What Should Mineral Owners Know About an Oil & Gas Lease in Texas
Do you own mineral rights in Texas? What should you know about an oil & gas lease in Texas? If you’re contacted by someone representing an oilfield or natural gas company, you should talk to an experienced oil & gas attorney before your sign the lease.
We have several very experienced oil & gas attorneys at Wadler, Perches, Hundl & Kerlick. Call or text 800-929-1725 for an appointment at any of our offices in Wharton and El Campo in Wharton County, Fulshear and Richmond in Fort Bend County and Bay City in Matagorda County. You can also send us an email by using our contact form.
Question: I was recently contacted by an oilfield company representative regarding an Oil, Gas and Mineral Lease on my property. What do I need to know about the lease?
Answer: An oil and gas lease is essentially a contractual obligation between you and the oilfield company. One major misconception of an oil and gas lease is that in most situations, it is not a lease but is a conveyance of your mineral property for a term, the expiration of which is determined by the lease.
Generally, the first page or two of the lease will contain the following items that you should pay attention to. The provisions described here are only some of the key parts of a lease and there are likely many more in your lease, such as warranties, assignments, insurance, extension options, other royalties/payments, liabilities, venue, etc.
- The effective date tells you when the lease begins, when it expires, and calculates other dates under the lease.
- There will be a description of the purpose that the company plans to use your property for and the substances it covers, generally oil and gas and additional minerals such as sulphur.
- The acreage is key as it determines the amount of bonus money paid for signing the lease as well as royalty and other payments.
- The royalty section determines what you will be paid if there is production and is often the cause of lease negotiation.
- Another significant area is the term. There will be a primary term, usually a stated time period of years, and a secondary term, which is conditional. The term determines when your lease will expire. There may be other clauses too that alter the term or otherwise keep the lease from expiring.
In addition, there are many other areas you should take note of. Most leases will contain a pooling clause. The pooling clause will permit the company to combine your property with another person’s property for production requirements. Additional language such as a Pugh clause or acreage and depth provisions may be included, which will alter what can be pooled, joined with the pooling clause or elsewhere in the lease. An important topic that may or may not be included is surface use provisions. If you own minerals only, then the surface use may be unimportant to you. But, if you do own surface, then is an important part of your lease.
All together, the lease should include all of the company’s rights regarding your property and its use of your property. It is important that you speak to an oil and gas attorney for further explanation of your lease and your rights regarding it and your property.