How can I tell if my mineral lease is dead and I can sign a new lease?
It is important to understand the terms of your mineral lease and make sure the operator isn’t bending the rules, so to speak, and trying to claim that your lease is still active. Since lease agreements generally require a producing well to hold the lease, the most important thing you can do is make sure that wells are producing on your property. If you stop receiving royalty payments from the operator, go onto LandGate’s website and follow these steps:
Locate your parcel on our map
Generate your free property report
If the wells have not been produced for a year or more, it is very likely that the mineral lease is no longer held by production and is now expired
Communicate with the operator and make sure the operator releases the lease back to you
Unfortunately, not all operators respond or ‘play nice’ when it comes to these contracts. Hiring an attorney is costly. The longer it takes to resolve the issue, the happier the attorney will be. As an alternative, you can sell your minerals and receive money for your assets while avoiding the headache of dealing with a non-responsive operator. There is no obligation to sell, so listing your minerals on LandGate’s platform provides you with options to make the best decision.
What can I do if my mineral lease is dead but the operator is not releasing it?
Operators tend to look for any loophole, or offer vague arguments, to try and claim that a lease is still valid, even if a clear reading of the lease agreement shows that is not the case. If you have contacted the operator and the operator does not want to release the lease, which is all too common, you are in a difficult position of either exposing yourself to costly legal counsel, or choosing to sell your minerals. The benefit to selling your minerals is that you can get out of the battle with the operator and cash in on the value of your property with no out-of-pocket expenses.
Oil and Gas Lease Amendment: What Do I Do?
An amendment to an oil and gas lease is a legal document that modifies or updates the terms of the original lease agreement between the landowner and the oil and gas company. This amendment can address various issues, such as changes to the lease duration, royalty rates, drilling locations, and the terms of the lease renewal. If a landowner receives an amendment to an oil and gas lease, they should carefully review the document to understand the proposed changes and their implications. It is advisable to seek legal counsel to ensure that the landowner's interests are protected and that they fully understand the potential impact of the changes. If the landowner agrees to the proposed amendment, they would need to sign the document and return it to the oil and gas company. If the landowner does not agree to the proposed changes, they may negotiate with the company to come up with a mutually acceptable agreement or choose to terminate the lease. However, terminating the lease may have financial and legal consequences, so it is essential to consult with a qualified attorney before taking any action.
Why is the well on my lease producing only very little a year?
One tactic that operators deploy to try and hold a lease is to produce a well for one day out of the month (or sometimes less often), so that they can report production while minimizing their costs. It is important to review the terms of your lease to make sure the operator is meeting their production requirements. If you suspect that the operator is not meeting their required production levels, it may be a costly legal fight to try and get the operator to release the lease. If you sell your minerals, you can avoid the back and forth with the operator and cash in on the value of your property with no out-of-pocket expenses.
The operator says they will drill a well soon on my lease. How can I tell if this is true?
The process of drilling a well starts with the operator filing a permit with the state. The well is permitted, then spud (drilled), and finally completed and produced. The well status can be found on LandGate’s map for free. Simply locate your parcel, make sure the well layers display permits and drilled wells, and see if there are any permits or wells on your property. You can click on the permit to view the production start date. The production start date is LandGate’s estimated date of when that permit will be drilled and completed. LandGate uses an algorithm that considers the number of rigs the operator is running in the basin, the number of wells the operator can drill, and the frequency of completions by the operator, all to determine an estimated start date. If you do not see any permits on your property, it is unlikely that the operator will drill a well on your property within 1-2 years. If the start date on a permit is 1-2 years in the future, the operator will not likely drill the well any sooner. The key is to make sure that the operator isn’t making empty promises. If they are, it may be in your best interest to sell rather than trying to fight the operator. Mineral owners can list their minerals for sale for free on LandGate's marketplace.
What is a Pugh Clause and how can it help me in a mineral lease?
A Pugh Clause in an oil and gas lease agreement limits the holdings of non-producing tracts of land after the primary term of the lease. It’s a good thing for a mineral owner to add to the lease because an operator will likely write language in the lease that will allow a small well producing very little to hold the lease forever. A Pugh Clause will make it easier for a mineral owner to have the lease released and to get a new lease with a new lease bonus. A Pugh Clause in the lease will also incentivize the operator to drill more wells to keep the lease active, hence it will likely generate more royalties for the mineral owner. Additional information on mineral lease provisions can be found here.
If I own only the mineral rights, do I have any rights to the surface?
There are many differences between surface rights and mineral rights. Every state has unique mineral rights laws, so it's best to check the law as it applies to surface use by a mineral owner in your state. With that said, the mineral owner has a right to reasonably use the surface to extract the minerals on the property. The mineral owner or the operator leasing the minerals, and surface owner, will enter into a voluntary agreement called a surface use agreement. The surface use agreement (SUA) dictates how the operator may use the surface to drill for oil & gas. Generally speaking, all parties want to maintain a positive and professional relationship. The surface owner will want the operator to prevent spills, maintain equipment, and protect certain natural elements of the land. On the other hand, the operator will want to make sure to have access to roads, easements, and drill sites.
How do I understand complicated terms in my lease agreement, PSA, or other legal documents?
Some common terms include:
A lease bonus is a one-time payment made to the mineral owner at the time the oil & gas lease is signed. The amount of the bonus is determined in negotiations between the Mineral Owner (lessor) and the lessee and is usually calculated on a per acre basis.
Royalty interest is the portion of the net revenue interest (NRI) kept by a mineral owner (Lessor) when he/she leases the exploitation of his/her minerals to an Operator (Lessee). Upon the sale of oil & gas by the operator, a mineral owner will receive their proportionate share of royalty payments based on the royalty interest they own.
The share ownership as it relates to the cost of drilling and extraction of oil & gas.
Surface Use Agreement
An agreement between the mineral and surface owner which dictates the use of the surface for oil & gas development and exploration.
A Pugh Clause in a lease agreement limits the holdings of the operator from non-producing tracts of land after the primary term of the lease. The pugh clause can provide additional limitations on the operator such as depths below a certain zone.
Held By Production. A provision in the lease agreement that allows the lessee to continue operating activities on the tract of land as long as it is producing a defined amount of oil or gas.
Prior to closing on the purchase, a buyer or lessee may choose to verify title or additional assumptions that went into the accepted offer or sale agreement.
Authorization For Expenditure. An operator will distribute an AFE to its working interest partners with estimated drilling or completion costs for approval.
How can I lease or sell my minerals?
Sometimes, mineral owners receive unsolicited offers in the mail from interested developers or buyers. To be more proactive, mineral owners can list their mineral rights for lease or for sale on LandGate's competitive marketplace for free. Generate your free property report below to get started: