To understand how to lease mineral rights, you have to understand how the exploration department of oil companies works. Oil companies employ Geologists and Geophysicists to generate drilling prospects for them. Geologists do so by evaluating existing well logs to determine the potential for drilling in any given area. Geophysicists do so by either acquiring existing seismic data or encouraging the company to shoot new seismic in a prospective area. If either feel that they have identified a prospective area they then encourage the exploration managers to identify the new “prospect” and if successful they then engage the land staff to begin acquiring mineral leases, farmouts of existing leases, or purchasing leases from competing oil companies with leasehold in the area. That said, unless your acreage just happens to be in one of their buy areas you are wasting your time contacting companies for mineral leases.
Western Mineral Consultants own minerals in 16 states and we never seek mineral leases. The lone exception is that it could possibly be worth your time to contact companies with current leasehold in your immediate area. Ask your neighbors if they lease mineral rights and if so, to whom. Then just sit back and wait for the oil companies to come to you.
How long are mineral leases?
The obvious answer is the length of a lease is for the period of time defined as the primary term and any option period defined in the mineral lease. This is true, but only if the lessee never initiates drilling activity during the primary term and any option period defined in the lease. However, should the lessee, or their assigns, initiate drilling operations as defined in the lease during the primary term, or any option period if provided for in the lease, then there will be language in the lease which provides for an extension of the lease for the period in which a rig is drilling, and a well is being completed on the lands covered by the lease, or lands pooled with the lease.
The lease will also have a continuous drilling clause in it which will allow the operator to continue drilling more wells with a defined period of time between wells. Typically, mineral leases provide for 60 to 120 days between rig release or completion of one well and the initiation of drilling operations on the next well. Once this continuation is defaulted on, all acreage not attributed to a then producing well is released.
Furthermore, there will be language in the lease which will provide for continuation of the lease while a well is producing on the lands covered by the lease, or again, lands pooled with the lease. In the standard lease form any production will hold all acreage by production as long as any well produces. It is extremely important that you negotiate a Pugh clause in the lease. A Pugh clause causes the operator to only HBP (hold by production) acreage attributed to a producing production unit. All non-producing acreage is released and available for lease again. You can also negotiate what is called a vertical Pugh clause which causes the production company to release their rights up and/or down hole from the producing horizon.