Oil and gas prospectors in Texas frequently offer to lease land rights from landowners. Basic oil and gas land usage rights leases are broken down into a lease bonus and royalty payments. When negotiating a lease with company or individual prospector, it’s important to seek legal advice to ensure you’re protected and receiving fair compensation. Working with our oil and gas attorneys here at Woodall Batchelor PLLC can help walk you through the lease process and advise you on what changes may need to be made.
Oil and Gas Law: A Bonus Payment
In most lease agreements, a “bonus payment” refers to a one-time payment that you will get for allowing someone to prospect on your land. Basically, this bonus is like a signing bonus in sports or a hiring bonus at a new job. Most leases include a provision of additional payment if a lease is extended. The amount of this bonus for land use depends on whether there are producing oil wells near your land. A knowledgeable attorney will be able to gather information about producing wells in the area and help inform your decision.
The term of a contract dictates how long land use will be granted for. In most cases, the main term is covered by the bonus payment. Secondary terms, if land use continues, often has other payments built into the lease agreement.
Oil and Gas Law: A Royalty Payment
Royalty payments are payments to a property’s owner based on well production. If an oil and gas company is successful in producing sellable oil or gas from your property, leases will often lay out what percentage goes to you as landowner. Lease agreements can vary. Some agreements make payment in kind, which means the company gives you a fraction of actual oil and gas. The land owner is then responsible to either keep it or sell it. This is less common because not every land owner in Texas can sell oil and gas on the open market and get fair value for it.
Mostly commonly, though, royalties are paid in cash as a percentage of total production. If no oil is found, then in turn no royalties are paid. The royalty payment is a way for prospectors to limit risk and for landowners to participate in the wealth generated by a successful well. Their gain is also yours. Land owners need to know what the going rate for royalties are. This can be based on the price of oil and gas, the value of a property, and recent results from other exploration efforts in the area.
Interested in learning more about Oil and Gas Law?
Knowing how to properly structure a lease is key when negotiating land right use for property you own. The team at Woodall Batchelor PLLC has helped clients in Texas protect the value of their property and receive fair payment for oil and gas exploration. No one wants to be locked into a one-sided contract granting a company use to your land. Make the move to protect your assets by hiring an experienced oil and gas law firm to act as your advisor.