AboutJames H. McConnell, CPL Expertise READ CAREFULLY BEFORE ASKING ME A QUESTION
I will try to answer questions about oil & gas leases, minerals, royalties, and servitudes, if the questioner has provided a good description of the lands. I require a section, township and range for any land not it Texas. I require a survey name and an abstract number if the lands are in Texas. I will answer questions about offers to lease or purchase mineral interests only if all terms of the offer are in the question, including the term, the royalty and the amount offered. Failure to provide this information will result in the question being rejected.
I have answered more than 2300 questions on this site and get as many as fifty in one day. I do not have the time nor am I inclined to deal with detailed questions requiring an attorney. I am not a substitute for an attorney. If you do not write in a cognizant form, I will reject your question. If you have done real research and have a question I find interesting, I will answer it. If you haven't done any research on your own, I will not do it for you.
If you do not rate the first answer, do not send a follow up, because I will reject it. If my time means so little to you that you feel that you cannot take your time to rate an answer, I do not have time to answer another question.
Experience I have been a Professional Landman for more than thirty five years. I have drilled and operated oil & gas wells in Louisiana and Texas and an familiar with the rules and Regulations of the Texas Railroad Commission and the Louisiana Department of Conservation. I have testified in court as an expert witness.
Question QUESTION: Dear Mr. McConnell,
Two aunts, my brother and I own the mineral rights to 270 acres in Clay County, Texas. We have recently been approached by two different companies with offers for an oil lease. They are:
1. McCabe Petroleum out of Midland, Texas - Bonus $500 per acre for 3-year lease with option to renew at $500 per acre for two years and 24% royalty. They are also leasing 1000 acres of our cousins’ land which is adjacent to ours. We have asked and there is no guarantee that they will drill on our 270 acres.
2. J.W. Operating - Bonus $550 per acre for 3-year lease with option to renew at $750 per acre for two years and 25% royalty. They say they will definitely drill on our land. They are not leasing my cousins’ adjacent land.
Obviously, the 2nd offer sounds better. The only reason that I mention the 1st offer is that they approached us first and have already sent us a lease agreement which we have not signed. My questions are can we insert an agreement into a lease to the effect that if they don’t drill within a specified term, say 1 year, they forfeit the lease. We don’t want to lease our land to someone who never drills. What kind of bargaining position are we in? Is this area of the state going to have a lot of drilling going on? Which company would you recommend? I have done a lot of research on this and find that J.W. Operating has the resources and knowledge to drill while almost no one has heard of McCabe Petroleum. Their landman says that they are a small company so I am concerned about their ability to drill.
I am looking at the lease and do not see a survey name or number and abstract number. There is a physical description of the property. I have searched all your previous answers and Google and cannot find answers to these questions. However, I have certainly learned a lot from your answers.
Thank you for your help.
Judy McBride
ANSWER: EOG has been drilling Barnett shale oil wells in Clay County. They are about 1600 feet deep with a horizontal lateral of about 5000 feet. If your lands are in the play, your bonus could be ten times as much and your royalty could be 25%. I wouldn't lease at all for six months or so and see what happens.
As for drilling obligations, unless you provide for a liquidated damages of $100,000 or so for not drilling a well within the first year of the primary term of the lease, they don't have much to lose. Once you attach damages to failure to perform, the companies can agree to anything and you have little recourse if they change their minds. Damages make them think twice.
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QUESTION: Thanks for much for your prompt reply. Once we do decide on a lease would you suggest that we put the above obligation with damages in the lease or just leave it alone. I guess they would not lease the property if they were not going to drill. Thanks,
Judy McBride
Answer That is not a good assumption. They can pool your land with other lands and thereby unitize your interest. They don't have to drill on you to put you in a unit. If you don't agree to pooling and you get a drilling obligation, backed with $100K in liquidated damages if they don't perform. If they drill on your land and cannot pool your land, then you get all of the royalties.
