An oil and gas lease is the marketing plan for your hydrocarbons
The oil and gas lease should be considered as the marketing plan for a mineral owner’s hydrocarbons.
An oil and gas lease is both a contract and a conveyance of an interest in land, similar to the conveyance when you sell the land surface. When you sign an oil and gas lease, you have essentially “sold” a part of your property.
If you are considering selling your farm, another asset or even a used car, do you do some homework to determine its market value? If you produce a crop such as corn and you are a good manager, you have a marketing program that should include a sales price goal that is based on your cost of production, market forecasts and historic prices in your area.
It is interesting to note that when it comes to the land surface or products produced utilizing the land surface, landowners are usually careful to insure they receive market prices. But, when it comes to mineral rights, some act like any remuneration offered is “found” money and they jump at the first chance to sign a long-term lease and accept the terms of the lease, many times right on the spot, without reading or attempting to understand the lease contract. In my duties as a Michigan State University Extension educator, I have found that people who do this are treating their mineral rights like second class citizens.
Landowners should consider the oil and gas lease as the marketing plan for their hydrocarbons. You have a marketing plan for the products you produce from your land surface, why not consider one for mineral rights? Mineral rights owners over the years have learned that they can control what is in the oil and gas lease (the marketing plan). Securing a good lease (marketing plan) will be a negotiating process. Negotiating changes to the terms and conditions can significantly improve long-term income potential in a variety of ways and allow the mineral owner to meet other goals, such as environmental protections to the land or water. Obtaining a good lease may take more time, but since the lease can last for generations, it is time well spent. For example, there are many leases that were signed more than 30 years ago that are still in place today, even if the landowner is not receiving a royalty, because certain terms of the lease allow it to continue. Once you sign the lease contract you are legally bound to all the conditions of the lease, no matter whether it is a good or a poor lease. Make sure you understand the complete lease before you sign it and ask for help if there are parts you do not understand.