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Avoid These Common Oil and Gas Lease Mistakes

The Law Office of C. William Smalling, P.C. Feb. 26, 2019

The negotiation of oil and gas leases can be extremely complicated. Attributes such as patience,  knowledge, and experience are all required to successfully negotiate such leases. And unfortunately, mineral owners who attempt to negotiate gas and oil leases alone often end up making mistakes. However, with the assistance of an experienced Texas oil and gas attorney, mineral owners should be able to successfully avoid the common oil and gas lease mistakes listed below. 

Being Overzealous

It can be exciting to received an oil or gas lease in the mail. And it can be tempting to sign right away when there's money on the table. However, signing anything before an experienced attorney has had a chance to review it is a big mistake. 

Focusing on Price Alone

Royalties and bonus payments are important, but they aren't the only factors to consider when deciding whether to enter into a gas or oil lease. For example, when a mineral owner owns surface rights along with mineral rights, the contractual terms related to surface usage can be extremely important, possibly even more important than economic issues such as royalties and bonus payments. 

Warranting the Mineral Title

It's common for the first draft of an oil and gas lease to contain a clause which states that the mineral owner warrants and defends the chain of title to his or her minerals. However, clauses such as this provide no benefit to mineral owners. Therefore, mineral owners shouldn't warrant the mineral title, as there are a number of legal implications for doing so.

Leasing Several Non-Contiguous Tracts on A Single Lease Document

Leasing several non-contiguous tracts in a single lease can lead to problems down the road. Therefore, each oil and gas lease should be matched to a single contiguous tract, thereby eliminating the issue of whether one tract is held by production from another tract.

Failing to Watch for Unrestricted Use of Fresh Water

Many gas and oil leases allow for unrestricted use of fresh water for operations that are related to the drilling and completion of a well. And while this issue isn't applicable in every case, it's certainly worth considering early in the process. 

Failing to Hire a Texas Oil and Gas Attorney

As noted above, oil and gas leases are sophisticated documents, and it's easy to make mistakes when attempting to negotiate them alone. However, many of the common problems associated with such documents can be easily avoided by enlisting the help of an experienced Texas oil and gas attorney. At the Law Office of C. William Smalling, P.C., we are highly experienced in the drafting and review of such contracts, including gas and oil leases, joint operating agreements, farmout agreements, master service agreements, drilling contracts, licensing agreements for use of seismic or technical data, and nondisclosure agreements. If you are in need of expert oil and gas legal representation, contact us today for a consultation.