We got approached by a company wanting to lease our farm for gas and oil exploration. Any specifics to watch for? I am leary about it, for one you don't get any money for 1 year and if they drill and get a dry hole you get nothing. Only way you get paid is if they don't drill the first year or hit gas. Just wanted some opinions of others.
Leasing farm for oil/gas exploration?
- Thread starter tom4018
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Craig-TX
Well-known member
tom4018":3f16lgx1 said:
That's a bum steer deal if there ever was one. A serious landman representing a serious company will offer you (assuming there is interest in your minerals) a lease with a defined term (e.g. three years), a bonus (up front money per net mineral acre you own) and a royalty (a fraction or percentage cut of any revenue from any well they drill on your place that produces). The bonus will be in the form of a bank draft, usually under 90 days if they are legitimate. Many lease agreements carry an option for renewal that will carry its own bonus if they elect to renew. There are countless variables.
If you get a serious offer it would pay you to pay an oil and gas attorney to review it and advise you.
OP
OP
tom4018
Dumb Old Farmer
Craig-TX":1esw5vrj said:
It was for 5 years but once they drill it terminates, so I take it that if they drill in the first 12 months you get nothing if don't hit a good well. At least that is how he explain it, got to read over the contract good. If it is interesting I will get a lawyer to look at it.
Ryder
Well-known member
When there is the sightest interest in an area every con artist in the country and all of their cousins come in. They will try to turn neighbor against neighbor to get you to lease cheap. Do NOT let them pressure you into a deal where you have to sign now or loose out.
Those leases are NOT written for the benefit of the land owner. A lot of times independents will come in and try to put together leases on several properties and the re-sell them to a drilling compny.
Craig is 100 percent right. Get an attorney or other professional consultant with experience to advise you.
Those leases are NOT written for the benefit of the land owner. A lot of times independents will come in and try to put together leases on several properties and the re-sell them to a drilling compny.
Craig is 100 percent right. Get an attorney or other professional consultant with experience to advise you.
Texas PaPaw
Well-known member
tom4018":11dun7fy said:
Tom
check out this link:
http://recenter.tamu.edu/pubs/catoilg.html
These documents are free downloads. Just a reminder, these documents are regarding Texas oil & gas law. Probably some differences in other states. Hopefully will give you some ideas of what you are up against. Suggest getting advice from an attorney that has oil & gas lease experience.
Regards
Brock
cypressfarms
Well-known member
Just had BP approach us. Their is apparently a resevior under the land that they want. The pay a basic lease amount, extra for putting roads on your property, and even more if the well and platform is on your land.
We do have to wait 1 year for any royalty payments, then once a month.
Get an attorney you trust to work out the details.
We do have to wait 1 year for any royalty payments, then once a month.
Get an attorney you trust to work out the details.
J
Well-known member
We got approached a few months back and I posted the exact same type of questions and got some good info back, but I was still a little leary. Needless to say I went ahead and called the guy back and said sign me up, (I talked to some people in my area that had done it and got money up front and the whole nine yards, seemed ligitament) he said he would send me a contract in a week or two. That was a few months ago and I haven't heard a word since. No contract or contact with them since. They did however lease the mineral rights of the little old lady that owns the land next to mine. There is a certain amount of land they must have leased around the drilling site if I'm not mistaken so maybe I'll hear back.
Just too easy it sounds like to me.
If it's too good to be true then it probably is.
Just too easy it sounds like to me.
If it's too good to be true then it probably is.
Arnold Ziffle
Well-known member
I agree with everything Craig wrote. That dog sure wouldn't hunt in Texas or Louisiana! But there may be some huge differences in the way mineral leases are written in Texas versus Kentucky, and it sounds like you need to get with a qualified attorney before you sign or otherwise agree to anything. There are many issues to be concerned with; and be sure you pay attention to the royalty provision and make sure that it is appropriate or common for your area. Even in Texas most of the pre-printed standard form leases provide for a 1/8 lessor's royalty ---- but that provision is routinely struck out, and a provision for a 20% or 25% royalty is often inserted, sometimes even higher. You ought to get up-front lease bonus $$ regardless of them drilling or not. Most leases provide for a "delay rental" (usually a much smaller amount per acre than the lease bonus per acre) which they pay to you if they don't drill within a specified time period (for example, within the first year of the lease), the payment of which serves to keep the lease in force for another year. Typically, after a certain number of years the lease terminates and cannot be kept in force by the payment of a delay rental (unless the lease is otherwise being held by production or by drilling operations). Good luck to you. There's nothing quite so nice as getting some of that "mailbox money".
OP
OP
tom4018
Dumb Old Farmer
Craig-TX":bcp9joea said:
Craig,
I have not done anything yet and they keep calling me. Now the offer is $5 acre upfront for five years, which if they decide to opt out they can. The percentage is 12.5%. Is this getting more in line.
mbdear
Well-known member
Dont know about your area, but here we would start getting interested if the percentage was 20% "free royalty (bearing no cost of treating, transporting, etc.)" or greater, and the lease bonus (up front money) was $100 per acre or more with the initial term at 3 years. I have seen a few leases in the county South of us at 400 per acre, 1/5th royalty, and up for a 3 year lease.
Craig-TX
Well-known member
tom4018":2zo8eqol said:
There is no set bonus or royalty percentage that is considered "fair." It will vary widely depending on numerous factors. A few would be which particular play you have in question, seismic results near your specific location, log data from any old wells near you, oil and/or gas, the amount of acreage, etc.
The best way to determine the going rate for your area would be to talk to your neighbors. It would also be worth your while to talk with somebody in the county clerk's office where public records are filed.
In most cases there is no reason to get in a hurry. And remember, don't sign any kind of deed. The link that Brock posted above has articles by Judon Fambrough. He has an excellent reputation as an oil & gas attorney. Reading those and talking to people in your area would be time well spent.
We are going through some serious gas developement here in this area and my thinking while talking to these guys is "That If Their Lips Are Moving Their Lying". I don't trust them or their word. :shock: Get EVERYTHING in writing, down to the smallest detail or they seem to forget. Plus they turn over manangement help like we change our underwear. The new people come in and don't have any idea what has been agreed to and what hasn't. The people putting in the in-frastructure and doing the ground work don't care about you or your property. It is almost a full time job day herding these guys.
dj
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I thought there was a difference between leasing the surface for drilling purposes and mineral/royalty interests.
I know in W. Ok in the early 80's most property owners that had drilling leases exercised ended up with:
1> gated cattle guard at least 6' deep/wide and wide enough to accommodate the wider implements and combines.
2> water well (some even thought to make sure the pump was left in)
3> graveled area for machinery. some even built new machinery barns on the sites. face it, it is years before that ground will have any production worth the money.
4> ground re-terraced to solve erosion
But this was towards the end of that bubble. It took awhile for
the surface owners to demand and get these concessions.
I know in W. Ok in the early 80's most property owners that had drilling leases exercised ended up with:
1> gated cattle guard at least 6' deep/wide and wide enough to accommodate the wider implements and combines.
2> water well (some even thought to make sure the pump was left in)
3> graveled area for machinery. some even built new machinery barns on the sites. face it, it is years before that ground will have any production worth the money.
4> ground re-terraced to solve erosion
But this was towards the end of that bubble. It took awhile for
the surface owners to demand and get these concessions.
Running Arrow Bill
Well-known member
Money for repair & restoration of your land due to their activities. Even if they don't drill or don't find any oil or gas.
I'd shoot for at least 15% royalty on any oil or gas produced.
I'd shoot for at least 15% royalty on any oil or gas produced.
Farmer Z
Well-known member
I think your getting a lot of good advice but there is one point that I'd like to make. If you don't own 100% of your minerals you would have to be coordinated with the other holders to put any pressure on the oil company around what kind of deal that you could get...at least that's the case in Mississippi. I own a portion of mine and did not want to lease but the company had leased up a majority of the rights and I was basically forced to go along. In my state, a partial mineral rights holder can't keep the majority from drilling. I did manage to get an agreement around the approximate location of the drill site. Otherwise, Mississippi law allows for wells to be within 100' of a residence. Hey, these oil boys sit around all day and think of ways to help themelves and then influence lawmakers accordingly.
Hasbeen
Well-known member
I realize some of these posts are 2 years old, but I just ran across this topic while browsing and its something that I'm dealing with right now.
I've been offered $5.00 per acre lease for two years, 8% of the product if a well produces, and free gas for one home. I have appr. 200 acres with about 180 acres being mountain side. I was about to sign when some old timers advised me that I have 3 large seams of coal on the property as well. They said if I allow a gas or oil well, I wouldn't be able to harvest the coal which would be worth far more. Plus, my plan has always been to strip the coal and reclaim the mountain as pasture land. I figure I should be able to triple or quadrupal my usable pasture plus gain a couple of ponds. Anyone have a simular experience?
I've been offered $5.00 per acre lease for two years, 8% of the product if a well produces, and free gas for one home. I have appr. 200 acres with about 180 acres being mountain side. I was about to sign when some old timers advised me that I have 3 large seams of coal on the property as well. They said if I allow a gas or oil well, I wouldn't be able to harvest the coal which would be worth far more. Plus, my plan has always been to strip the coal and reclaim the mountain as pasture land. I figure I should be able to triple or quadrupal my usable pasture plus gain a couple of ponds. Anyone have a simular experience?
Arnold Ziffle
Well-known member
I've had a bit of experience with respect to excluding lignite, sulphur and gravel specifically. But remember, assuming the two of you can come to agreement, you and the lessee can alter the standard, pre-printed lease form so as to to provide for any number of mutually agreed upon provisions. For example you might want to specify that the lease is only for oil & gas, and sulphur produced incidental to the production of O & G -- and that the lease does not permit the exploitation of coal, lignite, gravel, rock, other sulphur or various other types of hydrocarbon reserves ( but of course using "fancier" and more technically correct and explicit language). And note that many times there is mention of "minerals" --- be aware that could mean gravel and other substances besides hydrocarbons so you want to use pretty specific language.
