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Permalink Reply by Paul on July 8, 2008 at 10:29

http://www.glossary.oilfield.slb.com/Display.cfm?Term=top%20lease

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Permalink Reply by Jaybird on July 8, 2008 at 10:33

Thank you for the information. That helps me understand it completely.

Jaybird

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Permalink Reply by Bacon on July 8, 2008 at 10:49

top lease
1. n. [Oil and Gas Business] ID: 11465

An oil and gas lease wherein the bonus consideration is paid at the signing of the lease. However, this lease becomes effective only after the expiration or termination of an existing lease on the tract of land

So if it's paid at the signing of the lease, does it get repaid if the present leaseholder ends up holding the property with production?

Are these generally offered close (a few months) to the end of the lease? Thanks.

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Permalink Reply by Jaybird on July 8, 2008 at 11:05

Our current lease expires in 11 days and I was curious because I received a phone call from another company. He said we could sign a Top Lease and that is why I asked about it.

I am sure you would have to give it back if that happpened.

I think you would anyway.

Jaybird

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Permalink Reply by Paul on July 8, 2008 at 10:56

I believe a portion of the lease bonus (in my case 25%) is offered up front with the intent to lease the rights IF it becomes available. If not, then you still keep the 25%, but would not recieve the remaining amount of the bonus.

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Permalink Reply by Randy on July 8, 2008 at 11:25

I would ask for the full amount and try to negotiate a no warranty clause that would not require me to return the bonus should it not work.

Also bear in mind that many leases require you to give the current lessee notice if you intend to lease it out from under them and give them first right of refusal to pay the other companies offer.

Randy

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Permalink Reply by Jaybird on July 8, 2008 at 11:36

I agree with you Randy on notifying the current Lessee to give them first right of rufusal....that only can help you in the negotiation process plus it lets your current lessee know that your an honest person with good intentions for your land and your families interests.

I could not accept the money from the second lessee if they did not get the lease to our minerals...that's just not right and makes you seem greedy and I could not sleep at night if I did that to a company.

My mom brought me up that way....oh well! :o)

Jaybird

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Permalink Reply by Paul on July 9, 2008 at 11:18

I apologize if my explanation appeared to reflect greed. I was trained as well to avoid greed. I was merely explaing the offer that was made. I have not accepted the top lease and my current lessee is well aware of the fact that I'm examining the market.

Your comments ellicit an interesting question...If you feel that one should return the 25% bonus portion for the top lease if the lease does not go through, does that mean that you would also refund your lease bonus to the drilling company if they could not successfully extract minerals from your land?

I guess the real question should be: Does the top lease lessee expect the money back if the lease should not go through? If so, it would be wrong to keep it.

I see it being similar to the situation wherein a person is selling their vehicle and someone puts down $100 for you to hold the car. If the person waits a month (in the meantime you've had several offers, but you don't sell the car because of the $100 hold) and then decides to buy another car, should you refund the $100. No, the $100 was a good faith offer to hold the car and is given with the understanding that if the buyer doesn't follow through, he loses his deposit.

The percentage given up front on a top lease is for the purpose of reserving first rights to a lease as soon as it is available. This means that the lessor gives up his right to shop for a lessee IF it becomes available at the end of his term. The percentage payment is for giving up that right. Neither the top lease lessee nor the lessor has control over whether the lease will actually expire at the end of the term (this actually would depend upon if the current lessee started a well on the unit or not before the lease expired).

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Permalink Reply by Jaybird on July 10, 2008 at 4:13

Paul, when I typed "it makes you seem greedy" I was talking about how I felt. I apologize if I offended you. I was not in no way ,shape or form directing that sentence towrds you.

Sometimes when people exchange information through email we don't get to hear how the sentence is phrased...which is why I prefer the telephone! But this is a great way to get information out to all!

Again I do apologize to you.

Jaybird

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Permalink Reply by Paul on July 11, 2008 at 10:57

No problem.

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