Oil & Gas Leases
Oil & Gas Leasing
The Oil & Gas industry is booming in Ohio. Drilling and production continues to increase across the State. This provides Ohio landowners who are approached about an Oil & Gas Lease with both great opportunity and significant risk. Whereas a poorly negotiated lease can cause indefinite headaches and legal problems for the landowner, a well drafted lease with the appropriate legal terms and protections can be a tremendous benefit for the landowner far into the future.
An Oil & Gas lease is a legal document between the landowner (lessor) and an operator (lessee) that allows the operator to drill and develop the oil and gas minerals beneath the property. An operator representative or an independent “landman” or “land agent” will typically approach the landowner with a generic lease form and explain that they would like a lease agreement to explore for oil and gas. Because the lease is a legal contract, it should be carefully reviewed by an attorney experienced in oil and gas leases.
Not surprisingly, most leases presented by the operator are generic forms that are drafted heavily in favor of the operator. Importantly, the terms of the lease are negotiable. While it is possible for an operator to obtain an order for “forced pooling,” operators cannot compel landowners to sign a generic Oil & Gas Lease. Therefore, the terms of the lease must be agreed to by both the landowner and the operator.
Please continue reading below for more information on how we can help, or click above for a free consultation and we’ll be happy to speak with you.
How We Help
Our goal is to obtain the best Oil & Gas Leases possible for our clients. Most landowners presented with an Oil & Gas Lease find the document hard to understand. Oil & Gas leases are full of “legalese” and use ordinary words in ways that are different from their ordinary meaning. Our first step in assisting our land owner clients presented with an Oil & Gas Lease is to explain in plain English what the lease means for them and their property. Once our client has a clear understanding of the lease terms, we work closely with them to negotiate better payment terms and landowner protections from the operator.
The following are some common types terms found in Oil & Gas Leases:
Cash Bonus Payment - This is a one-time payment paid by the operator to the landowner upon signing the lease. Generally, operators offer a small cash bonus payment as part of their form lease. Because there is no guarantee that the operator will ever drill or, if they drill, that the well will produce, the cash bonus can be the only monetary benefit that the landowner receives. As a result, we fight hard in the negotiations to maximize the cash bonus payment that our clients receive.
Royalty - This is a payment paid by the operator to the landowner that is based on the based on the sales of the oil and gas that the operator produces from the well. Operators often only offer 12.5% of the net sales from the well as a royalty. However, net sales are difficult to calculate as they allow the operator to reduce the royalty payment in proportion to the expenses incurred in producing the oil and gas from the well. For this reason, we work to obtain royalties for our clients that are based on the gross sales. This avoids dealing with the calculation of the operator’s expenses and results in a higher royalty payment. Additionally, we work hard to obtain a greater percentage royalty as well.
Primary Lease Term - This is the length of the lease before a well is drilled. Operators seek to obtain long primary lease terms in order to maximize the amount of time that they have to drill the well. However, this ties up the land. As a result, if the operator delays, the landowner must wait to receive a royalty and cannot lease the land to a different operator. For this reason, it is important to negotiate as short of a term as is commercially reasonable.
Other Terms - There are numerous additional Oil & Gas Lease terms that are important to consider in negotiating the lease and that can have a along term impact on both the landowner and the land, such as Secondary Lease Term, Shut-In Royalty, Lease Termination, Storage, Pipeline Depth, Damages to the Surface, Renewal, Assignment to Another Operator, and many others. If you have been presented with an Oil & Gas Lease, contact us and we would be happy to discuss how we can help you.