Signing an oil and gas lease can be very beneficial for property owners. People receive a stream of passive income that may not even require the actual extraction of mineral resources from their property.
It is crucial for property owners to look at the terms included in oil and gas leases carefully, as they might settle for less than they deserve. The lease could create challenges that could affect their quiet ownership of the property or even its value on the real estate market.
Typically, property owners want to perform a comprehensive review of lease documents with someone familiar with oil and gas law before signing anything. There are three terms, in particular, that can affect how beneficial an agreement is for a property owner.
Lease duration
Oil and gas leases often last longer than residential leases. Federal agencies tend to sign 10-year leases, for example. At first glance, a long-term lease may seem like the ideal solution. Instead of needing to meet with company representatives repeatedly, property owners can simply rely on a steady stream of income. However, the value of raw materials can shift dramatically from year to year. Those who sign long-term leases may eventually regret that decision because they have undervalued mineral rights. Striking a balance between ease of lease management and the ability to renegotiate the price set can be useful for homeowners considering an oil and gas lease.
Lease assignment rules
In some cases, a company that has an excellent reputation goes out into the community to negotiate oil and gas leases with individual property owners. They leverage their reputation as a means of securing as many leases as possible. They then negotiate an arrangement with another company and assign the lease to that other business. Property owners who don’t check the lease for language that may permit lease assignment may end up bound to do business with a company that they would prefer to avoid.
Property easements
Oil and gas leases often include provisions allowing the company to secure an easement. Easements may allow for the construction of a driveway or even access to water rights on the property. Easements can negatively affect property value because they can affect the attractiveness and quiet enjoyment of the property in some cases.
Those considering an oil and gas lease may need help evaluating the lease and negotiating terms that are favorable. Having support throughout the oil and gas leasing process can help property owners optimize their protection and the compensation they receive for leasing their mineral rights.