Oil and Gas leases, Good thing or Bad Thing?

It often happens when purchasing country property that you may find that there is an oil or gas lease on the property. Now you have to decide if that is a good or bad thing. As with many things there are several issues to consider.

The biggest drawback is that the oil or gas company usually has the right to come onto your property when they want, drill wells, dig pipelines etc. If you are using your ground just for pasture or even crops maybe that’s acceptable to you. Most people who want to build a home on their land would not like an drilling company being able to do that. So what are the options?

1) The most common thing we find is that the lease is a very old one probably purchased by Grandma and Grandpa and the oil or gas company has been out of business for many many years. This is pretty easily handled by doing an affidavit of non production, and for about $25 or so the lease goes away and there is no further issue.

2) What if it is an existing lease that is recent? Well if the company has never drilled a well most (I said “most”) of these leases expire if they don’t produce anything within a certain time often one to three years. If that is the case then you take the steps mentioned in item 1 above.

3) What if they are currently producing oil or gas? Well now is the time you want to find out who gets the mineral rights if you buy the property. If the buyer gets the mineral rights well then you also get the royalties, which normally amount to 1/8 of the production of either gas or oil and that can be lucrative. But often when selling producing land the seller will want to retain the mineral rights. So if that’s the case then you have to decide if you want the land badly enough that you are willing to forego the royalties and accept the fact that the oil or gas company can drive on your property, drill new wells, place pipelines etc.

4) The most frustrating scenario is to find that there is an existing oil or gas lease, but you don’t see any signs of activity on your ground so you think you vacate the lease by doing an affidavit of non production. But then you find that while the 40 acres you want to buy is free of any activity the drilling company has a lease that covers several sections of ground and all they have to do is have some production on any of that ground and they still have rights to all of it. Including the ground you want to buy.

If you are in the midst of purchasing ground like this and have any issues there are several attorneys who are specialists in oil and gas leases and I’d suggest you contact them. If you are in the process of wanting to buy ground and just have some simple questions please feel free to contact us at 913-837-4665 or email us at info@RuralKC.com