If you plan to lease your land for the purpose of oil extraction in California, there are several heavy considerations you must make before signing on the dotted line. Your contract with the oil and gas company should address those considerations. Though every case is unique, and though you should always consult with an attorney before signing over the rights to your property, PennState details several components that all oil and gas lease contracts should include.
According to the paper, you and your attorney should first determine the actual length of the lease. This may not be as cut-and-dry as you might think. Depending on the language of the contract, the length of the lease may be the primary term of the lease, which is typically five years, or it may extend into a secondary term so long as production is still active. If a secondary term is necessary, it is usually as long as the primary term.
You should also take a look at the incentives for leasing your land. Most gas and oil companies offer a bonus for signing the contract, but what payments you should expect beyond that depends on the language of the lease. Some companies may try to get away without having to pay rental fees, royalties or delay fees. You can maximize your profits by ensuring that the language of the lease includes ongoing payments.
Other conditions to which you should pay close attention are those regarding subsurface and surface rights. If you are not careful, you may unwittingly give the gas and oil company permission to use heavy equipment, underground explosives, oil rigs and other equipment to search for more minerals. If you do not want your land torn up, you may want to negotiate for more limited access.
Finally, you may want to reconsider the standard automatic renewal option and replace it with a right of first refusal. This gives you the option to deny a second term or, if you agree to a second term, renegotiate for better benefits.
The information in this post should not be construed as legal advice. It is for purely educational purposes.