Oil and Gas Lease Negotiating - Top Ten Points to Remember
Make out the terms of the lease. Bid for the highest bonus amount. The primary term must be in your favor and should not normally be more than two years. You may agree to include an extension clause to the primary term. Ask for the highest royalty percentage. You must include a clause for compensation in case of loss to crops, property or animals.
Oil and gas leases need to be carefully drawn between the lessor, the owner and the lessee, the producer. Ten important points governing oil and gas leases are discussed. The credentials of the lessee need to be checked. Often, it’s an agent, who negotiates the lease on behalf of the company that will finally buy the lease. you have to ensure that firstly the agent is legally empowered to negotiate. Secondly, check the background of the company and the experience it enjoys in your area. You must negotiate for best terms without any reservations. Use your attorney’s lease form while conducting negotiations.
The oil and gas laws make the plugging of oil wells mandatory. This clause should be included.
You can bargain better if your property is located in an area with known oil and gas resources. you have a stronger position with a larger property size and if there is more than three producer bidding for leases in your neighborhood. finally, your bargaining will be restricted to the values offered for bonus and royalty in the neighboring areas.
Make sure that the producer is granted rights only related to the oil and gas and not to the minerals.
Limit the postproduction costs to the maximum while defining royalty.
Do not sign on an all-encompassing clause pertaining to more than three tract that you might possess. Have a separate lease for a different tract.
The term “operations” should be defined to indicate their completion.
The term “depth” should be restricted to the deepest point of perforation. “Continuous Operations” are relevant in case of areas larger than 200 acres.