Before starting any oil exploration project, it is essential to get it right from the beginning. An oil lease is one crucial factor that you should consider before getting your project going. An oil lease is an agreement that allows the oil company to access minerals on the property of a lessor. This deal is a legal contract with elements that define the terms of the agreement.
The first step before an oil lease is made, the landowner who in this case is the lessor is approached by a landman who in most cases is the representative of the oil company. The landowner owns the surface rights and mineral rights to the farm. So when the landman visits the landowner they study the geological maps of the area, the acreage as well as the title deeds to the land. From this information, the company creates an oil lease.
The oil lease should always contain the following clauses;
- Date clause which states the date and the period which the contract is effective.
- Parties section that lists the names of all the parties bound by the lease.
- Granting clauses that state the use of the property and the reason for leasing. It also stipulates the rights of the lessee.
- Pooling clause which establishes the rights of the lessee to combine leases to form a lager drilling unit.
- Force majeure clause that state that the lease is subject to national and state laws.
- Royalty clause that is very important to the landowner. It states the percentage of production a lessor is supposed to receive as well as how royalty is received.
- The warranty clause guarantees the title of the land and stipulates the rights of the Lessee in the event a landowner defaults on mortgages, taxes and other obligations.
- Consideration clause ensures that the lease is legally enforceable by the involved parties.
>Surrender clause which states the rights of the Lessee in case the Lessee surrenders the lease.
- Another important section is the delay rental clause. It states that in the event the term of the oil lease extends the initially agreed term, and no well was drilled then the lessee is required to pay the landowner an agreed sum called delay rental.
- Assignment clause that allows the lessee or lessor to transfer rights of the property. This is enforceable after giving notice to the other party involved in the agreement.
Every oil lease should contain all the essential clauses. This way all the parties get to enjoy the benefits that come with such a contract. Some of the benefits include;
i)Long-term income. This is because oil production is a dynamic and long-term operation that provides extended periods of income for landowners.
ii)Makes you a part of the oil industry. Leasing your mineral rights makes you a member of one of the most important economic process.
iii)It’s a lucrative deal. A lessor can receive a good income from partnering with the oil company. This is because the landowner will receive benefits in terms of royalties on an ongoing basis till the expiry of the lease.
Obtaining title search for oil property for an oil company can be a daunting task. As such there is need to seek the services of experts. Majr Resources are the right company to help you in title search services through its network of experienced landmen.