefore their acreage is not evaluated and no opportunity in the foreseeable future to lease. You NEVER want to be left out of a shoot.

Geophysical Options are Seismic Permits with the ability to acquire an Oil Lease in the future at a time and price and lease form certain.

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What about the case of misuse of a Seismic Option? A speculator can tie up thousands of acres for a "proposed 3D shoot" with minimal down payment with no intention of ever conducting a shoot. In that case, for perhaps $25-$50 per acre, you have optioned your land for 18-24 months. This tactic is becoming more and more common.

Your recourse is to include language in permit itself that the actual collection of the data is a moving force of consideration without which the permit would not have been granted and if the lands are not shot, penalties and liquidated damages are due.

One other thing, make all the permit language, single use language. This means that they have one chance to do the operation and do not make it exclusive rights to shoot. Perhaps your lands will be overlain by more than one competing shoot.

Other items for your protection could be minimum selection, minimum required selection,etc.

If you are not entirely confident in your actions, consult a qualified professional for advice.

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Buddy:

We were contacted by a company wanting to conduct a seismic shoot on our mineral acreage in Montana. We are not the surface owner on this property and the minerals are currently under lease. I thought that a company wanting to do seismic work would contact the lessee for permission to conduct a seismic shoot and not the actual owner of the mineral rights. Also, after a shoot has been completed, what are the chances for the actual mineral owner to learn the results of the shoot?

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Dear Charles,

In Texas, the general words of "explpration activities" have been deemed sufficient to conduct seismic operations.

In Louisiana, it must be spelled out in the lease form.

In Montana, I would have to do some research.

As to finding results, your acreage position would be the more determining factor if they will give you a presentation on results. Most do not. My big mineral owner can command copies of tapes and ability to have consultants or designees work the data, most cannot.

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I think Mr. Joe Maglitta may find this of interest.

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Mr. Cotten, we received a request for Geophysical Permit with some wording that concerns me. "This permit will also grant Company the right to conduct 3D seismic on lands lying within T4N-R7E, T5N-R7E, T6N-R7E, T7N-R7E, T8N-R7E, T4N-R8E, T5N-R8E, T6N-R8E, T7N-R8E, all in Seminole/Hughes/Pontotoc County, Oklahoma, hereinafter referred to as the 'Holdenville 3-D Survey,' wherein Owner owns a mineral or leasehold interest, regardless of whether such tracts are described herein." Does this seem unusually vague to you or is it pretty standard when they're shooting a large area? Thanks.

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Kershaw, I think they are just trying to go cheap and get the rights to survey any other parcels you may have while they only pay you for one. The lack of payment being mentioned for the other areas stands out.

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Oh, they're not offering any payment at all. What is the going rate per acre for such payments in Oklahoma?

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Kershaw, I'm not up on the going rate but $10 to $15 per acre would be reasonable. More important would be an entry fee which your $10-$15 per acre could be, then a security fee, to have someone watch them all the time they are there, possibly $500 per day. You should also have a rider with your terms, no guns,dogs,alcohol, trash to be picked up, no trees greater than x diameter to be cut, no fences cut and best of all, liquidated damages if the shoot does not happen. Time limit of 12-18 months to complete your part of the shoot. The right to shoot your premises is not the sole right to conduct a seismic shoot and the right to do the shoot can't be assigned to anyone without your permission. Cash up front, before they enter.

If I just had an acre I would just tell them no to save me hassle, because they will get what they need anyway.

If you have many acres, they need to pay you enough to at least pay the lawyer so you can have some protection, not least of which is to hold you harmless and to forever defend you in the case some liability results from the shoot of your acres.

I believe that Buddy said it better in another of his blogs, I'd look for that. This was just off the top of my head as I don't own more than a tiny sliver of surface anymore.

I would pay careful attention to this, not because it's an opportunity to make money but because it's possibly that you could incur loss without there being the opportunity to make much money. Ballpark I would guess the company would make $30 to $60 per acre for doing the shoot so they intend to make money off your property. In fact, if they get you to sign up for free they could sell the right to someone else to shoot your property and profit from that without expending much effort. It's not always a bad thing to ask what's in it for me and ask for cash up front because there are alot of OPM Other Peoples Money operators in the oil and gas field and even small amounts of cash needed scare those people off.

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Kershaw: We're getting lots of offers for the same seismic shoot as you - Hughes, Seminole, Pontoc counties, Oklahoma. Some are where we are mineral owners only, others where we own surface but no minerals. All from different companies. Permit where we own surface is offering $75 per shothole. What the ??? Other terms are too vague to execute the permit.

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What is the going rate in per acre in Lea County New Mexico. We have been offered $10.00

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Mr. Koehler,

Do you own surface only, or surface and minerals?

Buddy Cotten

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I have 40 acres with mineral/surface and 40 with surface only

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we have a lease on the 40 arces with mineral right

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The oil and gas lease on the 40 acre mineral tract gives the Operator the right to shoot seismic, The surface only tract, you cannot control them from entering.

One of the main things is the agreement itself. You want to protect yourself from liability of all types, make them give you a call before they come out, stand off x feet from agricultural wells, etc.

Buddy Cotten