Negotiating oil and gas leases is indeed a big responsibility. Across any part of the world, numerous mineral owners are being offered with proposals to lease their mineral interests. However, many mineral rights owners do not take the time of day to research more regarding this matter, thus possibly missing out on the upside of lease negotiations. Here are a few things that I recommend you avoid.
Don鈥檛 jump at the first lease offer
Right after receiving an oil & gas lease proposal via mail or maybe phone, due to overwhelming joy, the first thing you do is agree. Do not appear to be an early signer because if you do, you might not get the best terms available to you. Do not focus on only bonus payments and royalty rates; as there are other items in your lease that are just as important. Be patient, do not be impulsive and think things through before making a decision. If ever you own the surface rights with the mineral rights, that can be your upper arm and should be treated with more importance than lease bonus and royalty percentage. Remember, everything is negotiable.
Don鈥檛 make a snap decision
Bear in mind that you are dealing with legal documents so carefully go over proper oil, gas, and mineral lease negotiations. I recommend seeking legal advice prior to signing a lease offer. There are several portions of a mineral lease that are extremely important and you are creating a contractual obligation that lasts forever. Please make sure that you understand the contractual relationship that you are entering into before you sign. If you need a lawyer, please call me and I will recommend you one.
Never say that you are not interested
Even if you are the type of person who really does not give a care in the world about economic benefits, it would still be advisable for you to at least be aware of what is happening in your area. If you manage your mineral rights correctly, you can generate a significant amount of cash flow. As my grandpa used to say, 鈥淧ennies from heaven!鈥�
If you don鈥檛 care about your mineral rights, there are plenty of firms that would purchase them from you. Do yourself a favor and don鈥檛 act uninterested.
Don鈥檛 instantly hire a lawyer
Fact 鈥� lawyers have high fees. Hiring a lawyer the same time you receive oil or gas lease starts his fees immediately. Prior to contacting legal representation, collect your thoughts on the matter, research the individual that submitted your offer and have your mineral file ready to access the important information needed. Once you have a better understanding of the offer and are prepared for an in depth discussion, then contact your lawyer. Trust me, your lawyer will thank you for being prepared to discuss your options and the lease that was offered!
Don鈥檛 go buy anything!
Presence of a drilling rig does not equate to a commercially viable well. There are absolutely no guarantees that an oil company drilling on your property is going to provide an economic benefit. If you ask anybody with extensive experience in the oil & gas sector they will explain to you that there are never guarantees! Do not spend money unless you are surely making money. Remember, in most cases, mineral right income is taxed as passive income. Make sure you save at least 50 per cent of the income that your mineral rights generate!
Do not lease multiple quarters on one lease
Within your lease agreement there are clauses that protect the mineral right owner and the resource company. When multiple quarter sections are held under one lease, there is a high probability that the oil company only requires to drill one well 鈥� to hold the entire lease. Signing one lease per quarter section, allows you the greatest economic benefit by promoting the resource company to drill a well, or multiple wells on each quarter.听
Do not spout off during negotiations
If you are not willing to stand on your decision, better keep silent. Backing away from your statements will reflect your credibility, in this case 鈥� not credible. Losing credibility will ultimately minimize your negotiating ability. Giving absolute statements when negotiating are made by rookies and chances are they will hurt you in the end. If you are uncomfortable negotiating your lease agreement, get help.
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Cameron Wyatt is the founder of Homestead Energy Ltd and MineralRights.ca with 15 years鈥� experience in the industry. He can be reached at [email protected].
