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WC Indiana | A company wants to lease a couple farms for oil exploration. Their lease pays us 1/8 royalty of any oil found. Is this standard for the industry? I have heard of some 1/6 leases also.
Any input from an experienced oil leaser's would be appreciated.
I asked this under crop talk, this is just another kind of crop!!
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| oil & gas leases are all over the board, 1/8 to 3/16 is common in areas where there is minimal production....head to south texas and its whole diff. ball game
what $$$ are they offering?
make sure to read the lease, a lot of them try to get the vertical & horizontal tied up at the same time
think about the potential damages and make sure you feel like you will be compensated
read the "pooling" clause
the leasing companies are hard at it to tie up open acres |
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WC Indiana | Can you explain what you mean by vertical and horizontal???
Edited by Barker 1/11/2012 17:16
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Eastern Oklahoma | our gas leases are all 1/8th divided among the landowners in the section more acres the bigger your share. One clause to try to get that they don't volunteer anymore is for free use of natural gas if its found. Those of us on older leases can get natural gas for running irrigation pumps, and heating the house or shop if you have one on the property. |
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| http://www.northernoil.com/drilling |
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Eakly Okla. | 3/16 is normal here, the old days were 1/8. Have heard of 1/4 but haven't had any myself. A vertical hole is just that , straight down to formation. A horizontal hole here goes down to near the formation than makes a curve and get in formation. Once in the formation they stay in it going horizontal for several thousand feet. Get more production but i don't think it will last as long. They can drill several horizontal holes in different directions from the one location, ie going under different sections. Sometimes a depth clause in the lease is very beneficial. Once they drill the hole they release all zones under it around here anyway. |
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West central ND | 20% and more is commmon in or near the Bakken in ND. Lease rates are all over the board. $125 up to $4900 in the area. Neighbor got 22.5 % $800 bonus for 3 years. Do not lease for more than 3 years and HIRE AN ATTORNEY! |
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WC Indiana | Wasn't sure what you meant by lease rate with this dollar range.
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West central ND | Thats a one time payment up front for the term of the lease. |
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West central ND | Sorry I should have said that is per acre. |
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SE IL | Standard royalty for the mineral owner is 1/8. Anything above that will be what is called "overriding royalty". Generally speaking the operator wants at least 80% for what is called the "operating interest". that leaves 7.5% available for the overriding royalty. Depends how bad they want your property as to how much override they will give up. Oil producers are pretty flush now so I would push for all of the override. Some here have gotten that much not too long ago. I don't know where you are located but there are all kinds of things that I put into any lease that I sign such as the paramount right of my irrigation systems during crop season. Tile is another issue that needs to be addressed. As far as damages it depends on whether you want to allow them to dig pits on the land or bring in tubs so there are no pits. If they are going to dig pits I wouldn't take less than 2 times the going rate for farmland times however many acres they think they need for damages. Because they will move in on the crappiest day of the year and you will be left with the mess. There have been several posts about this over the last few years and several have given good advice about what to include in a lease. The number one thing to remember is that EVERYTHING IS NEGOTIABLE. The person that comes to do the leasing will be a smooth talker and will say "oh we wouldn't do that-it doesn't need to be in there" or some such--and I say "well if you aint gonna do it then you shouldn't have any problem including it". Continuous drilling clause--this HAS to be in there. Drill it or give it back. I think there needs to be a penalty if they don't provide a release within a certain period of time after the original term runs out. Give them 30 days to give you a RECORDED RELEASE or else pay a penalty of $5000.00. This keeps them from leasing neighbors ground then after a while they want to communitize all the production and start injecting water and have acres included that don't have a well on them--keeps it all tied up forever--big bunch of bs. Been there done that got the shirt. Here is one post I remember about. I'm sure there are others. Mike SE IL has good advice on lease language. May want to email him if he doesn't chime in here. I would also advise consulting an attorney skilled in such matters-at least for tips on what to include.
http://talk.newagtalk.com/forums/thread-view.asp?tid=111793&posts=13&highlight=oil lease&highlightmode=1#M794002
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| My best advice is to enlist the help of a nationally certified private Landman to help you interpret and negotiate a good lease 'in your favor'. http://www.landman.org/wcm/aapl/
The most important paragraph in that lease is the producer rights (their rights)...which states what they can and cannot do on your land. Rarely, is that paragraph written in your favor. Do you want pump stations, multiple pipeline, booster stations on your property in addition to the well?
Surface damages are normally separate and negotiated just before a well is drilled on your property. Best to have your main concerns ( say well pad reclimation and road maintenance for example) specified in the lease since it is the over-riding document for all parties.
Some general notes from OK:
- normally oil is a 1 well per 40 ac spacing, nat gas a 1 well in 640 ac spacing...know your state spacings
- depth clauses are usuful for leasing more than one horizon...say the target formation is 7000 ft and the clause would specify depths below 7100' are open for additional leasing...most companies who take 'top rights' sublease the lower depths to another company and you get NO check for this
- Pugh clause is another to consider http://www.mineralweb.com/owners-guide/lease-proposals/pugh-clause/
- other mineral owners in that section can affect what you recieve (talk with neighbors/relatives)
- 1/8 to 3/16 are common royalty rates with the latter carrying less lease money up front....not much 1/4 anymore unless one wants to pony up big $$ and participate in the well or forgo any lease money up front
- voluntary election, election at pooling, and forced pooling normally span 90 days after you are contacted...the first 2 are negoiating stages (60 days)....the last is not....we have mostly been advised to state "we want to elect at pooling" when first contacted to buy additional time
- the lease can be a long term binding contract for you and furture family memebers....take the time to lease it right in the beginning
Again a good independant landman is your best allie! Good luck and enjoy the process! Hope they hit a big pocket on you!
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West Texas | In Texas 1/8 will get you laughed out of the county. Standard is 25% with some going as high as 33%. 1/8 was more common in the 70's and 80's. I wouldn't settle for an 1/8 inless your desperate for money. Seen too many people not hold and out and cost them a fortune! On an 80 barrel well you get 10 barrels @ $100/barrel, so $1000/day for the mineral owner. At 25 % you get 20 barrels @ $100/barrel, so $2000/day for mineral owner. So for 1 year @ 1/8 gets the mineral holder $365000. At 25% for 1 year the mineral owner would get $730000. Go get someone that knows oil, NOT affliated with the oil company.
In Texas the "Pugh Clause" is very important to the lease. Set you price for water @ $.50/barrel. If you state has some sort of state land schuedule for damages, that's what I would recommend.(It's very hard to argue published rates) Don't give a lease longer than 3 year lease, but I would only do a year. Continuous drilling clause of 120 days. You need to be specific about pit disposal wither deep buried or hauled off. No overhead electric lines except around property perimeter. I could go on and on. It varies from state to state. Don't take this lightly, because they won't! And they can tie your minerals up for a very long time, if your not careful!
Up front make them pay your legal fees and they will if they want it bad! Just because your not the first to lease doesn't mean a thing.
Edited by farmerboy50 1/11/2012 18:54
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SE IL | the lease can be a long term binding contract for you and furture family memebers....take the time to lease it right in the beginning
Truer words were never spoken! |
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SE IL | farmerboy50 - 1/11/2012 17:46 In Texas 1/8 will get you laughed out of the county. Standard is 25% with some going as high as 33%. 1/8 was more common in the 70's and 80's. I wouldn't settle for an 1/8 inless your desperate for money. Seen too many people not hold and out and cost them a fortune! On an 80 barrel well you get 10 barrels @ $100/barrel, so $1000/day for the mineral owner. At 25 % you get 20 barrels @ $100/barrel, so $2000/day for mineral owner. So for 1 year @ 1/8 gets the mineral holder $365000. At 25% for 1 year the mineral owner would get $730000. Go get someone that knows oil, NOT affliated with the oil company. In Texas the "Pugh Clause" is very important to the lease. Set you price for water @ $.50/barrel. If you state has some sort of state land schuedule for damages, that's what I would recommend.(It's very hard to argue published rates) Don't give a lease longer than 3 year lease, but I would only do a year. Continuous drilling clause of 120 days. You need to be specific about pit disposal wither deep buried or hauled off. No overhead electric lines except around property perimeter. I could go on and on. It varies from state to state. Don't take this lightly, because they won't! And they can tie your minerals up for a very long time, if your not careful! Up front make them pay your legal fees and they will if they want it bad! Just because your not the first to lease doesn't mean a thing.
Good info! Depends on where you are what is customary--but I would say customary is out the door in these times. |
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Franklinton, LA | What happens if you own the mineral rights on your 160 acres of land, your land is not under lease and they drill an oil or gas well 200' from your property line? |
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West Texas | That's govern by the government agency overseeing oil production. Texas would be Texas Railroad commission. Probably draining some of your oil! |
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So. IL | Take my advice and don't sign a single paper they put in front of you! They are all crooks and will promise the world but they are out for themselfs and they don't care if they rape your ground. They will mud the place up all winter, damage crops year round, have salt water leeks that will make the ground useless, dump scrap pipe anywhere they want, ect. Don't sign away the place and make your kids suffer. I now have 3 abandon wells, that they won't clean up, several spots in fields that are contaminated with salt water/oil spills, a field road that is a mud pit full of holes, mud drug through my driveway every day of the year, ect. Then they like to dig up pipes every few months, damaging the crops, and ruting up the fields. Take it from me and have your own papers drawn up and have them sign yours. Cover the issues- abandon well cleanup, contaminated soil cleanup, crop damages, abandon pipe line/power lines/pole cleanup, salt water/oil spills, scrap materal cleanup, ect. Do not give them an endless easment. |
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northeastern Ohio | It depends on where you are located. Here in eastern Ohio, the oil/gas companies are currently offering an upfront bonus of $5800 per acre (five year lease) and a royalty of 20% (1/5) of the gross. One year ago it was $2700 with 15% gross. Two years ago it was $500 and 12.5%. Three years ago it was $100 and 12.5%. Four years ago it was $25 and 12.5% of net.
While these numbers are important, the rest of the lease is more important in the long run if you want to keep the value of your land. A bad lease could haunt you when you or your children or grandchildren sell the land. I have several neighbors that signed leases a couple years ago that now regret many of the concessions that they made in that signing. I highly recommend contacting an experienced lawyer in your state.
Here is a link to a pretty good lease that is being used by a landowner group in my area: http://alov.us/images/SURE_Lease_Final.pdf
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| Is there currently production in your area? What would be their target formation and has that formation produced good wells nearby? If production companies are currently operating nearby don't take less than 3/16.
Signing bonus is going to depend on how good a chance they have of making a good well. As others have said, in the shale plays bonuses are sky high (there's no way for them to miss the pay). If they're just looking for a "high" in a sand formation you'll be lucky to get much over $100/acre. Even if that's the case don't take any less, try for lots more.
If you think they've got a good shot finding oil, hold out play hard to get.
If you don't, try to get as much signing bonus as you can. If they'll give $100 for 3 year lease, try for $150 or $200 for 4.
Good luck.
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| I currently farm and work in the Eagleford Shale Oil Play located in South Texas. I know first hand, that mineral owners are getting 25% royalty plus a per acre lease payment which varies from where you are located in the Eagle Ford. One thing I would suggest, is that you let them shoot you a number (per acre and royalty percentage), and tie that number to a certain formation or depth. I say that because in the Eagle Ford Shale there are numerous productive formations being drilled like the Pearsall Shale, and if you tie the Oil and Gas company to a specific depth they will have to pay that amount or more if they want drill a lower formation. Also, make sure that you have in your lease that the Oil and Gas Company cannot dispose of cuttings in a reserve pit on you property. Oil based cuttings are a major hazard to your property so have it in your lease that they must haul off all cuttings. |
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| Where are you located at? |
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| All wells that are drilled are logged, meaning that a company comes in and uses a specific tool to deterime the well's azimuth (which direction it is headed) and inclination (what angle the well is at). That info is sent to the state agency that handles oil and gas drilling, and if that well came onto your property the state would know about it, and that Oil and Gas Company would be in a bunch of trouble. |
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| That is a very very well written lease agreement with excellent detail. In most leases, the producer rights are vague like in the first paragraph:
Lessor, in consideration of the payments described herein and the covenants and agreements
hereinafter contained, does hereby lease to the Lessee the land described below exclusively for the
purpose of carrying on geophysical and other exploratory work, including core drilling, and the drilling,
operating for, and producing of all the oil, gas, casinghead gas, casinghead gasoline and all other gases
and their respective constituent vapors, liquid or gaseous hydrocarbons produced in association therewith
other than as reserved unto Lessor herein below (herein called “Lease Products”).
Without the details in the above lease, a property could be subject to literal unrestricted freedom.
Some notes from that lease and I may have missed something.
What type of fencing do you want around the well head/pad area? I have seen anything from just minimal pipe around the well head to a good 5 strand fence with painted pipe corners and braces, and even a shoddy 2 strand with t-post corners. Specify what you need there EXACTLY down to the gauge/pipe wall thickness and wire type and coating class and area to be fenced.
Who pays the document filing fees? Ideally the lessee. $8 or so a page here (which is dinner with the misses).
The other thing to have in order before leasing is title history on the property back to statehood if possible. These companies can hold your payment 'in suspense' until a title dispute is resolved. Lessor is responsible to prove title and cover associated costs in doing so. A good lawyer with the right affidavit solves most problems.
Surface water is also a marketable commodity (by the barrel) and many companies will buy water from you on dig a pond to your benefit.
Thanks for posting that Jay! |
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| They are putting cuttings on county roads here...(roll eyes)! |
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WC Indiana | Indiana. |
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Medford, OK | I work for Devon Energy in okc, ok. Only reason why I'm on this site is I come from a family farm in northern Oklahoma and go back a quite often to help out still. I don't believe there are many huge unconventional "shale plays" in your state. I do know that there is a massive play to your east in Ohio, it's called the Uticca, which is a what some are calling the next eagle ford shale. I do know that my company and several competitors are in Ohio running test wells too see what they have to offer in terms of barrels per day of oil and how wet the gas is. It sounds like someone is fishing around in your area, maybe seeing if the Utica runs that far west and trying to get ahold of it pretty cheap. Who knows what they are thinking. I'm not on the drilling side of Devon, I work in the midstream sector. Do some research before you sign the dotted line, they will wait. |
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Northeast Louisiana | 3 years ago there was a company leasing up all the land about 15 miles north of here for $150-$200 per acre, which is pretty big for this area. There was all sorts of talk they had found something big and this area was about to really strike it rich. Now the leases are expiring and no wells were ever drilled. Why would they have paid all this money for the lease and then never do anything? I thought with the technology available today they pretty much knew which areas are worth drilling and which ones aren't. Seems they spent a lot of money for nothing. |
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| Most times with an oil lease, you give up the right to restrict pipelines, roads, and surface equipment to specific areas on your land. These can be a real problem, far more than what you will get paid for the land that will be used. The contractors that work for the oil producer may not care if you are really impacted by their daily operations. This happens a lot where I am located. |
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Medford, OK | In the area your at I believe thats the Fayetteville shale gas play. With natural gas going down to $2.68 where the break-even for producing ng is around the $4 mark. It's cheaper to let th leases expire then to drill and take a bigger hit with the way the ng market is going. That or they did some test wells and had horrible results, my company has let leases expire because of poor quality results. |
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Wallis, TX | Like Peaking said get an attorney. Lots of other post are offering solid advice but only an attorney can read thru all the jibberish and look out for YOUR best interest. As for a private landman, I'd maybe ask his opinion, and may be familiar with local rates, but still have an attorney familiar with oil & gas look it over. Dad had a private landman do a right-of-way negotiation and it cost him, me and the kids, all over trying to save a few bucks of attorney fees.
FWIW I had a landlord hire an attorney who drew up a coddasel (sp) or attachment to the oil company lease. It spelled out how the roads were to be laid out, the use of board walks for the drilling process, let the owner say where to put tank battery, how to dispose of mud, salt water, how damages were to be figured, rent for tank battery land,depth of lines & wires etc. Sure made the oil company change their tune when they realized she had say over the whole drilling process. We could talk to them and they listened, up to the point we pulled out the papers they were trying to run her over, literally wanted to winch the rig & support vehicles into the field with D-8's regardless of the muddy conditions. It was easy getting the oil company to go along with the amendment 'cause their lease was still being used, they didn't realize the amendment clauses trumped their lease. |
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Ravenna Ohio | Did you see the early Chessie leases. Percentage was on profit. The whole lease was a joke. We still have not signed. Enervest offered a total of $500 to sign for a pooling of another 47ac that has a current lease with restrictions. We told them to start at 1200 per acre to open the discussion. Don't have a need to give away paid for land. Don |
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northeastern Ohio | Hey Don,
Yes I've seen the early leases. The people who signed those are really kicking themselves now. It definately paid to wait. I tried negotiating on my own, but there were too many in the chain of command to get approval on changes. It took weeks or months to get one paragraph changed, when there were dozens of paragraphs that needed "tweeked". I ended up going with a group whose lawyer actually had the patience and fortitude to get a good lease first and the money second. |
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Edson, Alberta, Canada | One clause that everyone seems to miss, including the oil companies, is to "save harmless and indemnify the landowner from any lawsuit arising from the oil companies activity on the lease".
i.e. work place accident, company fails to pay a bill etc.
The way lawyers work today is to cast their net over anyone remotely connected to the incident they are litigating.
Regards,
Dave. |
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Standard Oil lease percentage??
