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What not to do during mineral lease negotiation

If you are a California landowner, signing a oil and gas lease can be a profitable proposition. However, the negotiation process can be complex and time-consuming. Typically, the proposal to you favors the producer. At Ehrlich, Pledger Law, LLP, we have the expertise and experience needed in negotiating and preparing the lease documents.

According to MineralWise, one of the most important things not to do is show your enthusiasm to the leasing agent. An emotional response often signals you are ready to sign whatever documents they supply. In doing so, you may not get the best terms and miss out on a great deal of potential upside.

Although economic considerations are often atop the priority list, they are not the only aspects that require your attention. The terms related to surface usage can be critical. Make sure you read and understand the implications in the agreement. Everything is negotiable, so do not be afraid to address your concerns.

Depending on the situation, a single lease sent by the leasing agent may encompass the rights for several non-contiguous tracts of land. As the lease is typically signed for many years and development is a dynamic process, it is in your best interest to separate the tracts into separate agreements. This can reduce or eliminate issues that crop up later regarding whether the tract is held by production from another tract.

Additional tips include the following:

  • Do not respond that you are not interested. This could result in being force pooled.
  • Delete the warranty clause, especially if there are concerns regarding the property’s chain of title.
  • Do not spend the money before the lease check clears the bank.
  • Do not make absolute statements, such as naming an acceptable minimum dollar amount per acre. It may minimize your negotiating position.

The proposal package from the leasing agent often contains bank drafts, leases and ratification. These documents are legally binding. Do not sign them until the discussions and negotiations have concluded. Visit our webpage for more information on this topic.

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