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California Oil and Gas Law Blog

What are surface owner rights?

If you own a piece of land in Texas and someone wants to drill for oil on your land, you may get excited about the potential income that may bring. However, before you get too excited, you need to know the rights you have to the property. In some cases, you may only have surface owner rights, which means that oil drilling may not be quite so lucrative.

According to MineralWise, surface rights give you the ownership rights to only the land and not what is below the land, which is the mineral rights. In this state, because there is a lot of oil underground, it is very common for surface and mineral rights to be separate. If you only have surface rights, you may get some money for the use of your land and any damage done to your land to drill. However, you will not see income from any oil found unless you own the mineral rights.

What you should know before about a gas lease

If you have the potential to collaborate with other entities and participate in a gas lease, the opportunity may sound incredibly promising when you hear about the potential benefits. However, doing your research before agreeing to any type of contract is imperative to protecting your assets. At Ehrlich, Pledger Law, LLP, we have helped many land owners in California to understand more about their rights in preparation for signing a contract. 

Going into a potential contract deal in regards to a gas lease, you can never ask too many questions. Your vigilance and interest in finding out exactly what you are getting involved in may potentially be the difference in a successful agreement versus one that completely takes advantage of your assets. According to dojmt.gov, to begin, you should take your time to get to know the entity who is requesting a contract deal. Ask around about them and pay attention to what people are saying. 

Can effective contract negotiation prevent disputes?

You have been approached with the possibility of joining forces with another industry leader in California to arrange an oil and gas transaction that has the potential to become extremely successful. One of the first things you will be required to do is to form a contractual agreement that will detail which party will be responsible for which requirements and their subsequent outcome. Preventing contract disputes is something you must proactively be aware of in order to maintain a functional agreement. 

One of the best ways to prevent contention and misunderstanding from infiltrating your ability to operate with confidence and success is to take your time negotiating your contract from the very start of communications. According to Entrepreneur, you should maintain the mindset that articulating a contract is going to take a bit of time to accomplish. Break it down into sections and focus time on each aspect of the contract. A term sheet can give you direction as to which specific clauses you want and need to include in your content. 

Proposal aims to tighten restrictions on drilling procedures

While drilling natural resources in California can provide a variety of economic benefits, if regulations are not followed, it can pose an immediate threat to the environment, as well as the people and wildlife that live nearby. As such, regulations are put into place to protect the investment of the drillers, as well as the safety and well-being of people who reside near the drilling site. 

In Colorado, lawmakers are working hard to modify previously written agreements to tighten restrictions on various drilling procedures. They say that their underlying intention is to put a greater distance between drilling sites. Additionally, they hope to maintain a considerable distance between drilling sites and the people who live within that radius. While there has been interest and support for the suggested changes, both have failed to make any kind of voting ballot in recent years. Opponents voiced concern about how such restrictions would affect economic performance, as well as how it would impact the number of people who would potentially be jobless. A recent surge in activity has put Colorado at number seven for states with the largest presence of natural gas exploration. 

Learning how to negotiate can help you make a sale

Whenever you have the opportunity to explore a new area, you are going to have to create a plan for how you are going to get from considering your options to finalizing a sale. In many cases, you will be one of several interested contractors who are going to need to show the seller why you are the best fit for potential exploration. At Ehrlich Pledger Law, LLP, we have helped many companies in California with the legal side of natural resource exploration. 

While pitching and making an effective sale is a compilation of many different skills, one of the most important skills that you will need to have is negotiation. This skill allows you to discuss details with the seller in a manner that will allow you to create a deal that is beneficial to both parties, without compromising too much of what you desire. According to Forbes Magazine, in order to be able to negotiate effectively, you should remember the following:

  • Select a time and setting to make your pitch that is appropriate and strategic.
  • While using a persuasive tone of voice, avoid involving too much emotion.
  • Make sure you have your facts straight before making any false assumptions.
  • Know when to be silent and listen to the other side.

Oil and gas service providers may see positive growth

Oil company contract service providers in California and elsewhere in the United States have had to adjust their expectations for growth, and many now struggle in the market. Nasdaq points out that those who provide support to energy companies focused on exploration and production are apparently suffering from what may be long-term issues.

In order to compensate for low revenues during the oil slump in 2014, exploration and production companies began taking care of their own support services. While servicing contractors are still necessary, the initial losses continue in the form of reduced day rates, diminishing backlogs and forced efficiencies. Now, although energy explorers and producers do still make some capital investments, many have turned those investment funds inward to develop their own technology for maintaining in-house support services.

Understanding your contract and preventing disputes

You have recently discovered a promising opportunity to initiate a new oil exploration effort in California. This will require you to coordinate and implement a contractual agreement that will protect your rights, as well as the rights of the landowner and his or her property and assets. At Ehrlich Pledger Law, LLP, we have helped many people to secure beneficial contract agreements that provide protection and clarification. 

While you may be influenced by the promise of making considerable money once your contract is in place and exploration begins, it is imperative that you remember that securing a good contract is about more than negotiating significant financial agreements. According to geology.com, other important parts of the contract that you should read thoroughly, and verify that all parties understand the language of, include the following:

  • Property reservations where mining is not allowed.
  • Guidelines and agreements related to the protection of the owner's property, including buildings, livestock and roads.

Tips on negotiating an oil and gas lease

Oil and gas leases can be complex documents. Proper negotiation is crucial in this case to ensure a lease is legally binding but also reflects your best interests. MineralWeb.com offers the following tips in this case, which can help mineral owners in California protect their highly valued assets.

Be Conservative During Negotiations

Can your company benefit from a joint operating agreement?

As you are probably aware, the oil and gas industry can be a highly lucrative business to be involved in. As one of the many competitors in California, one of your biggest challenges will be to strategize and come up with creative ways to stay ahead of your competition. One of your options is to collaborate with other industry leaders to form a joint operating agreement. Understanding how this type of relationship functions is critical to pursuing an agreement that is rewarding, trustworthy and successful. 

According to Chron, a joint operating agreement is often decided when a certain project or end goal is in need of being completed. The agreement itself consists of a few important parts including the following:

  • Description of operations: This portion will discuss how you and the other parties have arranged responsibilities. Notes should be included to describe how certain components will be delegated and under what parameters goals will be accomplished. Examples of what you could include are hours of operation, drilling zones and approved drilling techniques. 
  • Financial interests: Under this section of the contract, you should clarify how financial interests will be protected in various circumstances such as dissolution or in scenarios where your agreement does not work out as planned. 
  • Rights and responsibilities: Chances are you and the other party both have desired outcomes to the agreement. This section allows you to determine what each other's rights are and what each of your responsibilities are in order to uphold a functional agreement. 

The number of oil exploration rigs is increasing in the U.S.

The exploration of oil and gas has played an integral role in establishing an impressive economy in the United States. Without access to these natural resource, everyday life would be significantly more complicated. What many people may not realize is that exploration efforts are still in full swing in California. With the discovery of new potential sites for rigging, an added benefit is created. 

Recently, the number of oil exploration rigs in the United States has increased. Two more rigs were added to the 1,060 already in operation. The highest number of rigs ever operating at one point was in 1981 when the reported number was a stunning 4,530 rigs. On the contrary, the industry was struggling to survive in 2016 when the number of functioning rigs was at 404. 

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