An oil and gas lease can be a mutually-beneficial arrangement. Property owners grant the right to establish oil and gas facilities on their land and earn passive income by doing so. Organizations in the oil and gas sector acquire new resources that they can develop as needed.
For property owners, the possibility of establishing a new stream of household income is often so exciting that they may fail to properly protect themselves throughout the process. They may sign a lease with the terms initially proposed by the company without reviewing the document at length and becoming familiar with the potential consequences of the agreement.
What are some of the details in an oil and gas lease that property owners often need to consider carefully before signing an agreement?
The duration of the lease
How long the lease lasts can be an important consideration. A particularly long-term lease can have several unanticipated implications for the property owner. For example, if they hope to sell in a few years, they may discover that the terms set in the oil and gasoline have a negative impact on the price they can seek for the property. They may also lock themselves into the same pricing for years. As inflation occurs and increases the cost of living, what oil and gas companies pay for leases may increase. Long-term leases may leave property owners locked into a low price that doesn’t reflect what they could earn on the current market.
Whether the lease is assignable
Sometimes, oil and gas companies secure leases with property owners and then assign them or sell them to other businesses. This might result in a homeowner doing business with a company that they want to avoid and a variety of other unanticipated complications. Determining whether the lease is one that the oil and gas company can sell or transfer to another business or investor is an important consideration.
Whether there are any easements required
Some oil and gas leases may give the company easement rights if they decide to install wells. This may result in the addition of an unattractive gravel driveway through the property or even the company accessing large quantities of well walk at specific rates based on the terms of the agreement. Homeowners need to protect the quality of their property and the natural resources present there. While easements are often necessary, it is sometimes possible to request additional compensation in scenarios where easements become necessary.
Reviewing an oil and gas lease at length with a skilled legal team is important for the protection of property owners. It is often possible to negotiate certain details to better ensure favorable lease arrangements.
