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Step 1
First, you do not need to accept the first offer presented to you by an Oil & Gas exploration company to lease your lands. Most companies use independent brokers (landman) to acquire mineral leases. These brokers usually do not have the authority to negotiate independently, they have to get approval for any counter-offers from their client. Do not accept the first offer, in most cases, the first offer is on low end of their authority and they have some room to negotiate. All lease terms are negotiable, don't be timid.
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Step 2
You bargaining power will depend on the following;
1. The amount of mineral acres you own.
2. The amount of nearby production.
3. If there are companies competing for leases. -
Step 3
You should first negotiate the following; the bonus amount for the lease, the share of royalties and the primary term of the lease. The bonus and royalties differ dramatically from region to region and is based primarily on the production history, potential of the area being leased and the competition. An average lease term should be about 3 years (do not agree to an extension option). Royalties vary widely depending on various factors, but for the most part the following should be a good guide;
12.5% - 16.67% = low end
16.67% - 18.75% = moderate
18.75% - 25% = high end -
Step 4
You should ask for the following terms.
1. Vertical Pugh Clause- releases all depths below deepest producing zone
2. Horizontal Pugh Clause- releases all land not included in unit.
3. Delete the Mother Hubbard Clause.
4. Limit the to lease to Oil and Gas only.
5. Delete the warranty of title. -
Step 5
The above items are pretty standard request and can be accommodated without any problems. Once the Oil company has acquired all of the leases they can at the initial rate and terms, they will start negotiating with the landowners who refused the initial offer. Don't be bashful when negotiating lease terms and bonus rates - it never hurts to ask.
