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Step 1
Find out if there is oil and gas drilling activity in your area and be prepared before a landman visits you. Due to high oil and natural gas prices oil companies are constantly seeking new areas to drill wildcat wells in. First a seismic survey of the land will have to be done. (See How To Lease Your Land For A Seismic Survey).
If there has been a seismic survey of your land and an oil company believes that there is oil or natural gas underneath it you may be approached for a lease of your mineral rights. -
Step 2
Know your options. If you are the owner of the mineral rights you have some options when it comes to signing a formal mineral rights lease with the oil company. Those options include negotiating for "extras" such as the right to make water wells out of non productive wells that are drilled, the nature of roads that will be built, the kind of gates that will be built to gain access to the farm or ranch, etc.
Your attorney may recommend adding clauses to the contract that deal with future damage to your property and your compensation for loss of use for grazing or growing crops. -
Step 3
Negotiate a favorable royalty agreement. Of course the main part of the contract will deal with how much royalty you will get from producing wells. This can range from as much as 1/8 of the revenue to much less. You may choose to negotiate a contract for mineral rights that includes a larger up front payment for the lease with less of a percentage of oil revenue. If your gut feelings tell you that they will not find oil then you may choose to take a larger lump sum up front and less royalty payments later. This choice may also be determined by your individual financial needs. Always consult an attorney to help you negotiate royalty sharing.
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Step 4
Lease your land only to a certain depth to keep your options open for the future. You also have the option of leasing your land only down to a certain depth. For example if it is a small oil company with a small rig and they are only planning on drilling down to a depth of 5,000 feet you could lease the depth beyond that to another company if you were approached. Otherwise you have given up that right for a number of years to a company that does not planning on drilling that deep.
Remember that the ball is in your court and that you need to use a qualified oil and gas attorney to help negotiate the deal. It may cost you some of the upfront lease payment but you may save literally millions of dollars over the coming years. -
Step 5
Learn what will happen after you sign the lease and how your land will be affected in the future. If you have never had an oil well drilled on your land you should learn everything about the basics of the industry that you can. Visit your neighbors land where there are active oil or gas wells and ask him or her how things have been since they signed their lease. Visit your local library and read up on how wells are drilled, how pumpjacks and pipelines are installed and more. Knowledge is power. See the resources section of this article for sources of oil and gas drilling books and educate yourself before the negotiation begins.
Comments
bigballncowtown said
on 8/10/2009 Make sure you can collectively(attached neighbors)come up with at least 200 acres, then when unit gas gets to $10 cng unit or bbl is @ $90.00 call who you want and they will send a landman to lease your rights or they will find you.