What To Expect From A Landman Project
The National Association of Royalty Owners estimates some 12 million American landowners receive royalties for the exploitation of oil, gas and other mineral resources under their property. While there is a growing number of urban landowners that are taking advantages of leases, much of the money has gone to residents in rural areas. Because of this many lessees are farmers and ranch owners who have struggled to stay afloat and are able to find some financial stability by leasing out their land to energy companies, leaving many prey to intentionally vague contracts and high-pressure sales tactics from energy companies.
How do oil & gas leases fail to protect the interests of landowners?
*They do not address well locations, destruction of trees, or other surface use issues.
*They do not require companies to compensate landowners for water contamination.
*They don’t contain Pugh clauses requiring release of lands not included in units.
*They allow extensions of the primary term without landowner approval.
*They do not disclose environmental risks and liabilities.
*They don’t require the operator to test the quality of nearby water wells before commencing operations.
Unlike professions like plumbers and electricians, Landmen are not required to be licensed to provide their services. So you must carefully vet the landman before beginning any negotiation.
The most reputable landmen are members of the American Association of Petroleum Landmen ( AAPL). The AAPL has developed ethical standards that all of its members must abide by, and they also offer continuing education programs that members can take advantage of to get certified.
Before you venture into an oil & gas lease, it is important to learn how to spot a reputable landman. Here are a few tips.
Tip #1: Ask Who The Landman Works For
It is not uncommon for exploration companies to hire groups of independent landmen to research title in an area and acquire leases form mineral owners on their behalf. Because many of these independent landmen are working on a contract basis, many will acquire the lease in the name of their landman group rather than the exploration company for whom they are working. This practice makes it increasingly difficult for landowners to know exactly whom they are working with. In fact, many exploration companies prefer the landmen take this option as it is a great way to keep their interests confidential to avoid escalation bonuses.
We recommend only working with landmen that offer full disclosure from the start.
Tip #2: Ask questions
One of the biggest mistakes landowners make is being afraid to ask questions. The only way you can be sure you are getting the best deal is to know who you are in business with. Any reputable landman will be able to answer any of your questions and provide you copies of every relevant document. It is vital to make sure you obtain a complete understanding of the lease you have been offered.
Things to ask:
How did the landman determine the mineral interest I own?
Why is this company leasing in this area?
How much acreage has the company acquired so far?
What kind of wells is likely to be drilled – oil, gas, horizontal, depth?
Does the company have adjacent lands or other undivided interests?
Are there other companies leasing in the area? If so, who are they?
Are there any recently drilled wells in the area?
Tip #3: Do your homework.
When negotiating with the landman be sure to take thorough notes and do a little research.
What you need to know:
What wells have they drilled so far?
What are their rates of production?
Are there publicly owned lands in the area? If so, have been leased and what lease terms were negotiated?
It is also important to do your research on the landman themselves by checking the Landman Report Card. “The Landman Report Card an interesting effort by the Center for Future Civic Media at Massachusetts Institute of Technology, in collaboration with the Oil and Gas Accountability Project. Similar to the idea behind Angie’s List, The Landman Report Card allows individuals who have had good or bad experiences with a particular landman to post their experiences and grade the landman’s performance.
Tip #4: Investigate state and local laws.
The laws relating to oil and gas exploration and development vary by state. State laws often affect well locations, drilling practices, and well production activities. Some states even have laws requiring the company to compensate the surface owner for uses of and damage to the land.
Tip #5: Never rush a deal.
Landmen often give landowners the impression that if they do not act now they will lose out but this is just a sales tactic. Never accept an offer until you are satisfied with the agreed upon terms.