How to make a deal with an oil company?

Looking at your other posts, I note that you are likely located in an area in Ohio where the Utica is the primary exploration target.

The way I see things, leasing really has two essential components: the up front

signing bonus and the potential royalties.

In exchange for the up front signing bonus you are agreeing to sell the rights to 79%-87.5% of the value of the O&G under your property (percentage depending upon the royalty rate you negotiate) – all contingent on the drilling of well(s).

The royalties essentially pay you for the remaining 12.5-21% of the O&G you retained – payment made over the production life of the well(s).

You wish to negotiate a lease which will maximize both the up front signing bonus and the potential royalties.

My thoughts/suggestions would be as follows:

There are many entities which lease up blocks of acreage and then “flip” that acreage to the “big boys” who have the “deep pockets” required to drill and produce. It is my opinion that these “middlemen” are best avoided; try to find out which “big boys” are interested in your geographical area – try to get in contact with them.

Try to determine which companies are actively permitting and drilling wells in your area. Try to find out who are leasing in your township.

The up front bonus payment is the “teaser”, ideally you want to deal with someone who are prepared to drill (sooner, rather than later).

Use resources (such as this site) to find out which companies have the best reputation for keeping their promises. A complication arises in that the “big boys” have been buying out smaller companies and may be operating under the old names of theses former companies (now subsidiaries of the “big boys”).

Examples: Chevron bought Atlas (so Atlas is Chevron); likewise, Marathon bought out a smaller company, Shell bought out a smaller company, Consol bought out a Dominion’s acreage.

The lease you will initially be presented with is a lease prepared by the company’s lawyers; it will almost certainly contain clauses that you should wish to alter or delete. And, it is likely that there are clauses which you will wish to have incorporated in the lease.

To protect your interests, you truly need to consult with an Attorney in your County that has O&G experience (very important that they have O&G experience).

You are entering into a contract that could potentially be in force for generations.

Verbal communications/promises/assurances from a landman are meaningless unless and until they are in writing. Most landmen are ethical, but not all are – and the landman’s boss may not be prepared to honor the landman’s promises.

I would suggest that you might benefit from finding some quiet time to go over the many thousands of posts in the more that 1000 Discussions, taking notes of what you consider important/valuable. There is a wealth of information/knowledge that you can glean from the experiences (good and bad) of others.

Good Luck.

Please keep us posted, so that we can learn from your experiences.

All in my humble opinion.

One size fits most.

Consider this information worth every penny you paid for it.

JS

I am in a similar situation with 2000 acres and have been working with both aggregators and E&P's directly I'd be glad to share information with you. Give me a call 216-533-2190 or e-mail rgrodin@gmail.com.