Oil and Gas Leasing and Mineral Sales
Oil and gas law has been a cornerstone of our firm’s practice since its founding. We have substantial experience in negotiating both oil and gas leases and mineral sales. Both of these areas are highly sensitive and complex transactions. Without help, there is ample opportunity for landowners to be at a dangerous disadvantage in negotiations. Drillers frequently seek to exploit landowners by omitting key protective terms. They regularly include deceptive terms that seem innocent to a layperson, but could eliminate or severely reduce your royalty payments.
There are several dozen key clauses that our firm uses to negotiate our oil and gas leases. Most addendums from oil and gas companies include only a small fraction of these terms. Worse, the protective language provided by oil and gas companies is often intentionally defective.
Examples to Watch For
Defective or Obscure Terms
Drillers will frequently present wording in the lease which they claim restricts the deduction of post-production costs. But in actuality, the wording is intentionally flawed. One version of a flawed provision we commonly see restricts all post-production costs, “except for those incurred by unaffiliated third parties”. This wording would effectively neuter any protection for the landowner. Upon receiving their royalty statements, the landowner might find that they just bargained away 50-100% off their royalty checks.
Other wording issues can be significantly more difficult for landowners to spot. Some may even require detailed knowledge of case law in your particular state. For example, the term “paying quantities” determines how long an oil and gas leases stay in effect. However the meaning of the word can change from state to state, and change over time.
Arms Length Sales and Audit Clause
One example of an important term is an arms-length sale clause. This term prevents the abusive use of shell companies to defraud landowners of their royalties. This clause prevents the driller from selling your oil and gas to a shell company for pennies on the dollar, paying out royalties to their landowners based on this discounted price, and then selling the oil and gas for its true value and pocketing the difference.
Another example is the audit clause. This clause allows review of the financial records for the producer, in order to prevent fraudulent reductions to your royalty.
Protecting Real Estate Values
There are also numerous terms that can be used to protect your home, your water supply, and the surface of your land. Protecting your real estate is a major consideration. If your lease fails to protect your water from the risk of contamination, there could be little or no recourse if heavy metals and carcinogens used in the fracking process migrate into your well water. The damage to your real estate could outweigh any potential benefit from the royalties.
In any dealings with these landmen, it is important to be extremely cautious in your approach. Landmen are trained to be highly sophisticated, persuasive, and effective in producing the best possible results for their clients. They may attempt to pressure you with false or artificial deadlines, such as referencing upcoming force pooling hearings. Their job is to persuade you to quickly sign a lease or sales contract at an unfair price, with little or no protection from abuse.
Title Research and Curative
We also have significant experience addressing title issues and title research. In 2012, we began working with both landowners and producers to provide title reports. We also took responsibility for reviewing, training, and supervising the work of teams of abstractors. Our firm has reviewed thousands of oil and gas leases and routinely researched hundreds of chains of title running back as early as the 18th century. Our abstractors have conducted research at many levels of detail, including certified title, takeoff, due diligence, genealogical heirship, and corporate leasehold title. We took point on some incredibly complex projects, including badly fractionalized heirships, multi-layered depth severance assignments, and identifying multiple past mineral reservations spread across a large tract assembled from dozens of smaller parcels.
When necessary, we have assisted landowners with curative actions based upon the findings of our research. This includes filings such as affidavits of abandonment, affidavits of preservation, releases, probate administration and ancillary probates. We have also successfully pursued quiet title actions and oil and gas litigation.
We are currently active in Harrison County, Monroe County, Carroll County, Noble County, Guernsey County, Columbiana County, Jefferson County, and many other counties throughout the Utica and Marcellus shale.
If you have questions about oil and gas ownership we would be happy to set up a meeting with an experienced oil and gas lawyer to assess your situation and determine a plan of action. Our blog also contains additional, important information for landowners on oil and gas issues.