# Oil & Gas Lease Question



## warcat (May 22, 2004)

It seems a lifelong dream has the potential of happening.
Our family has been approached by an oil & gas company for a lease.
We have not been presented a contract just yet, but I'd like to know what the typical going rate is for such a lease.
Property is located in South Texas, Duval County.


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## RB II (Feb 26, 2009)

The best advice/answer I can give is to talk to as many neighbors as will talk. Find out the deals that they got. I know that some of those areas have huge bonuses. Almost universally 1/4 royalty is about max. Remember, it is a business transaction and both sides have to make money, even the oil companies have a profit loss matrix that they work within.
BTW, congrats and good luck.


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## RB II (Feb 26, 2009)

Not to get your hopes up too high but I know a guy who has been receiving HIGH 6 figure annual royalties the last 2 years down in that area.


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## plastics man (Jun 23, 2004)

Hire an oil and gas atty. and do not sign anything until he has read it and advised you. There is a lot more to an oil and gas lease then royalty percentage and bonus money.


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## Jolly Roger (May 21, 2004)

plastics man said:


> Hire an oil and gas atty. and do not sign anything until he has read it and advised you. There is a lot more to an oil and gas lease then royalty percentage and bonus money.


X100


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## Croaker slinger (Feb 10, 2011)

plastics man said:


> Hire an oil and gas atty. and do not sign anything until he has read it and advised you. There is a lot more to an oil and gas lease then royalty percentage and bonus money.


X2


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## scwine (Sep 7, 2006)

plastics man said:


> Hire an oil and gas atty. and do not sign anything until he has read it and advised you. There is a lot more to an oil and gas lease then royalty percentage and bonus money.


^ This. x200.


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## jampen (Oct 12, 2012)

Make sure they include a Pugh clause

http://www.mitchell-texaslaw.com/subpage.html


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## Smackdaddy53 (Nov 4, 2011)

Don't forget you will have guys like me driving in and out of the property every day to maintain the lease and get readings. Now that is scary but worth the money if the well they drill is worth a dang. It could be a single well that makes 1000 bbls of oil and 1,000 mcf gas a day or end up a popcorn fart that makes less money than the caliche pad is worth. With directional drilling that one pad could have several wells on it that multiply your royalty check exponentially but that is pure speculation.

http://www.fishingscout.com/scouts/SmackDaddy


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## BretE (Jan 24, 2008)

plastics man said:


> Hire an oil and gas atty. and do not sign anything until he has read it and advised you. There is a lot more to an oil and gas lease then royalty percentage and bonus money.


Without a doubt. Do your research and find one that's been around awhile and familiar with the area. Also, restrain your hopes for now. I have a few producing wells that make life a little easier but I also have the rights to another piece of land that was leased and drilled. They were sure oil was there. 18,000 ft. later, nothing.....good luck, I hope you hit big. Walking to the mailbox once a month to get the check doesn't suck......


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## Lat22 (Apr 7, 2005)

plastics man said:


> Hire an oil and gas atty. and do not sign anything until he has read it and advised you. There is a lot more to an oil and gas lease then royalty percentage and bonus money.


This, and don't settle for anything less than a quarter.


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## Raider Red (Sep 15, 2009)

We are going through this now on a couple of properties down there, and trying to negotiate another. Like has been stated its worth the money to let an attorney look over the offer. Also, like has been said above, they sure make life nice but as we have been told they have a short lifespan. The best production will only be for about five years and then will start falling off. So be smart with whats left after taxes. There are some taxes that I have never even heard of on this type of stuff.


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## GMTK (Sep 8, 2008)

plastics man said:


> Hire an oil and gas atty. and do not sign anything until he has read it and advised you. There is a lot more to an oil and gas lease then royalty percentage and bonus money.


Make sure the attorney is BOARD CERTIFIED by the Texas Board of Legal Specilization in Oil and Gas law. A lot of attorneys will say they do oil and gas, but unless they are board certified, they are just another attorney. The only downside is that a board certified attorney may charge you a few hundred for the initital meeting. It is worth the money.


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## MapMaster (May 25, 2004)

A lot of people decided to get together and hold out for more when I was working in the Barnett (Fort Worth natural gas field). The bottom fell out of gas and funny how those that were holding out were begging us to lease for next to nothing when we turned our back on their demands. Sometimes it is good to hold out for a little more and other times it is better to lease at the going rate and collect your mailbox money when the royalties come. I had rather feed a bear than an attorney so I would talk to neighbors as stated but not hire an attorney.


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## Jolly Roger (May 21, 2004)

Getting an attorney is not about holding out for more money. The bonuses and percents are easy to figure out. The attorney is for the clauses and future drilling.


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## SSST (Jun 9, 2011)

MapMaster said:


> A lot of people decided to get together and hold out for more when I was working in the Barnett (Fort Worth natural gas field). The bottom fell out of gas and funny how those that were holding out were begging us to lease for next to nothing when we turned our back on their demands. Sometimes it is good to hold out for a little more and other times it is better to lease at the going rate and collect your mailbox money when the royalties come. I had rather feed a bear than an attorney so I would talk to neighbors as stated but not hire an attorney.


Agree 100%, if your neighbors are getting $1500 an acre, get your $1500 and be happy, the big money is yet to come. My in-laws got a nice lease recently with 25% of royalties dealing with Penn Virginia themselves, when it was time to sign, Penn Virginia had a lawyer explain everything in detail. I had a cousin deep in Eagleford country that tried to be greedy and all he's doing now is watching his neighbors get rich, all for an extra 1k an acre he wanted.


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## Rack Ranch (May 25, 2004)

*********This********



plastics man said:


> Hire an oil and gas atty. and do not sign anything until he has read it and advised you. There is a lot more to an oil and gas lease then royalty percentage and bonus money.


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## Game-Over (Jun 9, 2010)

^ I wouldn't trust an oil co/landmans attorney to explain anything to me. Its their job to look out for the interests of the oil co. Get your own, if its an undivided interest contact all owners and try to get them to agree to not sign anything without consulting the others, and don't let them cash any checks that might show up in the mail until you have a signed lease in hand.


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## SSST (Jun 9, 2011)

I've seen the lease agreement, it's in black and white and doesn't take a scholar to understand it, but it's your money, i just didn't care to give away money on something i fully comprehend. Hopefully Smack will be there guaging before long.


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## Wado (May 15, 2011)

http://eaglefordforum.com
Join this forum first. The members are a bunch of experts that have done what you are about to do. Hire an oil and gas attorney second. Don't sign anything until you secure an attorney, no seismic contracts or option agreements. Check your guy out, make sure he's not a lease flipper, these usually go no where. That statement I just made about flippers is personal, you may get what you want with one. Be patient and if there are multiple mineral owners or royalty recipients try to get everyone on the same page and don't play survivor and form alliances to sway other members or this will turn into family feud. PM me if you have any questions, I have some resources that might benefit you. I forgot this, start learning how to navigate the Railroad Commission website.


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## Mick R. (Apr 21, 2011)

I have brother in S. Texas who has been getting $10,000-$12,000 bucks a month from his oil lease. Like others have said, I would certainly let an attorney check out your lease before you sign anything.


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## ChuChu (Jan 23, 2010)

I didn't see how many acres are involved, but if it is a small tract be careful of demands for a huge bonus. Once the landman gets 61% of the acrage needed under lease, they don't have to even secure a lease for the remaining 39%. When the well is drilled if you haven't leased your share will be paid to you, but no bonus money. 
Be aware that when the division papers come out, your world will change. ALL your taxes will increase, especially the property tax. 
If you have a large tract, it would be best to hire an attorney.


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## warcat (May 22, 2004)

Thanks for all the replies fellas... No contract in hand yet, but we should be meeting with the land guy either today or tomorrow. All I plan to do is hear him out, get a copy of what they are proposing, and thoroughly read it to the best of my abilities. If there's anything I don't fully comprehend or if any of the clauses I've been PM'ed are not on the proposal, I will be sure to hire a board certified oil & gas attorney.

Our property is not very large at 265 acres. My understanding is that the drilling company is leasing a 19 square mile area, of which I don't know where my property sits. I will learn more at our meeting. I believe this particular company is the first interested in this area. I'm not sure what they know, but at a 19 square mile leasing size, they are putting down a sizable amount of money (millions) on their information.


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## Outearly (Nov 17, 2009)

265 acres is a nice sized tract. 

Please have an attorney read the lease. A "standard" lease is easy to read and comprehend, but what's not in a standard lease - pugh clauses, more favorable pooling clauses, surface restrictions (you may not want a location in the middle of your prettiest spot) - are things the company may be willing to give you and that won't really impact what they're trying to do. You don't have to be hard to deal with, but can still negotiate a better lease form for yourself.


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## warcat (May 22, 2004)

Quick question... is $150 per acre for a 3 year lease beyond ridiculous?


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## ChuChu (Jan 23, 2010)

warcat said:


> Quick question... is $150 per acre for a 3 year lease beyond ridiculous?


Kinda depends. Is there much activity in Duval Co.? It seems a little low to me, but I'm not aware of what's going on in Duval. I can find out for you tonight if it would help.


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## warcat (May 22, 2004)

Not much that I'm aware of, but it's starting to pick up. On the eagle ford maps, we are on the very edge of dry gas... However I'm hoping the maps get updated once they explore the area.


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## plastics man (Jun 23, 2004)

I have a 220 acre per pool clause in my lease, and no pooling with other land until they have utilized my land. 150.00 an acre sounds very low for what I've heard going on down south but the royalty percentage is more important than lease money if you get a well. The difference between 20- 25 percent on a well can be a lot especially if they hit a good well, on a 1000 barrel a day well it can be around $5000 a day diff.


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## Jamaica Cove (Apr 2, 2008)

ChuChu said:


> I didn't see how many acres are involved, but if it is a small tract be careful of demands for a huge bonus. *Once the landman gets 61% of the acrage needed under lease, they don't have to even secure a lease for the remaining 39%. When the well is drilled if you haven't leased your share will be paid to you, but no bonus money. *
> *Be aware that when the division papers come out, your world will change.* ALL your taxes will increase, especially the property tax.
> If you have a large tract, it would be best to hire an attorney.


That is not how it works. Rule 40 (State Wide Rule 40) allows pooling of partial mineral interests, so unless ChuChu is referring to them leasing an undivided 61% mineral interest in your tract (and it can be ANY amount of an undivided interest, for instance, say Joe Bob owns an undivided 25% mineral interest under your tract due to his father's reservation many years ago when his father sold the land and reserved a 25% M.I.), the company can pool the undivided LEASED mineral interest (Joe Bob's leasehold interest) in the 265 acres and leave you out (or any percent undivided mineral interest-even .0000001%)* IF* the well is located off your property and is greater than 467' from your property line; however, if the well is not on you but within 467' of your property, the company can apply for a Rule 37 Exception and you would be given written notice as an offset owner for a Rule 37 Exception Hearing held at the RRC in Austin-at that time, hire Flip Whitworth with Scott Douglas in Austin to represent you (high $ attny and RRC expert); however, if the company drills on the 265 acres and you did not lease but Joe Bob did and he owns an undivided 25% Mineral Interest in your 265 acres, when the company gets 100% of its costs back out of production, you would then own 75% of the well, pay the company for 75% of the future costs/reimbursing company/operator for expenses (operating costs, workovers, etc. after payout) and get 75% of 8/8ths of the production as a Co-Tenant under Texas law (would likely NEVER happen unless some landman wants to get fired or the "field" is that big that the company will pay 100% of the costs to get 25% after payout which I've never seen in my 32 years experience in Land). If Joe Bob does not own any undivided mineral interest under your tract and you own 100% of the minerals and did not lease, the company cannot drill or pool your tract since they have no contractual right regarding your lands. If the company drills a well not on your tract but greater than 467' from your property line, absent of Special Field Rules and absent application of The Mineral Interest Pooling Act-which only applies to fields discovered after March, 1961- you will get ZERO $ and that well could drain you; however, YOU have the right to rule of capture and can drill yourself or lease to another company and they may drill an offset well, especially if the other well is a good well.

I have pooled partial mineral interests and excluded a welfare person that would not lease because he'd lose his welfare money (but he owned about 20 acres) and he answered his door at 10 a.m. while drinking a 24 oz. Old English malt Liquor, claiming "disability". I Rule 37'd him-I knew the scumbag wouldn't show for the Hearing, got my exception and drained his land-surely he's still drinking and collecting disability to this day!

Regarding Chu Chu's comment on Division papers-he means a Division Order-and yes your world may change if a darn good well-you may get to be hated by the Democrats as a 1%er!! After the case law of Middleton Vs. Exxon many years ago, a Division Order cannot modify or change the terms of your lease. There is now State Law that provides what can be in a DO and failure to comply by the company with the statute makes it null is my understanding-a D.O. should merely state your interest in a well-google Texas Division Order statute.

It's a gamble whenever leasing, some folks go for the bonus $ knowing that they have about a 10% chance of being drilled in a conventional play, and some go for the higher royalty and maybe trade off bonus-it is an individual's choice and I've seen many folks never get drilled, but have leased over and over through the years.

Good luck and I would suggest you get an attorney-but first grill the field landman as to what the company is drilling for-depth, conventional or horizontal, etc.


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## Jolly Roger (May 21, 2004)

Jamaica Cove said:


> That is not how it works. Rule 40 (State Wide Rule 40) allows pooling of partial mineral interests, so unless ChuChu is referring to them leasing an undivided 61% mineral interest in your tract (and it can be ANY amount of an undivided interest, for instance, say Joe Bob owns an undivided 25% mineral interest under your tract due to his father's reservation many years ago when his father sold the land and reserved a 25% M.I.), the company can pool the undivided LEASED mineral interest (Joe Bob's leasehold interest) in the 265 acres and leave you out (or any percent undivided mineral interest-even .0000001%)* IF* the well is located off your property and is greater than 467' from your property line; however, if the well is not on you but within 467' of your property, the company can apply for a Rule 37 Exception and you would be given written notice as an offset owner for a Rule 37 Exception Hearing held at the RRC in Austin-at that time, hire Flip Whitworth with Scott Douglas in Austin to represent you (high $ attny and RRC expert); however, if the company drills on the 265 acres and you did not lease but Joe Bob did and he owns an undivided 25% Mineral Interest in your 265 acres, when the company gets 100% of its costs back out of production, you would then own 75% of the well, pay the company for 75% of the future costs/reimbursing company/operator for expenses (operating costs, workovers, etc. after payout) and get 75% of 8/8ths of the production as a Co-Tenant under Texas law (would likely NEVER happen unless some landman wants to get fired or the "field" is that big that the company will pay 100% of the costs to get 25% after payout which I've never seen in my 32 years experience in Land). If Joe Bob does not own any undivided mineral interest under your tract and you own 100% of the minerals and did not lease, the company cannot drill or pool your tract since they have no contractual right regarding your lands. If the company drills a well not on your tract but greater than 467' from your property line, absent of Special Field Rules and absent application of The Mineral Interest Pooling Act-which only applies to fields discovered after March, 1961- you will get ZERO $ and that well could drain you; however, YOU have the right to rule of capture and can drill yourself or lease to another company and they may drill an offset well, especially if the other well is a good well.
> 
> I have pooled partial mineral interests and excluded a welfare person that would not lease because he'd lose his welfare money (but he owned about 20 acres) and he answered his door at 10 a.m. while drinking a 24 oz. Old English malt Liquor, claiming "disability". I Rule 37'd him-I knew the scumbag wouldn't show for the Hearing, got my exception and drained his land-surely he's still drinking and collecting disability to this day!
> 
> ...


thanks for the info. I am in the middle of something similar. But other way around, I am the 25% owner and they drilled on me without a lease ratification.


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## pshay4 (Aug 18, 2005)

Never sign a Producer's 88 (the standard oil company lease.) Have an attorney draw up your own lease. We always put in a drill it or lose it clause. We can't be pooled without having at least 51% of the pool. We don't allow a pipeline without being paid for everything that runs through it. Be specific on damages and permanent equipment that can be on your land. Never trust a land man. They don't work for you.


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## POC Troutman (Jul 13, 2009)

plastics man said:


> I have a 220 acre per pool clause in my lease, and no pooling with other land until they have utilized my land. 150.00 an acre sounds very low for what I've heard going on down south but the royalty percentage is more important than lease money if you get a well. The difference between 20- 25 percent on a well can be a lot especially if they hit a good well, on a 1000 barrel a day well it can be around $5000 a day diff.


if someone wants to lease your eagle ford dry gas, let them. But make sure they only get those depths. In the "dry window" there are still other formations with NGLs in the stream, i.e. Escondido and Olmos formations.

The dry gas window acreage is NOT drawing the premium that the stuff further north is. Break even nat gas pricing on dry gas wells is $4 to $5.50 depending on the producer, so at $3.50 gas, don't expect much activity.

as mentioned, get a quarter royalty. and in the grand scheme of things in the oil and gas world, 256 acres is nothing. $150/acre is low for that area, but not "ridiculously low" in my mind. See what the neighbors are getting and take something similar, but push for the royalty. quarters are common in STX.


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## Jamaica Cove (Apr 2, 2008)

A "producers 88" is a term used by almost anyone and does not mean a specific form of lease-it is like saying a "candybar" when you meant a Snickers. I've seen small town attnys draw up what was told a "custom lease" and all they did was type up a Pound Printing Form 7/69. Lease forms change due to case law. Used to be a "Producers 88-Pound Printing Form 7/69" was heavily utilized, then a 4/76-the "7/69" refers to the year it was changed from the previous form, again based on some case law ruling, now a lot of 1/01 and 2/01 forms-most forms changed in the 90's when horizontal drilling started in the Austin Chalk-20+ years ago, but basically, certain forms (like the 4/76) let an Operator drill a horizontal pooled well; whereas a 7/69 you better have obtained an amendment or you likely are an idiot if you were the landman and did not get the lease amended to provide for horizontal pooling-look for the words "prescribed or permitted" in the form-those words in a pooling clause generally give much leadway to the Operator barring other provisions that restrict pooling authority. It is very complex dealing with pooling. As to getting a royalty for a flowline on a pass-through type basis, I have never seen anyone accomplish that-usually you pay the surface owner on a per rod basis. In Sleaziana, I'm paying anywhere from $50/rod to $300/rod for our operations-and why would a royalty owner, that took ZERO RISK and PAID ZERO COST want to delay production by holding up the granting of a gas flowline or pipeline? To me, that is like cutting off your nose to spite your face-it costs a pile of money to hook up a well-heck, tapping into Texas Gas transmission ghenerally costs about $50-75K just for a tap, let alone the 1-10 miles of ROW you may have to buy and the hundreds of 1000s to construct the flowline to the mainline-the operator gets no benefit for the flowline (unless it's a gathering system that other operators pay a fee to utilize excess capacity) and of course the royalty owner bears no cost of the line. Thionk about this, you laid a mile of flowline ($300-400k) and paid some gas company $75,000 to tap into their line, paid another $30k for meters and after 6 months the well stops flowing much gas-then ya gotta rent a 3 stage compressor at $2000/month (again, no cost to royalty owner-usually) and after 2 more months, the well aint producing enough gas to even run the compressor, so you're in the red for the dang pipeline. I aint a fan of being bent over for a flowline that benefits the royalty owner and again, I take 100% of the risk, so why mess with me and hurt my economics. My money can be spent elsewhere!!

Pshay4 makes a good point, I never want to "give" landowners what could be an asset for me later. A good O&G Attny will have horizontal and verticle Pugh Clauses or Freestone Riders, market value language, approval of roads, locations, pipelines/flowlines, some don't allow operations during hunting season and toll any downtime-but remember, your well goes down 11/4/13 in need of a workover and you just lost 3 months production revenue, which could more than pay for deer hunting revenue, so be careful and think out what you ask for. Many times I have said "No, we cannot agree to that provision." to the mineral owner and walked away-sometimes someone else will lease him, sometimes not. There is an old saying "Pigs get fat, hogs get slaughtered". I've seen more times than not when someone wouldn't work with me and they ended up with someone else that was a promoter and the mineral owner got his bonus, got his terms but never got his well.


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## Game-Over (Jun 9, 2010)

pshay4 said:


> We don't allow a pipeline without being paid for everything that runs through it.


What exactly do you mean by this? If you are getting paid for the volume of what is transported through the pipe I would like to meet your O&G attorney!


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## Wado (May 15, 2011)

I did a little research, and I must say it means absolutely zero but here it is. There is little or no Eagleford Shale interest in Duval County but the Premont Field pretty much set the standard for that area and is still a producer. Grid Petroleum has leased some around there as of August 2013. The Hockley, Frio, Wilcox and Yegua Sand are producing zones and also Jackson Shale. One comment was made by a geologist that the area was highly faulted and not a good candidate for horizontal drilling. There is a lot of info out there if you dig. These oil companies are dumping leases right and left in the Eagleford and moving on to bigger and better. Some land owners in the Eagleford are being approached by oil companies and no acreage bonus is even being offered. Nineteen square miles is 12,160 acres I believe. At $150.00 per acre its 1.824 million. I put the link up for the Eagleford Forum. It has a search option that is very useful. Good luck.


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## warcat (May 22, 2004)

Turns out it is approximately 15,000 acres and the company is leasing the entire tract to keep others from breaking up their play. Sounds to me like they're pretty confident they'll hit wet gas (condensate)... They're also virtually certain there's plentiful dry gas, but way down at the depths that are not worth going after at the current gas prices and with the current drilling technology for those depths. Potentially as technology advances and gas prices go up, it sounds like we'd be in the sweet zone... Maybe that's something to look forward to way down the road. For now, all bets are on the wet gas.


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## hog_down (Jan 11, 2010)

pshay4 said:


> Never trust a land man. They don't work for you.


No, but we work for the oil company that's investing millions (or billions) of dollars to develop a resource that is under your land. We have a job to do as well. Do you want to put up some of your own money, and help us drill the well? Do you want to be involved in the risk of drilling a duster? How good are you with drilling your own oil and gas wells? Yes, there are good and bad oil and gas companies and landmen; what you don't hear about is all the money that is being invested BEFORE the drilling rig moves in. How many days do you think it takes for full mineral title to be ran on your tract of land, from the patent from the State of Texas to 2013?


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## ChuChu (Jan 23, 2010)

Going rate in Duval Co. is $250 an acre.


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## bobbyoshay (Nov 29, 2008)

WUnderwood said:


> No, but we work for the oil company that's investing millions (or billions) of dollars to develop a resource that is under your land. We have a job to do as well. Do you want to put up some of your own money, and help us drill the well? Do you want to be involved in the risk of drilling a duster? How good are you with drilling your own oil and gas wells? Yes, there are good and bad oil and gas companies and landmen; what you don't hear about is all the money that is being invested BEFORE the drilling rig moves in. How many days do you think it takes for full mineral title to be ran on your tract of land, from the patent from the State of Texas to 2013?


East Texas took us over a year in some cases (some dude decided to sell the same tract to numerous people by advertising it in a magazine). South Texas went pretty quick. A lot of people have no clue what goes on before a hole can be punched in the ground. I miss being in the industry every now and then.


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## bigfishtx (Jul 17, 2007)

Although the land may be out of the Eagle Ford, it does not mean I cannot produce a great well.

I have clients that are using horizontal drilling methods outside of shale plays and making tremendous wells. Old formations such as the Wilcox can really produce both Gas and liquids using the new methods.

I would see what he is offering then find out what others got, they will usually low ball in the beginning.


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## HoustoneD (Sep 16, 2013)

warcat said:


> It seems a lifelong dream has the potential of happening.
> Our family has been approached by an oil & gas company for a lease.
> We have not been presented a contract just yet, but I'd like to know what the typical going rate is for such a lease.
> Property is located in South Texas, Duval County.


We got an offer that was next to nothing. We held out for a year or so, then they came back with a much better offer. Just remember, you don't have to take the first offer. They know what they are doing, and if there is something to be found where your property is, they already know it. They wouldn't bother making an offer if there weren't anything there.


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## warcat (May 22, 2004)

Ok, I have a Producers 88(7/69)- Paid Up with 640 Acres Pooling Provision in hand (according to the title on the top left of first page)... Will be reading thru it over the next few days. Assuming I would not be hiring an attorney (for now, I may hire one prior to signing), are there any particular items I should be looking out for?


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## RB II (Feb 26, 2009)

Not to be sarcastic at all, but yes there are a ton of things to watch out for in any lease, But even more so in a high producing area like eagle Ford due to the potentially high $ royalties. 
It can be worth the cost of an attorney to review/revise that lease the first month of royalties. My advise, hire a reputable O&G attorney.


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## remi19 (Feb 27, 2008)

HydraSports said:


> Not to be sarcastic at all, but yes there are a ton of things to watch out for in any lease, But even more so in a high producing area like eagle Ford due to the potentially high $ royalties.
> It can be worth the cost of an attorney to review/revise that lease the first month of royalties. My advise, hire a reputable O&G attorney.


First month of royalties? Any attorney that reviews or negotiates an OGML for first months royalties is not looking out in your best interest. The first royalty check will most likely be the best since it contains multiple months on royalty and the production is always the best.

Second, a producers 88 is a standard OGML, there are several versions. I highly doubt the Lessee or oil and gas company with change the standard OGML they have decided to use. All changes will be addressed in provisions attached to the lease as in an Exhibit "A" or "B".

How many acres are you working with? what's the gross and net? Also, you might sign three leases before you are pooled into a unit.

If you are working with only a few NET Mineral Acres your bonus will end up going to our attorney and maybe more. Lots of variables to consider. take the time to find the forms, lots or information.


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## Trouthunter (Dec 18, 1998)

I've been able to work with those who have leased my property in the past. I got a good water well, gravel road and they didn't balk at the provisions that my attorney set forth for me. 

Do you want those working for the drilling company or their contractors including gaugers to have firearms in their vehicles? What's a live oak tree worth?

There is a lot to consider so think it through.

TH


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## bjones2571 (May 2, 2007)

Producer's 88 means nothing. Pretty much every lease that has been executed in the last 100 years has been called some form of Producers 88. The title means nothing. 

Things to look at:
term
royalty calculation
pooling
vertical/horizontal pugh
will they accept a favorite nations clause
the list could go on from there...

Your bargaining position will be relative to your desirability of your location and the quantum of your mineral interest. 

People make it seem that you will have to mortgage your house to hire an attorney. That isn't so. A couple of hours at a couple hundred an hour is a pretty minimal expense in the long run.


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## warcat (May 22, 2004)

Well, I've got alot to read and understand!
I'm comfortable with the bonus and royalty I negotiated... Now I'll spend the next several days reading and researching online.


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## RB II (Feb 26, 2009)

remi19 said:


> First month of royalties? Any attorney that reviews or negotiates an OGML for first months royalties is not looking out in your best interest. The first royalty check will most likely be the best since it contains multiple months on royalty and the production is always the best.
> /QUOTE]
> What I said was that the first months royalty check could easily pay the lawyer fees. I am not in the O&G business. Just a land owner who deal with these a good bit.


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## texaspyro21 (Feb 25, 2012)

HoustoneD said:


> We got an offer that was next to nothing. We held out for a year or so, then they came back with a much better offer. Just remember, you don't have to take the first offer. They know what they are doing, and if there is something to be found where your property is, they already know it. They wouldn't bother making an offer if there weren't anything there.


This is always a risk that the offer may disappear while waiting on the higher offer. I spent two months in the Midwest leasing people and then I started telling people that the offer was no longer valid starting about 2 weeks ago. These were people who were either dragging their feet or holding out for higher offers. I had some that I was about to go sign when the company landman said no more. This was a couple of miles away from a well producing ~3,000 BOE/day.

Funny thing about getting lawyers to review the lease- we were trying to get a couple of landowners to sign the standard lease we were using in the area. They told us their attorney told them that they had to have a couple of extra clauses in the lease and wouldn't sign until we put them in. We had signed that same attorney a couple of weeks before and he didn't want any changes to the lease. Just be aware that if you pay an attorney to tell you something, he will tell you something. But it is still a good idea to have someone who deals with leases on a regular basis to review it whether it's an attorney or a different landman.


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## remi19 (Feb 27, 2008)

HydraSports said:


> remi19 said:
> 
> 
> > First month of royalties? Any attorney that reviews or negotiates an OGML for first months royalties is not looking out in your best interest. The first royalty check will most likely be the best since it contains multiple months on royalty and the production is always the best.
> ...


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## BretE (Jan 24, 2008)

I don't understand why you wouldn't get an atty??? Especially on a matter this monetarily important. You wouldn't read, research and take a shot at removing your own appendix. Talk to an expert. Even should you choose to ignore an atty's advice at least you get another perspective. I think you're gonna be surprised how much money is involved in even a small percentage. I know I was....happily I might add...I can't fathom signing anything without a professional at least looking at it......Again, best of luck....Hope you hit big!....


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## Fishing Fedora (Jan 16, 2012)

My uncle is a partner in a law firm in Ft. Worth and specializes in oil and gas lease contracts. PM me and I can forward you his info.


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## Outearly (Nov 17, 2009)

Warcat -

This is my second post in this thread. I've been doing O&G work for 30+ years. 

You can get some legal advice for relatively cheap. Get it.

For example, although there are a lot of "Producer's 88" forms out there, every single one of them was drafted by the industry. Now guys are printing them to look just like other "Producer's 88" forms with a few things added or deleted. I have an attorney friend who won't put his standard addendum (with more landowner friendly provisions) on a form provided by someone else because the form can't be trusted any more.

Another thing is that the form you have will provide for pooling. That's fine, but I'll bet there won't be any provision about how much they pool and what happens to the acreage that's outside of the unit. Lots of folks have 2 acres in a unit with a junky little well with another 250 acres in the lease held by production from the 2 acres in the unit. 

The math: 2 acres with a 20 % royalty out of a 640 acre unit x 100 mcfd x $4 x30 = a monthly check of $7.50. Holding 250 acres that you can't lease to anyone else.

There are a handful of key things that an attorney or experienced landman (who is working for you) can add to a lease that will help you that won't upset the oil and gas company.

Get some help.


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## Jamaica Cove (Apr 2, 2008)

x2 with OUTEARLY. Go get counsel. You want horizontal and vertical pugh clauses, approval of locations, roads and flowlines, damage clause, timely payment of royalties, copies of well data (Logs, core analysis, monthly production reports, etc.-some will have to be maintained as "confidential" such as the logs and core data), maintain the right to execute seismic permits (i.e. non-exclusive to lessee) and many other items included. 

Lack of knowledge of the industry and laws does not preclude you from getting a favorable lease to you IF you seek counsel.

Good luck and buy us all a beer if they hit a big well and you score.


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## RB II (Feb 26, 2009)

remi19 said:


> 6024641 said:
> 
> 
> > If the lease were to be pooled in a unit. What if a well is never drilled, they twisted off or the formation collapsed? No royalty would ever be paid. Kind of putting the cart before the horse banking on a well to pay attorneys.
> ...


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## copano_son (Dec 17, 2007)

warcat said:


> Well, I've got alot to read and understand!
> I'm comfortable with the bonus and royalty I negotiated... Now I'll spend the next several days reading and researching online.


PLEASE hire an attorney! If youâ€™re doing research online and seeking advice from 2cool you should really hire an attorney to represent you! I'm in no way questioning your capabilities or intelligence, but there is a huge difference in understanding and knowing the laws and thinking you know!!

I know there are many people on here that have knowledge about this sort of thing, but EVERY situation is different. 

At the very least, pay an experienced attorney to read over the contract to point out some potential concerns regarding your interest. You can decide from there if you need further representation.

Good Luck


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## TxFig (May 4, 2006)

Did anyone else's eyes glass over reading these 2 pages of posts? :spineyes:


I was approached on Monday of this week for pretty much the same thing. In my case, not only are they wanting to lease my property (only 6.5 acres), but also the entire subdivision of houses (maybe 20) that sits behind my property. 
.... all of us have 25% rights


The lease is supposed to be for "no surface" rights. 

I have a feeling that we are all going to be offered the same contract. Do we need to all band together and hire 1 atty to look at the deal (seems like a much better idea than each of us doing it on our own).?


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## warcat (May 22, 2004)

Outearly said:


> Warcat -
> 
> This is my second post in this thread. I've been doing O&G work for 30+ years.
> 
> ...


Clauses were in the lease drafted by the drilling company. Pooling is limited to a maximum of 640 acres for gas and horizontal oil wells. Since my property is only 265, I added a statement saying that a minimum of 200 acres of my property must be included in any pool.

Per the lease agreement, acreage not pooled (or actively producing) is released from the lease at the end of the primary term (or extension if so taken).

Also, there is a depth provision for the termination of the lease should more than 180 days elapse between the completion or abandonment of a well and the commencement of another. I think I need to add verbiage that will release the acreage should the well not be producing at a satisfactory level?

My head hurts! lol


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## Jamaica Cove (Apr 2, 2008)

Statewide Rule 40 allows pooling of Partial Mineral Interests, so if you own an undivided 25% M.I. as you said, the Oil Company can lease the other 75% and pool it and exclude you so long as the well is greater than 467' away from your lease/property line. In other words, if you are not drillsite and they drill over 467' away (absent Special Field Rules that require other than 467' from property/ownership lines), you have little rights. I would ask what their target is, if conventional or unconventional, and if they plan to drill within 467' of your tract. If over 467' from your tract (and remember, "plans can change" and many times do regardless of what they tell you and that can be a fact/truth that when they told you the plans, they were correct at that point in time), I would try for the highest royalty I could get and try not to shut the door. You have 6.5 gross acres, 1.625 net mineral acres and the bonus is almost nothing-maybe they'll pay you $150-$250/net mineral acre, so that's maybe $500 +-. 


I would suggest you group up, consult one attny, but your interest will be small. It may not even cover the attny fees (typically $350-$1500). So you have 1.625 net acres in a 320 acre unit and let's say you were lucky and got 25% royalty. your interest would be (based on a 320 acre unit):

25% M.I. x 25% royalty x 1.625 acres/320 acres = 0.00126953 or 0.126953% of the production and let's say it makes 500 BOPD, so 500 bbl. x $90/bbl (and that price is exclusive of the State Severance tax which is 4.6% on oil and 7.4% on gas, and yes, royalty is subject to severance taxes) x 30 days = $1713.88/month. 

I likely would request/demand 25% royalty and a horizontal and vertical pugh clause and even tell them no bonus if 25% royalty and of course no surface rights and be done with it.


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## Jamaica Cove (Apr 2, 2008)

warcat said:


> Clauses were in the lease drafted by the drilling company. Pooling is limited to a maximum of 640 acres for gas and horizontal oil wells. Since my property is only 265, I added a statement saying that a minimum of 200 acres of my property must be included in any pool.
> 
> Per the lease agreement, acreage not pooled (or actively producing) is released from the lease at the end of the primary term (or extension if so taken).
> 
> ...


You should not have extension language in your rider if I were you. A Pound 7/69 must have language that includes "prescribed or permitted" to provide for horizontal well pooling (in fact, I'd not allow pooling w/o prior written consent-period) because that is how your interest gets diluted and so far, you are not achieving that-you are under the assumption that 640 is the max unit size-it aint, a 7/69 Pound Printing Form says 640 plus 10%, so really is 704 acres, plus where is this "extension language" coming from?-another bad provision for landowners-you effectively signed or will sign a 5 or 6 year lease thinking it was 3 year primary term-GO SEE AN ATTORNEY! You should tell the attny what you want and he will accommodate and add other protection, such as consent to assign, minimum royalties, horizontal and vertical pugh clauses, damage clauses, approval of ingress and egress, approval of locations, approval of flowlines, even color of tank batteries should you so desire, fencing of facilities, cattleguards (type, wide and material and even depth), etc. How about gate guards while drilling to keep trespassers out because trucks will be in and out all day and night while ops are going on and most companies like having a gate guard (at their cost of course).


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## warcat (May 22, 2004)

Jamaica Cove said:


> You should not have extension language in your rider if I were you. A Pound 7/69 must have language that includes "prescribed or permitted" to provide for horizontal well pooling (in fact, I'd not allow pooling w/o prior written consent-period) because that is how your interest gets diluted and so far, you are not achieving that-you are under the assumption that 640 is the max unit size-it aint, a 7/69 Pound Printing Form says 640 plus 10%, so really is 704 acres, plus where is this "extension language" coming from?-another bad provision for landowners-you effectively signed or will sign a 5 or 6 year lease thinking it was 3 year primary term-GO SEE AN ATTORNEY! You should tell the attny what you want and he will accommodate and add other protection, such as consent to assign, minimum royalties, horizontal and vertical pugh clauses, damage clauses, approval of ingress and egress, approval of locations, approval of flowlines, even color of tank batteries should you so desire, fencing of facilities, cattleguards (type, wide and material and even depth), etc.


You're right... it's 640 plus 10%.

I am well aware that it is a 3 year primary term with a 2 year extension (if at the end of the primary term they wish to continue the lease, they would do so at the same bonus rate of the primary term, payable immediately upon the end of the primary term). Being locked in to the same bonus rate for 5 years is not something I liked. But I used that to negotiate a better royalty... when it all boils down, the royalty is where the real money comes from.

Writing it up so that I have final say on pooling would be nice (written consent), however, I'm not sure the driller would agree to that term.

Basically, I am teetering on the line where I state reasonable demands, but avoid sounding too demanding, and thereby getting squat as the drilling company says "see ya". In my immediate area, there are no producing wells, and on top of that, I was told that my property is on the leasing boundary (one of my shared property line neighbors is not included in the overall area that's being leased).

So far I have written in clauses for damages, payment for use of water taken from my surface or subsurface, shut-in royalty payments (thinking of setting a shut-in duration limitation, but I think I'd rather have them get the best price on their sales and pay me a nominal amount in the meantime), acreage in pool, horizontal and vertical Pugh's, timely payment of royalties, and depth of cover of any pipelines.

I feel that hiring an attorney would almost guarantee that overly aggressive demands are put into the lease (heck I may be too aggressive already), and boom... I get nothing buy a lawyer bill.


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## Jamaica Cove (Apr 2, 2008)

warcat said:


> You're right... it's 640 plus 10%.
> 
> I am well aware that it is a 3 year primary term with a 2 year extension (if at the end of the primary term they wish to continue the lease, they would do so at the same bonus rate of the primary term, payable immediately upon the end of the primary term). Being locked in to the same bonus rate for 5 years is not something I liked. But I used that to negotiate a better royalty... when it all boils down, the royalty is where the real money comes from.
> 
> ...


That could happen-and has many times, so yep, you've done some good homework and realize royalty is key to most folks. May I suggest the Gate Guard-should not be an issue and is common practice and most companies do it in S Tx as normal operating procedure, further ask for approval of well, road and flowline locations (which such approval shall not be unreasonably withheld), ask for consent to assign provision (again, which cannot be unreasonably withheld), so you don't end up with some scumbag operator that leaves a mess or slow pays royalty. How about royalty on oil is due the month following the month of production and gas royalty is due 60 days after the month of production (gas royalty is always 60 days behind) and allow for 120 days to commence royalty payments from date of first production-those are all common-they have to run title for payment and get a division order title opinion rendered which takes time and that is done AFTER you make a well because it typically costs $5000-$25,000 to the company. Failure to timely pay results in interest and set an interest rate-like 12% per annum and upon written demand for default in payment of royalty, they have 30 days in which to pay royalty that is past due and failing that the lease ipso facto terminates as to its entirety after failure to pay and after written demand by certified mail, RRR. It sucks if they make a well and don't pay you the royalty-current state law in Texas provides for interest-so what-you have to sue and then pay attny to enforce and trial and they owe interest-in Louisiana, by Statute, the lease can be extinguished for failure to pay royalties after 30 days after a written demand. For some more stuff, go to the GLO Website and download a State of Texas Lease form- (it has cancellation language for failure to pay royalties BTW) it has lots of good wording and most every oil company takes state leases (we don't like them, but the state doesn't negotiate the provisions in the lease-take it or leave it is the way it works)-but you can review it and help with your lease provisions and compare the wording.

You've done pretty good Warcat on your form for a non-oil industry person!!:brew:


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## BretE (Jan 24, 2008)

warcat said:


> You're right... it's 640 plus 10%.
> 
> I am well aware that it is a 3 year primary term with a 2 year extension (if at the end of the primary term they wish to continue the lease, they would do so at the same bonus rate of the primary term, payable immediately upon the end of the primary term). Being locked in to the same bonus rate for 5 years is not something I liked. But I used that to negotiate a better royalty... when it all boils down, the royalty is where the real money comes from.
> 
> ...


*

*

And they say I'm hardheaded....lol....good luck....


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