Lease Petroleum Oil Gas Mineral Rights
If your property contains underground petroleum or natural gas reserves, you may either sell them or lease them to a company willing to extract them, while retaining the right to use the surface. Most property owners choose to grant leases in exchange for periodic royalty payments. Negotiating a mineral rights lease requires an understanding of certain issues that arise in the negotiation of almost any mineral rights lease.
Instructions
1. Hire a geologist to conduct a survey and estimate the value of the petroleum and natural gas underneath your property. You should not rely exclusively on estimates provided by an interested extraction company, because the extraction company will be adverse to you when negotiating the terms of any lease.
2. Contact local mineral rights extraction companies seeking offers to lease your mineral rights to them. Many of these companies will refer you to their mineral rights broker for negotiations. Mineral rights brokers typically handle more than one client, and they may not have the authority to conclude a lease agreement independently.
3. Determine the basis of your royalties. There are two main methods of calculation: a percentage of the economic value of the extracted minerals or a percentage of the volume of minerals extracted. The second method is less commonly used and is designed to hedge against anticipated future price volatility.
4. Negotiate royalties and a signing bonus. If your geologist estimated that you have plentiful reserves, it might be wise to accept a small signing bonus in exchange for higher royalties. If you choose the economic value calculation method, you should accept no less than 12.5 percent of the value of the extracted minerals (some property owners are able negotiate as much as 25 percent).
5. Negotiate a minimum monthly royalty payment. The purpose of establishing a minimum is to prevent the extraction company from "sitting on" its mineral rights (delaying their extraction efforts for various business reasons) and thereby depriving you of royalties.
6. Insert detailed rules governing the extent to which the extraction company is entitled disturb your use of the surface incident to its underground extraction activities. This is particularly important if you live on the property, because intrusive extraction activities could make living there unbearable.
7. Negotiate the term of the lease. If you have never worked with this extraction company before, you should sign a short lease (2 to 3 years), in order to find out how fast the company is able to extract the minerals, before you commit to a long-term lease.
8. Add a clause limiting the scope of the lease to petroleum and natural gas deposits (the term "minerals" is too broad because it could include everything from coal to gypsum).
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