Question for John T

John T - I have been approached by an individual representing a small oil company that wants to drill for oil on my property. There have been some seismic investigations performed last year that indicated the possibility of oil in my area (west central Indiana), so I feel he is genuine. His company does have a couple of operating wells within 10 miles.

He has sent me a draft of an oil / gas lease agreement, and I am sure that it meaningful to someone like you, but to me, it needs to be rewritten in english. I know I should let an attorney look it over, but I need some guidance. What 'brand' of attorney is best to look the papers over, I know that there are different specialities, but which one would be most appropriate? What questions should I be asking this attorney, and also the oil representative? I don't feel I know enough about this subject to know what it is I don't know ( if that makes sense).

Thanks in advance, I really enjoy your down-to-earth responses.

There are attorneys who specialize in oil and gas leases and everything else relating to it. Dave

And that's exactly who you want. For specialized matters, always get someone in that specialty. He'll have seen many leases before, knows what to look for (and what to look OUT for)- and won't have to educate himself and reinvent the wheel at your expense.

Not a lot of shenanigans being done by the "big outfits" anymore- they have too deep of pockets to risk being nailed for fraud.

A company out of Michigan was in my area (west of Bloomington) 2 or 3 yrs ago hitting up everyone to sign over mineral rights. Wine and dined the larger property owners. They were going to use new methods of extracting oil from shale. When I had some issues with the contract wording (clean up, use of the property, etc) they stopped contact with me.

Haven't seen hide nor hair of them in the area in the last year or more. Not aware of any working wells in the area either.

You should be able to go to any local attorney and they could point you in the direction of someone who has experience in this type of thing.

I specialize in oil and gas leases and have been involved in a number lawsuits over leases among other things. I have even drafted my own leases and dressed up the fonts so they look like the form leases used by many companies. However there are many types of forms of leases and the clauses have particular meanings and relate to each other in different ways. There are plenty of court rulings that specify what is meant by certain terms. Forgetting Pennsylvania, some of the first big oilfields were in Texas and they were and still are a little short on using understandable English.

In this economy you want a lease that is fair to both the oil company and the landowner. However many of the lease forms are slanted one way or another and maybe aren't dual purpose enough. Then it depends upon if you are in oil country, gas country, oil and gas country, and so on. How deep are the wells, tank battery sites, lease roads, pipelines, powerlines, distance to a house and so on. Then I would want to see what it has for pooling and unitization clauses and what Indiana's laws are regarding those. Pooling and unitization is right for some areas and wrong for others.

What are the wells in the area producing in barrels per day? What formations are they producing from and how much water needs to be disposed of. Disposal wells on your property and sharing in profits of allowing other leases to dispose into it. What is the cost of drilling and equipping a well? With gas you have to look at the gas buyers and shut in issues. Even oil leases need a shut in clause and none except mine have one. Well spacing rules and what is typical for your area is a factor and needs to be looked at for the size of your land. Do they have to honor an offset, for example? When the lease terminates, will they restore the land to what it was like before? Lots of oil companies going belly up and leaving a mess behind in a farmer's field.

Lots of other issues. You could easily spend a grand or more with me trying to analyze and explain your lease.

The first rule of law is: "Everything is negoitable". In my typical lease negotiation, there are some paragraphs lined, additions made, and terms changes. What I can't tell you is what is the going rate for the bonus and and yearly rental in your area. Then I have to evaluate your property for the probability of success. Land with oil well all around it may command a high premium for the bonus and yearly rental for a sure thing depending upon what the daily production is for the area and formation. I probably can't do that for your property. Length of lease depends upon the area you are in. A wildcat area would probably call for a longer primary term. In high production areas, you may but would have to fight hard to get more than the standard 1/8th royalty.

Then you have to evaluate the company. Are they a solid company, a small company, a fly-by-nighter(there are a lot of those), or are you dealing with an oil company/land man who is procurring leases and really has no money for drilling well so the sell them off to another company and try to keep an override.

Then you have to get together will all you neighbors to see what they are being offered and see if you can all band together and get more money. Maybe even share in an attorney although one may have a better prospect than the other.

I've just touched on the some of the basics. You can take my hundred bucks worth of advice here and trim it down to what it is worth, basically my two cents worth.

Go to one of the major oil towns in your area and see who does oil and gas litigation. That person is the one you want, even if you have to give him all your lease bonus money to pay his fee. Kinda like the lottery, you have to spend money to take your chances and probably end up with nothing but may luck out.

There are a lot of these seismic companies going around shooting the ground and then trying to make money with prospects. Most don't pan out. Lots of dry holes. Don't go out and buy a Rolls Royce thinking about royalties when they pull the rig in.

If your lease is a standard form and has a name and number in a top corner like KS, Okla, Producers 88 or something similar post what it is. I may have it in my library of leases.

Good Luck and I hope you hit a big one. Now I will turn it over to John T since he is the one you are looking for and he actually lives in your state which helps.