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OIL AND GAS LEASE NEGOTIATION

Before exploration can begin, however, the mineral owner (lessor) and the oil company (lessee) must agree to certain terms regarding the rights, privileges and obligations of the respective arties during the exploration and possible production stages. The negotiation of these terms may be the mineral owner’s first exposure to an oil and gas lease.

An oil and gas lease is a legal document that binds a mineral rights landowner. There is nothing simple about negotiating an oil and gas lease.

Here are some checklist for negotiating an oil and gas lease.

1. Check out the lessee.

Some leases are acquired in the name of landmen or agents for the true lessee. Insist on knowing the identity of the company acquiring the lease, and that the ultimate lessee be the named lessee in the lease. Inquire about the experience of the company in the area. Learn to use website to investigate operator history. Ask other landowners who have dealt with the company. If the company is small and/or owned by one person, consider asking the principal for a guaranty of the lease.

2. Agree on Deal Terms First.

The "deal terms" of a lease are typically: bonus, primary term, delay rental (if any) shut-in royalty.

Reach agreement on these terms before negotiating the form of lease.

Additional "deal" terms may include:

- an option to extend the lease primary term,

- a commitment to drill a well during the primary term, or pay an

- agreed amount as liquidated damages.

- a promise to pool lands into a unit for a well to be drilled,

- an increased royalty after "payout" of a well,

- a minimum annual royalty.

3. The Lease Form.

Once "deal terms" are agreed, decide whose lease form to start with in negotiations.

4. Negotiate.

Remember: all lease terms are negotiable. The landman acquiring the lease may not have authority to negotiate those terms, but someone does. Don't be timid.

5. Bargaining Position

Your bargaining power in negotiating lease terms depends on

- the size of your tract and what minerals you own in the tract;

- the proximity of your tract to known production;

- whether multiple companies are competing to acquire leases in your area;

-- "going rates" for bonus and royalty in your area.

Often an oil company will designate an area in which it wants to acquire leases, and hires a landman to get as many leases in that area as he can at a set bonus and royalty rate. Once the company has acquired all leases it can at those rates, it may then be willing to negotiate better terms for the owners in the area who have held out for higher rates. Never be bashful about negotiating bonus and royalty rates – it never hurts to ask.

6. The Royalty Clause

Prohibit or limit deductons of post-production costs – transportation, dehydration, compression, treating and marketing costs.

Address the sale of production to affiliates of the lessee. If there is an affiliate sale, the royalty should be based on the higher of gross proceeds or market value at the point of sale.



Detail the time, place and frequency of payment of royalties.

Provide for interest on royalties not paid when due, at an above-market interest rate.

Include the right to terminate the lease for failure to pay royalties, after a period of written notice and opportunity to cure.

Include a security interest provision to secure payment of royalties.

Provide for the right to inspect, copy and audit books and records to assure correct royalty payment.

Consider a minimum annual royalty clause.

9. Define "Operations."

Clearly define what is necessary to constitute drilling operations, and when drilling operations are completed.

Define what "operations" will maintain the lease in effect beyond the primary term absent actual production.

(from: http://www.google.ru/url?sa=t&source=web&cd=2&ved=0CBwQFjAB&url=http%3A%2F%2Frecenter.tamu.edu%2Fpdf%2F229.pdf&rct=j&q=OIL AND GAS LEASE NEGOTIATION)

 

 

LISTENING

4.1 You are going to listen to the text Why Parties Refuse To Negotiate. Imagine that you have already good experience in negotiating. Write down at least 5 arguments. Compare them with your partner.]


Date: 2015-12-11; view: 1106


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CONDITIONS FOR NEGOTIATION | Work in group and decide how good negotiator you are and who is the best negotiator in your group.
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