Mineral Title Analysis
An oil and gas lease is a legally binding contract for both parties involved. In most cases, a lease is set for a duration of 2-5 years should the energy company doesn't drill. Once a well is drilled and found economically viable, the lease continues in perpetuity so long as the wells within the lease are economically viable. If the well is just not viable, the lease expires after 2-5 years depending on the lease terms.
Terms of an oil and gas lease can be difficult to understand. There are many clauses and stipulations that must be addressed.
Entering in to a contract with a big oil company can be daunting especially whenever a binding contract is involved. For a smoother facilitation of establishing a contract, energy companies usually assign a landman to the initial negotiations between a mineral owner and their company. The landman is also accountable for performing the fundamental groundwork Valuation of Mineral and Leasehold Rights (please click the next page) determining the correct mineral right owners.
It's crucial that the mineral owner review the oil and gas lease in detail to ensure that the terms set forth are agreeable. If you will find items within the contract that are unsatisfactory to the mineral owner, it truly is necessary to negotiate terms with the landman that can be acceptable. Sometimes these terms are simply adjusted while other times the items are altered completely. There are actually even occasions when an agreement can not be reached by either party.
Mineral owners are highly encouraged to seek legal counsel when entering an oil and gas lease. Energy companies have entered into many oil and gas leases and also are very familiar with the process. On the other hand, a mineral owner might be completely not familiar with a lease and the negotiations essential to create a lease that is mutually beneficial. It's important to remember that occasionally a mineral owner may feel distrust or hostility after reviewing the lease or during the negotiation process. Again, It's highly encouraged for the mineral owner to retain a knowledgeable oil and gas lawyer to review the lease in order for the negotiation process to run more smoothly.
At the top, usually the right hand corner there's a date. This date is described as the date clause. It establishes the commencement date of the lease.
The names of both parties that are legally bound to the lease are in the very first paragraph. The lessor, who's the mineral rights owner, and the lessee, which will be the energy company.
A legal description of the land is outlined. So that both parties may establish the exact plot of land that can be bound by this agreement.
The duration of the primary term is mentioned in months. A clause which allows for a secondary term also can be added to a lease.
The royalty clause will likely be a lengthy paragraph. This clause states the percentage or share of production proceeds the leasor receives. How the royalty is received can also be mentioned inside this paragraph also.
A granting clause is included in all leases. The granting clause outlines the rights of the lessee as well as the property that's binding to the lease. The lessee's rights include drilling, delay rental, pooling, shut-in royalty, unitization and additional drilling clauses.
The lease also outlines the strategy which will be taken by the lessee if any such problems arise throughout the term of the lease like what happens when a dry hole is drilled in the primary terms. A damage clause is additionally included within the lease also.
Another essential clause in an oil and gas lease is an assignment clause. During the term of the lease if either party should choose to transfer ownership, the assignment clause outlines the stipulations that has to be met. This really is essential to the energy company, as many energy companies transfer ownership of their leases.
The force majeure clause touches upon their state and national laws which it is essential for any drilling rig to adhere to. They may be clearly outlined and give the Lessee freedom from non-performance which could possibly be implicated in the lease.
Like many standard contracts there is a warranty clause. A warranty clause presents the fact that the mineral owner guarantees their legal right to the land to the Lessee if she or he should later be discovered to not be the true legal mineral right owners.
