So you get the proverbial knock on the door or phone call one day and it is a landman representing an unknown company and he wants to lease your land for oil and gas. What do you do? How do you know how to protect your asset while making sure that you get paid what it is worth?
Never accept their first offer and never sign their lease form!
Remember, that landman is representing the company that is paying him so his allegiance is to his boss and not you. He is going to get the best deal he possibly can. This is not immoral nor criminal on his part, it is just how negotiations like this go. That means that you are not going to get the best deal you can and furthermore means that your asset will not be adequately protected. The lease form that you ultimately sign is the governing document in your transaction and you better be sure that it protects you to the fullest because if a disagreement were to come from the transaction, the courts will look to that document for guidance.
Check with other mineral owners to determine the “going rate” for your bonus, royalty, and term.
This is based on supply and demand. Simply stated, the greater the demand for your lease the more favorable the terms that you can negotiate. If you are in a “hot” area or a big well has just been completed in your area, it is not unrealistic for the bonus to be in the thousands of dollars per acre, the royalty to be up to 25%, and the term to be three years or even less. Conversely, if there is no drilling activity in the area and only one company leasing, you might have to accept the minimum offered for a lease or learn to just not accept a lease.
Make sure that the terms and conditions in the lease are acceptable and protect your minerals and surface.
Think about it this way, you wouldn’t want to fly with a pilot that wasn’t fully certified and capable of flying and you wouldn’t want to have a surgeon do surgery on you that had never performed the procedure you required. So why would you want to take on an experienced landman working for an established oil company when negotiating a lease on your valuable asset? Hire a professional to represent you and make sure that they are capable of doing so. If it is an attorney, make sure that they are experienced in oil & gas law in the state your minerals are located. And if it is a landman/consultant do the same. Oil & gas leases are extremely complicated to most mineral owners but not so much to folks that negotiate mineral rights professionally.
Follow the above guidelines and you should be able to lease your oil and gas with few hassles. Oil & gas production can change your life. Please make sure you protect your precious asset.