Questions for Skip Peel and Les B.

Skip,

I have followed your posts through this website since I have land in Caddo Parrish.  I am hoping you can give me some advice.  I also have land in Walker County located in southeast Texas.  I was contacted by a landman yesterday wanting to lease my property there for $50 acre and 1/6 royalty on a 3 year lease with a 2 year option.  Obviously, this is not anything like what is being offered by oil companies in Louisiana, but my dad leased this property 20 years ago for $100 so I am thinking $50 is not appropriate.  Today the same landman came back and offered no bonus on a one year lease with 1/5 royalty.  I know you are probably not familiar with the area, but can you give me any advice.

 

Thanks!

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Permalink Reply by Mary Wood on February 8, 2010 at 16:54
It has not been an active county and I have only recently seen wells starting to be drilled in surrounding areas. I appreciate your assistance. People on this site have responded with a lot of information that I would not have known how to get otherwise. I am just learning about how things work. I will check out the website and see what comes up.

Thanks to everyone!
Permalink Reply by Mac Davis on February 9, 2010 at 14:07
Don't be in a hurry. If there's gas in the area, you'll probably get a better offer later. If not, you've lost $50 per acre.

How many acres? Is $50 an acre enough to be worth bothering with anyway?
Permalink Reply by Skip Peel - Mineral Consultant on February 9, 2010 at 14:17
Right on, Mac. I suggest the following: State up front the lease terms you require ( no cost quarter royalty, horizontal and vertical Pugh clauses, etc.) then say, "I'll take that $50 bonus for a 6 month lease term". "I'll even accept a $150 bonus for a twelve month lease. Or $500 for a twenty four month lease term. I don't sign leases for more than a three year initial term and that'll cost you $1000." If an individual or company is out speculating, as opposed to actually planning a drilling program, they want a royalty less than a quarter (they'll assign the lease later for a quarter and take the differential) and as long a lease term as they can get including a dirt cheap extension bonus because, since they are not drilling, they may have to hold that lease for a long time before they can sell it.
Permalink Reply by Mary Wood on February 10, 2010 at 5:01
It is 202 acres. I got a Producers 88 lease in the mail yesterday. No bonus/1/5 royalty; 12 months in duration. I need to read it in detail. I am thinking I might need to consult an oil and gas atty.
Permalink Reply by Mac Davis on February 10, 2010 at 14:37
Get a lawyer to at least to an initial consultation about the deal.

Don't give the lawyer a blank check. Be sure you know what he will charge you (per hour, percentage, etc.) and put a cap on the amount of money he can charge you without additional approval.

I'm not an "always get a lawyer" guy, but 202 acres is way above the "always get a lawyer" threshold.

Be sure to delete all the BS terms in the lease agreement. It will be written with a lot of terms to shaft you. No surface rights, you're not responsible to defend the mineral rights, no pipeline rights, etc. You might have to give surface rights, etc. for such a large tract, but get extra money for that, and specify what and where.

There's a thread somewhere that discusses terms to not accept in a lease.
Permalink Reply by Skip Peel - Mineral Consultant on February 10, 2010 at 14:52
NO PERCENTAGE. Experienced, reputable O&G attorneys charge by the HOUR. It may sound expensive but it is not. The saying, "pennywise and pound foolish" comes to mind.
Permalink Reply by Mac Davis on February 10, 2010 at 15:19
Good info, Skip.

Do find out what the lawyer fees are ahead of time. Be sure your lawyer isn't scamming you, and you know what it will cost. Unfortunately, there are lawyers who will scam their clients on fees.

Even if the minerals only pay off $1000 per acre over your lifetime, that's $202,000. You ought to be able to get an initial consultation from any lawyer for a small percentage of that. Mineral rights could easily pay off many times more than $1000 per acre.
Permalink Reply by Skip Peel - Mineral Consultant on February 10, 2010 at 15:27
Mac. From my experience, the majority of lawyers who wish to provide legal services for a percentage are Not O&G Lawyers. They practice in other fields of law but can not stand missing out on the obvious opportunities to pose as O&G attorneys. They think they can ask a few friends for advise and buy a copy of the Louisiana Mineral Code and wing it. There are way too many around and I have seen them rake in big bucks while making the kind of mistakes that a rookie O&G attorney wouldn't make. The kind of inexcusable mistakes that cost mineral owners big bucks. No practicing attorney, no matter how intelligent can make themselves into a competent O&G attorney in a few months or a few years.
Permalink Reply by Mac Davis on February 10, 2010 at 16:02
You mean they can't just read Louisiana Oil and Gas Law for Dummies?
Permalink Reply by sesport on February 10, 2010 at 16:03
I think in that second post Mac means the retainer/hourly rate will amount to a small percentage of the bonus and/ or royalty $$$ in total eventually received. In other words, the minerals will pay for themselves if one retains highly qualified counsel.

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Permalink Reply by Mac Davis on February 10, 2010 at 16:13
Correct. "Small percentage" means I think the cost of an initial consultation at hourly rates will be a small fraction of the potential value of the mineral rights on 202 acres.

I accept the advice that you should not pay a lawyer a percentage on a run of the mill mineral lease consultation.
Permalink Reply by Skip Peel - Mineral Consultant on February 10, 2010 at 16:18
Percentage or contingency agreements with an attorney are fine for a law suit. Not for negotiating or reviewing a mineral lease. Even one that is not run of the mill.

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