10 Tips for Negotiating an Oil and Gas Lease

Before you agree to the terms of an oil and gas lease, there are a few things that you should do. Here are 10 tips we have compiled to help you get the most for your minerals, while protecting your property and interests for generations to come.

  1. Don’t sign the lease the moment they present it to you! – Often the first offer you  receive is not the best terms they are able to offer. Resist the urge to sign and receive the check as soon as possible.
  2. Determine who else may have been contacted with a lease offer – This may include family members or neighbors in the area. The best way to negotiate a lease is collectively as a group.
  3. Find out who it is that you are dealing with – Often time the landman that sends you a lease is working for somebody other than the actual company that will drill a well on your property. Sometimes this is because the oil company has hired a broker to lease acreage on their behalf (and at the lowest price possible) and other times it can be because you are dealing with somebody who has the intention of “flipping” (selling) your lease to a different company for a profit.
  4. Find out about production in the surrounding area – Find out the production of wells in the surrounding vicinity. This information is available on the internet, and for Texas properties it is filed with the Rail Road Commission. Learning about the production from surrounding wells can help you negotiate a better royalty.
  5. Use a separate lease form for each tract of land  – This is especially helpful when you own multiple contiguous tracts, as it will make it more difficult for an oil company to say that one of the tracts is held by production due to production on an adjacent tract.
  6. Determine whether you need to create a business entity or trust – This is often dependent on the size of the oil and gas lease deal, but it can be a good idea from a tax and estate planning perspective to put ownership of the subject minerals in the name of an entity such as a limited partnership. You should consult with an attorney should you decide to go this route.
  7. Make sure that your ownership records match theirs – No offense to the oil companies, but often times the ownership amounts that their landmen have calculated are not entirely accurate. It is a difficult job to look at ownership records from the late 1800’s and determine who owns what in 2013. If something doesn’t look right, odds are it is not and you should hire your own expert to determine exactly what you own.
  8. Look for clauses in the lease involving use of water – Leases often include a clause allowing for unrestricted use of water on the property for use in drilling. Whether or not this presents an issue to you or the area you are in varies, but with the drought we have been experiencing in Texas it is probably worth close examination.
  9. Do not spend the money until you have it – While this is not a negotiation tactic, it is important to keep in mind as it is not uncommon for oil and gas companies to back out of a lease, or to never drill on the property.
  10. If you are not an expert, then hire an expert – This is the most important piece of advice I can give, and it is what inspired us at Hilltop Royalties to go into business. When we used to work for the oil companies we saw first-hand how mineral owners were taken advantage of. Even if you do not hire us, you should work with an expert that makes it very clear at the beginning how their fee structure works so that you know whether they are the right person to hire for your lease negotiations.

For more information about the services we offer at Hilltop Royalties, visit our website at www.hilltoproyalties.com or visit our Facebook page at facebook.com/HilltopRoyalties