AboutFrederick M. Scott CMM RPL Expertise I can answer questions about oil and gas leasing, and give suggestions on negotiating a good oil and gas lease and how to best deal with oil companies or their representatives. I can answer questions about buying and selling oil and gas royalty or mineral rights. I can help with questions concerning forced-pooling, correlative rights, deeds and conveyances, and "post-production" costs. I am most experienced with Oklahoma properties and laws, but am able to answer questions concerning other oil and gas producing states in many cases.
Experience I am a Certified Professional Mineral Manager (CMM) (certified by the National Association of Royalty Owners in Tulsa, OK) and have managed my own oil and gas properties in Oklahoma for over 10 years. I have dealt with many landmen, attorneys, and other oil and gas professionals in the course of doing so. I am also a member of several professional associations and have written articles of interest to royalty owners which have appeared in several industry publications. I have prepared deeds, title work, and done curative for my own minerals; and have acquired a good deal of knowledge on the subject of oil and gas law and landwork in general in the process. I am the owner of Timbercreek Mineral Company, LLC; which was formed as a vehicle to manage family mineral interests, and as a way to facilitate the buying and selling of oil and gas interests for other people.
Organizations NARO, NADOA, AAPL
Publications National Association of Royalty Owners "Action Report" (ROAR); NADOA Magazine, Landman Magazine, and several royalty owner association groups newsletters.
Question My mother inherited mineral rights in LeFlore County, Ok...Section 32-8N-24E. We were recently contacted by a company offering to lease the mineral rights. My question has three parts:
1. BP already has gas wells here and is currently paying royalties from their lease - how would another lease affect this? Is it possible to have multiple leases?
2. The company has asked how many mineral acres she owns in this area in order to determine the amount of their offer - we don't have this information or are unaware if we have the information. How might we obtain this information?
3. They are asking for a Three (3) Year Primary Term Royalty Conveyance and further state this is not an offer to purchase any of the surface land (which we no longer own); but state this is only an offer to purchase the royalty interest for a term of three(3) years and so long thereafter as oil or gas or other minerals are produced from said lands. This to me means it could be longer than 3 yrs if thats how it turns out. Am I missing something here -wouldn't you have to renegotiate another lease at the end of the 3 yr term?
Any advice you can offer is greatly appreciated.
Answer Dale, it's likely that the currently producing wells are held by a lease document that had a "depth clause" in it, or some other clause limiting their access to various depths. I would assume that the current offer is for depths or formations not covered by the currently producing lease.
To determine the mineral acres you own in the section, you could call the company currently paying you and ask them for the figure, or you could research it yourself by going to the county courthouse and looking at the conveyances that gave you this interest. Frankly though, I would hope that a company wanting to lease my minerals would have done their own research into what I owned. I wonder why THEY can't tell you what you own? Sounds like they want you to help them do their work! I'd tell them that when they figure out what they think I own to come back and talk to me (in the case of a lease offer anyway.)I also would urge you to take it upon yourself to discover what you own. Companies do make mistakes, so best to have your own figures as well.
Speaking of lease offers, be sure of what you are being asked to sign. If you think it's a lease offer, then be sure to look at the document they are asking you to sign. A lease will usually have "oil and gas lease" or "oil, gas and mineral lease" at the top. A royalty or mineral deed on the other hand, will have the word "deed" at the top. In addition you should READ whatever it is carefully before you sign it to make sure what you are signing.
DEFINITION OF OIL AND GAS LEASE (rather long-winded I know!): As an unleased mineral owner, YOU currently have the EXCLUSIVE right to develop YOUR minerals, should you choose to do so. After all, they are your minerals! In simple terms, this means that if you wanted to, you could pay to drill your own well to get your oil and gas out of the ground, and sell it yourself and keep all the money. It's not really quite that simple, as you'd have to in reality deal with spacing units, and consider the other owners within that unit as well, but it's the basic idea.
When you sign a LEASE, all you are really doing is assigning (to the lessee) your right to develop your minerals (at either all or certain depths..depending on what the lease says) for the amount of time specified in the lease. You are not selling your minerals, but rather are just transferring your right to drill them to an oil company (lessee) for a specified time period. In RETURN for giving them the opportunity to drill a well for you, they "reward you" with a royalty payment (1/8, 3/16 etc.); and usually a "bonus" payment ($400 per acre etc.) as well.
They of course keep the lion's share of what they sell your minerals for (i.e. they get 13/16ths, and you just get your 3/16th's royalty); but then THEY are paying ALL the costs of drilling the well for you. You pay and risk nothing, but still are paid a royalty and bonus. Not a bad deal, especially since in many cases the oil company loses ALL their investment, such as when a "dry hole" is drilled.
If they do not commence a producing well within the time allotted in the lease's "primary term" (often three years); then the lease expires and the right to drill them reverts back to you.
If the lessee DOES commence a producing well within the primary term of the lease, then as you've noted the lease will AUTOMATICALLY be extended into what's called the "secondary term"; which will continue until there is no longer production from the leased premises. This could be decades potentially.
A "ROYALTY DEED", on the other hand, would not be a lease at all, but would be an actual conveyance (deed) granting the buyer ALL OR PART OF YOUR ROYALTY PAYMENTS for the term stated in the deed (which could be 25 years...or "forever.") You would still own the minerals, but would be selling all or part of your royalty payments; so in essence it could be similar to not owning the minerals anymore, since you would be getting no income except perhaps from a future lease bonus.
If instead you were asked to sign a "MINERAL DEED"; you would be granting the buyer your actual MINERALS outright; meaning you would then own none of the minerals, or have any rights to royalty etc. (unless you retained or reserved some of those rights in the deed.)
Selling your minerals or royalties is fine, as long as that's what you were planning to do! Just make sure it's what you intended. Since I haven't seen the offer you received I can't say for sure what it is, though it sounds like it's probably a lease offer. If so, then you now know that you aren't actually selling anything except the right to develop your minerals for you.
In exchange for granting this right, the lessee is offering to pay you a royalty and bonus. They will keep the lions share of the money they get for selling your oil and gas, though they will also be paying ALL the costs of getting it out of the ground, which can run into millions of dollars fairly quickly. Most mineral owners would prefer not to take on this expense themselves, and so will gladly lease their rights to do so to an oill company in exchange for a royalty and bonus payment.
