Should you sign the first lease presented to you?

Should you sign the first lease presented to you?

The answer is no! Leases are often written in an attempt to blindside landowners while industry representatives may use questionable negotiation tactics. If you are determined to sign a lease, there are ways to negotiate terms to ensure less environmental harm.

In this article you’ll learn about royalties, lease addenda requests, and learn some things to look out for when a lease is presented to you.

Royalties

  • Increase the rate from the statutory minimum (12.5%)
  • Prevent the company from deducting their costs of operation
  • Ask for “audit privilege” in order to verify you are receiving the correct amount
  • Increase the amount of free gas received
  • Ask for payments on all byproducts including oil, butane, propane, etc.
  • Negotiate right-of-way agreements for pipeline installation

Request “addenda” to meet your land use and environmental objectives

  • Require the company to conduct pre-drill and post-drill water sampling
  • Prohibit any surface disturbances to your property
  • Extend the minimum statute-based distances between gas operations and built structures like homes and barns
  • Add a "liquidated damage clause" requiring company to pay fixed amount for certain defined damage
  • Add clause that limits surface operations to certain parts of your land

*Be on the lookout for pooling clauses! If royalties can be pooled you may be getting less money the state minimum. These clauses make leases appear to have higher payouts than they actually have for you as an individual.

Keep the following in mind

  • Altering a lease requires that you enter into negotiations
  • Hire an attorney
  • Smaller land area may mean less leverage, so look into partnering with others
  • Research the company that approaches you
  • Feel free to reach out to other companies
  • Do not agree to a contract term that gives you less than what state law already provides you

Resources

Additional Pointers:

If you've weighed the environmental risk against the potential financial benefit and you still wish to sign a lease, you retain the right to negotiate the terms. You should push for better environmental measures and protections. If the company really wants your gas, they will negotiate with you. View the above resources for best practices and tips on how to negotiate effectively.

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