As a property owner, you have mineral rights that give you the right to mine, sell, lease, gift, produce, or extract minerals from your property. When another party shows interest in gaining access to minerals on your property, an oil and gas lease form will enable you to safeguard your interests while leasing your mineral rights to another party.
An oil and gas lease form is a contractual document through which a mineral rights owner rents his or her rights to a company interested in extracting those minerals from a particular property. The lease form must include the specific terms of the lease, such as the following:
Understanding the different oil and gas leasing terms is helpful when negotiating with gas companies. Two of the most commonly used phrases are “paid-up” and “no-surface use,” referring to the two main types of oil and gas lease agreements.
The paid-up lease is an agreement between a mineral rights owner and an oil and gas company, which provides a one-time bonus pre-payment at the beginning of the contract. After the initial payment, the mineral rights owner shall make no other amount until exploration begins and royalties accrue.
A non-surface use or non-development lease provides that the oil company should not undertake any surface activities without express and written permission from the surface owner. Working with an attorney can help to ensure that a non-surface lease clause does not permit development and production except with the owner’s permission.
The structure and clauses of an oil and gas lease agreement should protect the rights of the mineral owner and outline the responsibilities of the gas company. Some of the main clauses that the form should contain include but are not limited to the following:
This clause leases the oil and gas rights from the owner to the company. It contains the details about the land being hired and the mineral rights being leased.
Most oil and gas mineral lease forms are guaranteed for a primary term of three years. If, for example, a well is drilled during this term, the lease will extend for as long as the well is productive. During the primary term, the lessee holds the right to the minerals even if the company has not started producing oil or other minerals from the land.
The pooling clause allows the gas company to combine the leased premise with other lands to form one or more drilling units to develop the oil and gas. It also provides the terms for continued exploration after the end of the primary term.
The surface clause entails the lessee’s rights regarding the surface land. A surface clause includes what can or cannot be done on the surface and how the oil company is expected to carry out its operations.
In a paid-up lease agreement, the bonus clause indicates the amount per acre to be prepaid for the duration of the lease.
Once a bonus is paid, the lessors can receive royalties, calculated as a percentage of the value of minerals extracted from the land. Royalty payments are usually set at 25 percent and do not incur expenses or cost deductions.
Please consider that this is a non-exhaustive list but just a few main things this agreement should have*.
To streamline the process of contract drafting, feel free to download our printable agreement template and fill in all the required information. Make sure you carefully proofread your draft, so all the information is mentioned properly.
The four main steps for entering into and writing an oil and gas lease agreement are as follows:
Once an oil and gas company is interested in your mineral rights, the company will approach you with an oil and gas lease agreement and a memorandum of lease. The memorandum of lease contains all the crucial details of the lease agreement without disclosing anything confidential. You will be expected to review both documents with the help of an attorney.
Upon review, you may send back an addendum communicating the changes you want to be reflected in the lease form. At all points, you should be careful to ensure that the provisions of both the addendum and the lease protect your interests and reflect the potential value of your mineral rights.
Take the time to get a sense of your bargaining position. Understanding the full extent of your mineral rights will allow you to negotiate with hard facts. To understand the scope, consider how close you are to a well that is already producing and its production capacity to gauge your property’s production potential. Once you have this and any other relevant information, you are ready to negotiate.
Once you have agreed on all essential aspects of the contract, the oil company will send you a contract to download, read, and sign. Please note that the lessee will use expansive legal language in the agreement that may go beyond the scope of your initial expectations. Therefore, an attorney may be a valuable asset when reviewing the contract to ensure that your interests are protected.
Once you and your attorney approve the terms of the document, fill in all necessary information in the agreement and sign where indicated. After signing, you will send it back to the oil company.
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Frequently Asked Questions
A mineral title opinion is a piece of legal advice prepared in writing by a title attorney for an oil production company regarding the property's ownership history that is the subject of a lease. The opinion will communicate whether the property is marketable or not. A marketable property has a clean title with no encumbrances, such as mortgages or unpaid taxes. It also means that the land was not obtained through adverse possession and is not in violation of zoning laws. The attorney will detail the appropriate course of action depending on his or her findings.
The easiest way to find out who owns the mineral rights to your property is by working with a title attorney to perform a title search. A title attorney will be able to give you a comprehensive history of ownership of the property and the transactions related to it. With the records, the title attorney can then confirm whether you own the mineral rights to the property.
Surface rights and mineral rights are the two kinds of rights that pertain to real estate in the United States. Surface rights refer to ownership of the land’s surface, including buildings or dwellings, and the right to use the land. However, a person with surface rights does not automatically have mineral rights. Mineral rights relate to ownership of the mineral, oil, and gas beneath the land’s surface. With mineral rights, one can explore, develop, extract, or sell the natural resources found beneath the soil.
