Oil/Gas/Letter of Intent
I have recently formed a partnership with a few individuals with varying talents and we are focusing primarily on building and operating saltwater disposal wells. While researching potential sites we have come across an opportunity to purchase a large parcel of land that has production on roughly 80% of the property. While our primary goal is to acquire land to drill disposal wells (and hopefully negotiate MSA's with the companies that are producing on the land, there is an opportunity to acquire the remaining 20% of the minerals for the total parcel of land. We have the funds available and want to make a move but are concerned about diving into another facet of the business in which we have limited exposure. We also would hate to miss out on the opportunity to acquire the property while we bury our noses in legal and accounting books looking for an ambiguous answer to a question that we have not yet figured out to ask. All that being said, the land owner has agreed to sign a letter of intent as a sign of good faith while we do our due diligence to understand the risk and potential reward associated with this opportunity. We are not sure if there is a formatted letter of intent we can use or if specific verbiage must be included to ensure that there are no loopholes, whether intentional or by omission of specific verbiage. Also, we are not sure what a letter of intent would be binding or if it is a glorified handshake. We trust the landowner and are in business to do right by our partners, investors, and any other mutual parties involved. We are thrilled that he has agreed to sign the letter of intent but want to be sure that we are not shoring up would could be a lucrative business deal on a paper handshake or that we are at least aware of the binding powers and necessary verbiage the letter should contain. I want to thank you in advance for taking the time to review my questions and I look forward to your response.
A letter of intent is only as secure as the specific language contained within the document's four corners. You may be successful in finding a preprinted document that satisfies your concerns but it is more likely that any existing document will not also contain each applicable clause that you are needing.
I specifically attended law school many years after being an oil and gas landman for one very specific reason...to partner with guys like you and fill a niche of providing the legal and/or land function for groups of budding entrepreneurs as a partner rather than an hourly attorney. I have groups in Kansas, Oklahoma and Texas that I work with regularly for various carried interests in their projects. I protect their interest by protecting my interest in their deal.
I would bet that there are other people out there that attended law school to partner with guys like you and provide their expertise. I suggest that you find an attorney that you can discuss your issues with and he can partner with you (rather than charging you an hourly fee). Having an attorney on board will give you a sense of security that he is going to look out for his own interest and in the process look out for yours as well.
If you do not find this appropriate for your partnership then I suggest that you do hire an attorney that is specifically experienced in drafting purchase sale agreements and letters of intent for your specific need. It will let you sleep easier at night and he will be able to answer your questions, draft your documents, and provide you guidance on all the plethora of issues you are likely to knock against. I cannot suggest that you attempt to fashion a document from what you find out there and hope that it covers the issues that you do know about as well as the issues you are not yet aware of.
Congrats to you for stepping out there and thinking big, building a business and making it happen!