A
N OIL AND GAS LEASE CAN BE PLEASANT OR IT CAN BE a nightmare. It all depends on the land man- ager’s rapport with the energy company and
the content of the agreements. Expectations of both the energy company and land
manager should be detailed in the leases. Equally important is a good relationship with the
designated contact person in the oil company. Most attorneys agree that it is impossible to write agree- ments that will cover all situations that might occur. Any type of contract will be effective only if the in- volved parties want to make it work. “The time to solve oil and gas lease problems is
when the lease is written,” says James Lucas, Jr. of Catoico Resource Management, LP. Catoico is a unique asset management company. Its name is derived from cattle (Cat), oil (oi) and cotton (co). The company manages farms and ranches for people
who want to retain ownership, but do not want the responsibility for the day-to-day operations. Catoico also manages oil and gas leases for their clients, under the direction of Lucas. “Once a lease agreement is written, it is almost
impossible to change it,” Lucas continues. “About the only time a lease can be renegotiated is if the oil company wants something changed. So it is important to get it right the fi rst time.”
Contract clauses that can be problems “You need to study the history of the oil and gas industry to fully understand lease problems,” Lucas
suggests. “Originally, oil and gas leases were about a paragraph long. Now they are several pages long. The early leases dealt strictly with oil because natural gas was not a commodity at that time. Since the 1860s forward, leases have changed dramatically. “The fi rst problem that developed was a contract
form called the ‘Standard Producers 88 Oil and Gas Lease,’ which gives the oil company the right to use the property for just about anything as long as it per- tains to the production and marketing of oil and gas. Under this clause, a producer can build houses, tank batteries or even railroads,” he says. “A second problem in leases can be the royalty
clause,” Lucas says. “This clause grants some portion of the well income to the holder(s) of the mineral rights,
The time to solve oil and
gas lease problems is when the lease is written.
but it also allows the oil company to deduct production, transportation, product cleaning and marketing costs. Mineral rights holders should be expected to share expenses; however, some oil companies have taken advantage of the lessor by unfair cost distributions. In addition, fees have been charged to mineral rights owners for activities that were the sole responsibility of the oil company.”
64 The Cattleman July 2015
thecattlemanmagazine.com
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