Before you sign an oil and gas well lease…

Assume you are approached by a landman who wants to lease your 80 mineral acres.  As far as you know, your place has never been under lease, but you understand that your neighbor is receiving handsome checks since a well was drilled on his place.

That oil and gas lease will remain in full force so long as oil or gas is produced in paying quantities.  It is not unusual to see leases that are still effective even though they were signed many, many years ago.  So, you are negotiating a document that you, and maybe your kids and grandkids will live under.  Perhaps you should conduct (or more likely hire a professional to conduct) research before you sign that lease.

If I were in your shoes, here is what I would want to know:

  • What is the drilling activity in my area?
  • What is the volume of oil and gas from any producing wells in my area?
  • Have there been any oil and gas leases or assignment of oil and gas leases in my area lately?
  • Is the operator currently engaged in any lawsuits?
  • What terms did my neighbor receive on his lease?
  • Besides the royalty and bonus, what other items should I negotiate?

The oil and gas industry is heavily regulated.  The good part about the regulation is that the Oklahoma Corporation Commission, Oklahoma Tax Commission, County Clerk, and Court Clerk will have many of the records you seek.

With research you may discover, as I did recently, that a large operator (a different operator than approached you) is actively leasing near your place.   Wouldn’t it be nice to have two separate operators attempting to lease your place?

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On August 27, 2013, Gary Quinnett presented a legal seminar on commercial real estate issues. The attendees rated him "Excellent"