As the price of oil creeps back up, the pace of oil and gas leasing has picked up as well. As a Texas oil and gas attorney, I regularly get calls from folks who ask me why they should go to the expense of having an attorney review their oil and gas lease. Here are the reasons I hear for not consulting an attorney, and my response to each, explaining why consulting an attorney is important:
1. “The landman told me that the lease was just a standard form”. Watch my lips on this one: there is no such thing as a standard oil and gas lease. The landman may have meant that the lease they offered was standard for that particular landman, or for the particular oil company the landman was representing. However, there is simply no such thing these days as a standard, industry-wide form.
2. “The lease did not look that complicated”. If you are not an oil and gas lawyer, do you really know what the terms in that lease mean? Do you know when words in the lease have one meaning in ordinary use and another meaning in the oil and gas industry? Even more important: do you know what’s missing?
3. “I’m getting the bonus and royalty I want, so why should I care about the fine print?” The truth is that what is in the body of the lease, in the “fine print”, can have a greater impact on your pocketbook in the long run than the amount of the bonus or royalty. In some cases, depending on the lease, the financial gains to you of a few changes in the lease can result in much greater compensation to you than what you receive in bonus and royalty!
4. “The lease said it had a term of only three years, and that’s not very long so I didn’t think what the lease said was that important”. Oil and gas leases have a “primary term” of between two to five years. The oil and gas company, with some exceptions depending on the exact language of the lease, must drill a well within that time that is capable of producing oil or gas in commercially paying quantities. If they do not, (again, subject to various exceptions and extensions used in some leases), then the lease expires. If they successfully drill a well within the primary term that is capable of producing oil or gas in commercially paying quantities, then the lease will go on for so long as the well produces in commercially paying quantities. That means that the term of that lease may go on past your lifetime. Since it is possible that the oil and gas lease you sign may go on for a long, long time, isn’t it just common sense to make sure that it’s a lease you can live with for that long?
5. “The landman was just so nice”. Yes, he was nice. It is his job to be nice. If he wasn’t nice, he would have been fired a long time ago. Secondly, whether the landman was nice or not, the landman’s legal allegiance is to the oil and gas company the landman represents, and not to you.
6. “It costs too much to see a lawyer”. There are many oil and gas attorneys in Texas whose fees are not only reasonable, but whose rates are a fraction of the amount of damage that can be done to your land because of an improper agreement. In addition, the attorneys fees are sometimes offset by the increased bonus payment as the result of a lease negotiated by an attorney. Finally, this lease may last your lifetime. Doesn’t it make sense to be sure you can live with it?
7. “The oil and gas company promised me everything I wanted, so I didn’t care if it was actually written in the oil and gas lease”. Unfortunately most (there are a few exceptions) verbal promises by the oil and gas company or its landman are not enforceable under Texas law.
8. “The landman told me I had to sign right away, or they would withdraw their offer and I wouldn’t get the money they were offering”. It usually takes a while to lease all the acreage that the oil and gas company is required to lease before they drill. There is rarely a situation where it is truly a case of “sign right now or no deal”.
9. “My mineral interest is so small, the oil company wouldn’t make any changes anyway”. It is certainly true that someone who owns many acres and owns 100% of their minerals will have more leverage with the oil company than someone who owns a small fractional interest in a few acres. However, sometimes even small interests count, when it is just those interests or acres that the oil company needs to make up its production unit. Secondly, many times owners of small interests, such as family members, go together and retain me to negotiate their lease, and together, they have more leverage than they did acting individually. In my office, the cost to review, evaluate and negotiate a lease is the same whether it’s for one family member of twenty. Finally, most oil and gas companies are reasonable, and are open to making reasonable changes even when your interest is small. The key is to have someone who is experienced and who knows what changes are appropriate to ask for given the size of your interest. Even small changes can make a big difference in the overall fairness of a lease.
10. “I want to negotiate my own lease and save the money I would have spent on an attorney.” Unless you have experience in negotiating an oil and gas lease, you are almost always not going to get the best deal for yourself. Landmen can spot an inexperienced person a mile away, and they are not going to cut you any slack! Remember, their loyalty is to the oil company, and not to you.
If you get an offer from an oil and gas company or its landman, simply smile and say: “Thank you. I will seriously consider this. I will send it to my attorney promptly and we will be in touch with you soon”. And then call your attorney!!