Pushing for better terms in an oil or gas lease on your land

Posted by iLawyer on Apr 27th, 2020 Eminent Domain, Firm News

When you own acreage in Texas, unless you actively farm the land or raise cattle, it may be little more than extra space for you to walk on or what you perceive as a long-term investment. However, some people have the ability to capitalize on land that they would otherwise not use by signing an oil or gas lease with a company.

Businesses need natural resources to extract in order to maintain their supply chain for fossil fuels. Although the larger reserves of oil and gas may get bought up by companies, there are also many smaller deposits scattered across the countryside. By securing a lease, the company in question has the right to install a well and extract oil or gas from your property. You receive compensation in return for allowing them that option. Before you sign the first contract presented to you, be sure to check the terms and negotiate for what will benefit you the most.

Warranted mineral titles are worth more but carry more risk

If there has already been successful drilling or extraction on your property, that puts you in a better position than someone who doesn’t know if there is oil or gas present under their acreage.

Whether through previous contracts or professional analysis, if you can demonstrate that there are resources on your land, that will make your property more desirable to oil and gas companies. You may be able to negotiate more significant compensation or a shorter term for the lease, which will allow you to seek increasing compensation in the future.

Still, no matter how successful drilling has been previously, it can be risky to warrant your mineral title, as that could mean you lose your payment if the company doesn’t extract enough from your land.

You should get more compensation if you make more concessions

The terms of the contract should benefit both parties, and the unique circumstances involving your property and the company that you negotiate with will determine what matters most to each of you.

The more you let the company do, the more they should compensate you. For example, how much inconvenience will the company bringing machinery onto your property cause you? If they do drill, is the site close enough to your home or ranch to impact your use of the land? Do you want to grant them an easement or permit them to use your driveway?

The answers to these questions and more will influence how much the lease is worth to you and how much the company will pay for it.