Tips On Signing An Oil or Gas Lease On Your Property

If you are a landowner in an area such as the Marcellus Shale or Barnett Shale you probably will be approached in the near future, if you have not been already, by a "land man" who works for an oil company wishing to lease the mineral rights on your land.

This is not a decision to make lightly or quickly thinking that the chance might get away. If they have approached you they believe that there is the chance that oil or gas potentially worth millions lies under your land and the ball is truly in your court.

You have all the time in the world to work out a deal that is acceptable to both you and the oil company.

You should first consider the amount of long term revenue or oil and gas royalties that you will be paid as oil and gas is produced. You can seek a higher percentage, within reason, and even a difference of 1/16th of oil and gas royalties can mean a huge difference over the life of the well. The lease payment is an up front payment for the right to explore for oil and gas on your property. Royalty payments are from actual production should oil or gas be discovered. Make sure you negotiate for a fair share of the production. Going rates are from 1/16 to 1/4 of production.

Ask your attorney to look for, and delete the "Mother Hubbard" clause, which can give the company the right to drill on all adjacent properties you own and treat them as the same property. For example, if you own ten acres in one parcel and ten in another on the other side of the highway you want to be able to lease them separately.

Determine if you want to lease all of the depth below your property or just to a certain depth, above or below so many feet below the surface. If you own all of the mineral rights on your property you have the option of reserving the right to lease all or part of the zones below your land. An oil and gas company may only be interested in the first 5000 feet. In that case you can state that the lease only goes down that far, reserving the right to lease from 5001 feet on down to another company.

Also, as a landowner who cares about your property you need to assure that the oil company will leave a small footprint, pay you for damages, and in the future (this is very important to negotiate) put things back like they found it. When oil wells play out many landowners have not negotiated when and how they should be removed and how the land will be planted back in native vegetation or restored to cropland. Oil wells don't last forever but the damage, such as saltwater spills, can ruin land forever.

Always negotiate into an oil and gas, mineral rights contract, the specifics of how the oil company is to behave on your land. Do you want certain activity limited during hunting season? This too is negotiable.

Do you want the oil company to make water wells out of abandoned or unproductive wells? This is negotiable as well.

Do you want the oil company leasing your mineral rights to build fences and gates in a specific way and fence off oil tanks so that your livestock is not harmed by equipment?

All of these things are negotiable when signing an oil and gas lease. Contact a lawyer in your area that specializes in oil and gas law. If none is available in your area find the nearest one.

Going Rates For Oil and Gas Leases

You will want to pay close attention to the going lease rates in your area for oil and gas leases. Check area specific forums and message boards for postings from landowners. For Eagle Ford shale leases see: Eagle Ford Shale Price Per Acre

A very good, though not cheap book on the subject of mineral rights and oil leases is "Money In The Ground".