As a mineral owner, one of the most important document you will come across in any dealings with companies or brokers will be the Oil and Gas Lease. While an Oil and Gas Lease isn’t an outright mineral conveyance or sale, it gives a right to the person or company taking the lease, or “Lessee”, to explore for and possibly produce minerals that may be under the owner’s, or “Lessor’s”, land as well as a handful of other contractually agreed upon promises. While there are many parts to an Oil and Gas Lease encompassing these promises, there are a few “headline” provisions that all mineral owners should be aware of when reading over a standard Oil and Gas Lease.
USE OF THE LAND
First, every Lease will have a provision covering what rights are being granted. This provision will deal with surface rights granted, rights to use the land, and what substances (oil, gas, other minerals, etc) the lease covers. Without getting into too many specifics, the Oil and Gas Lease will grant the lessee the right to explore for minerals and perform actions necessary to extract the minerals from the earth.
The next important provision of the lease will be the “habendum clause,” or the duration of the primary term and secondary term of the Lease. The primary term will be for a set number of years, while the secondary term is typically for “so long as oil and gas is produced in paying quantities”. The primary term can be for any number of years agreed on by both parties. However, a typical primary term is for 3 or 5 years.
Last, but certainly not least, is the Royalty Payment clause. This clause is maybe the largest inducement for mineral owners to enter into an Oil and Gas Lease. Mineral owners lease their minerals and, in turn, receive a royalty payment for doing so, assuming the well produces. The royalty will be at least 1/8 of production, but can be higher depending upon the market.
There are some helpful places to find basic information on Oil and Gas Leases on the internet. A good place to look for negotiation methods can be found here, and a sample, standard Lease can be found here. Both provide some basic explanations of different provisions of the Lease. Although these provisions are very important to the Lease and may seem somewhat easy to understand, and unless a mineral owner is very well versed and experienced in dealing with Oil and Gas Leases, it is highly recommended that one hires an attorney to review an Oil and Gas Lease before the owner signs off. If you are an owner and find yourself staring at a Lease and having more questions than answers, feel free to call our law firm, Hartsfield & Egbert, at (405) 285-6858, or visit our website and ask a question in the comment box.