Negotiating Oil and Gas Leases: The Essentials

Leasing is a central part of the US oil and gas industries. An oil and gas lease is a legal agreement which entitles an oil and gas company to access your property and the minerals on it. It can be a lucrative way to manage your land but, some of the ins and outs of these contracts can be a little confusing. Of course, it is best to consult an attorney with expertise in oil and gas law before embarking on one of these contracts. However, just to give you the low-down on the ins and outs of these agreements, we’ve created this essential guide.

There is no standard oil and gas lease agreement.

Over the years, new litigations and subsequent court rulings caused the oil and gas industry to evolve, altering the way leases are created. Every situation is different and requires a detailed contract that benefits both the property owner and lessee. Because of the complicated nature of oil and gas leases, it is vital to utilize the services of an experienced attorney to draw up the contract.

Note: Mineral rights are an extremely profitable and should not be given away without thought. Always carefully read through your lease prior to signing.

And what should you do when negotiating an oil and gas lease?

Research the company
Do some research on the company you’re entering into a lease with. What’s their reputation and experience? How have they handled similar leases in the past? Is this someone you feel comfortable leasing your minerals to?

Discuss the terms of the deal
Before you negotiate the terms of the lease, make sure you discuss the deal terms. These will typically include the bonus payment, the primary term, royalty fraction, delay rental (if any), and the shut-in royalty. You can usually negotiate more once these deal terms have been agreed.

Define everything
Nothing should be left unclear. This is particularly important when it comes to “operations”. What are operations? What is included and not included in each type of operation (e.g. “drilling operations)? You don’t want to be left in a pickle at the end of your lease because you didn’t define your terms early on.

Cover pooling, pugh, and express negligence
Polling and pugh clauses pertain to the spacing of wells on your property and, therefore, your property’s acreage. They may not always be necessary but, you should discuss them with the oil company and your attorney in advance. A broad indemnity clause against express negligence essentially protects you from any issues arising between third parties and the oil company regarding their activities on your land.

Understand everything before you sign
It bears repeating: you need to fully understand your lease before you sign it. Of course, we can’t cover all the ins and outs of oil and gas leases in this blog post, but hopefully, this guide will help you understand some of the essentials of the process, so you’re more prepared to get started.

If you’re interested in negotiating an oil and gas lease, make sure you understand the process and the details of your particular lease. Feel free to get in touch with the experts at MAJR Resources to find out more.