Oil, Gas and Mineral Lease Review

What is an Oil, Gas and Mineral Lease?

If someone solicits you to sign an oil, gas and mineral lease, congratulations you probably own some minerals in Texas.

In Texas, ownership of the surface of land may be severed from ownership of that which lies below the surface.  For example, say you own a home in a subdivision located within Harris County.  More than likely, someone else owns the rights to all of the oil, gas, and minerals situated below your home and swing set.  This in turn means that if oil, natural gas, or some other mineral is discovered in the area below your home, someone else will be entitled to collect the monies associated with the extraction and production of the oil, natural gas, or other mineral.

What are some common concerns with negotiating an Oil, Gas and Mineral Lease?

But you may have to endure the hassles (and noise) associated with oil, gas, and mineral exploration, production, and transportation.  Don’t ever assume that you won’t have to worry about someone drilling an oil well in your backyard.  There are many areas in and around Houston that either are or were formerly sites of mineral exploration and production. Many subdivision developers failed to secure proper waivers of surface rights from the mineral owners. And that means that your property could be at risk.

I once read a newspaper article in December 2007 from a Tomball, Texas newspaper that recounted the woes of a homeowner who lived within the city limits of Tomball, Texas.  As I recall, an oil well that had been capped and dormant for 43 years (and was located between the home and detached garage) suddenly became "not dormant."  A company that owned the production rights to the well exercised its rights to begin production, much to the consternation of the homeowner who had no legal footings to stop the re-opening of an oil well in their driveway.

Obviously the case described above is extreme and rare, but if it happens to you, it will be a nightmare.

But if you are in the driver’s seat (for example you own both the surface of the land and the minerals located beneath the surface), you may negotiate many covenants to protect the surface of your property. Beware of statements such as "it is a standard contract" or "it is a standard producer’s 88 contract"!  There is absolutely no standard oil, gas and mineral lease form in Texas, period.  Those words or phrases may appear at the top of the contract only because the lessee instructed the printer to print them there or they appear in the word processing form file of the lessee.  There are as many oil, gas and mineral lease contracts as there are oil and gas exploration companies operating in the southwestern United States.

Oil, gas and mineral leases most often leave out many provisions which can protect the surface estate.  While certain portions of this type of lease are not easily changed, many other provisions may be fairly revised after negotiation.

I assist clients in reviewing, interpreting, modifying, and negotiating the content of oil, gas and mineral leases.