5 tips for an effective oil and gas lease
Many Texas landowners benefit from leasing their land for oil and gas production. Perhaps an operator has approached you with an offer. If you are thinking about leasing your land, but aren’t sure where to start, here are five tips for negotiating a lease that may help you make your decision:
- Find out who they are. You want to know who you are dealing with. Large operators tend to have their own land management departments. Others hire a third party to secure leases on their behalf. These people are known as “landmen” or “speculators.” Always be courteous and professional, but don’t be afraid to ask the following questions:
Document your discussions. You want to have everything in writing. From your first communications to your signed lease contract, make sure you get it on paper, or at least in e-mail or text. When you are dealing with land, Texas courts will only uphold deals in writing, so verbal agreements do not hold any weight in this business.
Understand your strengths. You can negotiate much better if you understand the position you are in as a mineral owner. Develop your bargaining position based on what you have to offer. You may need to do a little research here to understand how you compare to other landowners in the area. How much acreage do you have? How close are you to other productive wells in the area? How active is the market in your area? Networking with other landowners in your area to share information can benefit everyone.
How will the lease affect your land? If you use your land for other purposes, like agriculture, you want to protect your land surface. Understand the trade-offs and don’t be afraid to negotiate terms that will protect your surface land.
Don’t cave to pressure. Some companies and landmen try to push landowners to sign right away, threatening to walk away from the deal. Call their bluff and refuse to sign until you have time to review the lease in detail and get a professional legal opinion, if you choose. If the company really doesn’t want to give you time to review the document, this is a red flag that you do not want to work with them. A reputable company will want you to understand the agreement. Some will even reimburse you for having an attorney review the document.
- What is the individual’s relationship to the operator?
- What is the company’s background and reputation? You can search the internet for information, as well as checking the Texas Railroad Commission records and the Texas Comptroller’s Office records.
- Whether a landman or company, do they have references from other landowners in the area? Follow up and ask those landowners about their experiences.
These five tips are only the beginning of a complex legal process. Hopefully they give you enough information to get you started if you are considering an oil and gas lease for your property.