Experience Dealing With Oil Exploration Companies? [Mineral Rights]
My family owns the minerals rights for a parcel of land in Kern County, California. In previous years, oil was extracted from the property. After all the economically viable oil was extracted, the wells were shut down and the oil companies moved on. Now, the price of crude oil is consistently over $100 a barrel and oil companies are looking at oil deposits that previously were not economically viable to recover.
Recently, a representative from an oil exploration company randomly dropped by my parents’ house unannounced. He had a wonderful opportunity related to renewed drilling on this parcel of land in Kern County. They were so excited to get things moving that the representative had a contract in hand, ready for my parents to sign at that instant. My parents said they needed time to read through the contract and the representative arranged to return the very next day to pick up the signed contract.
This had my parents flustered. The contract was a bunch of vague lawyer jumble and was not very easy to understand. Do they actually get royalties or not from anything extracted from the site? Does this contract really grant them them rights to drill on the land for over twenty-something years? Are they saying they want to rent the mineral rights for only $20 per acre, per year?
Obviously, they needed a lawyer to properly digest this information. And where could one find a lawyer in one day?
The suddenness of this proposition left my parents with a funny feeling in their stomachs. They turned to the internet to see if they could find out more. After searching Google for the company name, they found the website of another individual who recounted a similar experience.
He basically says that the same representative showed up unannounced at his and his relative’s houses with a contract for oil and gas leases. This would give the company rights to drill the land. The author goes on to talk about the history of these men in the American West and how their job has been to get people to sign these contracts by any means necessary, regardless of what the contracts said.
The website goes on to document some of the deception, smooth talking and even threats that occurred in trying to get his family members to sign. This pretty much sealed the deal for my parents. They were not going to sign it without more information and without contacting an attorney.
The next day, the same representative stopped by to pick up the contract. My parents told him they were not going to sign it at this time. Undoubtedly, he must have been rather annoyed to drive out all that way only to find that his sure-deal fell through.
When they mentioned the website they found relating to previous interactions with representatives from this same company, the representative standing in their yard told them that the author was a “nut case” who had been “blacklisted” from any future contracts with the company. He also mentioned that they would sue him, but it “wasn’t worth the trouble.” He went on to say that the author’s opposition to leasing the mineral rights was a moot issue because they could always “slant drill into the property.” (Slant drilling into another property that you don’t specifically have the mineral rights for is illegal. Unfortunately, this is hard to prove.)
“Regardless, we’ll drain [their property] dry,” he said.
Wow.
Has anyone else ever had any interaction with oil exploration companies, whether it was successful or not? What sorts of things are important to look for or do (i.e., hiring an attorney to sign any contract)?
(Note: Names have been intentionally left vague due to potential threats of libel/slander on behalf of said oil company.)
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“The contract was a bunch of vague lawyer jumble and was not very easy to understand. Do they actually get royalties or not from anything extracted from the site? Does this contract really grant them them rights to drill on the land for over twenty-something years? Are they saying they want to rent the mineral rights for only $20 per acre, per year?”
Dave, I would be very careful that the language of the contract did not actually sell outright the mineral rights permanently. I don’t know what a good going rate would be, but I think $10,000 a year should be minimum (that’s my opinion and not based on a lot of knowledge about petroleum leasing of private land). The reason for the long time, is the long time-frame for drilling to production, depending on geology; also, the time frame may have something to do with what the company thinks is going on in the area around the land in question, and how long exploration in that larger area might take.
I’d also be very careful that the company is actually a real company and this isn’t a total scam to somehow get money or property from your parents.
And I’d want the company to have a real and known track record of exploration, drilling, and hopefully production.
In mineral rights that are minerals – and this may be different for petroleum – there is no way that someone could angle drill under someone else’s property or claims and get away with it. I mean, it can and has be done, but if a company is caught, they can be sued (maybe fined?). And any discovery made in such a way in mining would be the property of the people owning the land, presuming the surface and mineral rights (sub-surface) hadn’t been severed. Also, any discovery made in such a way could not be mined from underground with an access point located off the property in question.
So, it is likely, although not assured (you do need a lawyer for this) that any “slant” or angle drilling could not result in any petroleum being taken from beneath your parents’ property. But that needs to be checked out.
Mineral rights (sub-surface rights) and surface rights are sometimes severed; that is often the case in western mining districts or towns. I lived on the Comstock in Nevada and owned a home with only surface rights and no mineral rights. I was not concerned, however, because as a geologist I was pretty sure no one would ever want to mine the area around, near, or under my house. Other people in the area had the same deal (severed property rights), but were sitting on much more favorable looking rock (to me), rock that could warrant exploration and possibly drilling (gold and silver). I wouldn’t have bought a house on that ground without acquiring the mineral rights. The severed rights date back to the 1800′s when the mining district was first formed.
I mention this because your parents should know whether they own the mineral rights. I presume they do, or a company wouldn’t be coming to them. They should only consider, ever, selling the mineral rights – I think – if 1) they don’t mind moving someday and 2) they get as much money now as they would if they sold the house.
Sounds like a flaky outfit, or at least they’ve hired a flaky representative.
And the lease price, too, would have to have something to do with how many acres they own. 10 mining claims x 20 acres = 200 acres would be $500 per acre to come up with my minimum estimate of $10,000 per year. That’s what I’m basing the minimum on – however, if I owned something smaller, like 1 acre, I’d still want a chunk of money per year or good royalties down the line. And maybe a lawyer or financial type could help with what royalties should be set at.
Another thing is that if the land is really of exploration value, maybe your family can attract a better company – if they are interested.
Thanks for the great response. Yeah, my parents are not going to sign anything at the moment and will go ahead and consult with a lawyer who specializes in these types of things.
The company is legit as far as I can tell. There are actually news articles that talk about oil fields and such they have drilled in Central California. A CNN Money profile on the company shows that they’re a fairly small outfit though.
As far as the property goes, my parents don’t actually live on the property in question. The family simply owns the mineral rights to a large parcel of land. Someone else owns the surface rights and I’m not sure what currently sits on the site (it might be a fun thing to play with in Google Earth).
Anyway, that was one of the things they were concerned about. Some of the language in the contract was conflicting and they didn’t want to inadvertently give away the mineral rights because they over looked something.
Regardless, there probably are other companies that would be interested in these rights. After hearing how their representative treats other people and how he *speaks* of other people who disagree with him, I wouldn’t want to give that company anything.
I have received a phone call and by mail a mineral rights lease. Does any one know the going lease amount? I was given a $25 per acre per year for 5 years. but in the lease 20 years or more without limitations if they are working the land. Can anyone tell me what a reasonable fee would be. Or anything that could be helpful . This was my Dads mineral rights and I want to do what is best for our families.
thanks
will be looking for a anser
I was wondering if anyone knows the company “Western Energies”? I was contacted this morning about a lease for oil exploration on 80 acres that we have out in Kern County. The fellow said that he should get a lease in the mail today. Sounds fishy to me. They offered $1600 for eighty acres…
Thanks for any input.
Jan Seymour