Oil and Gas Questions
What are mineral rights?
Whereas surface rights are the ownership or rights to use surface land for residential, agricultural, commercial, or other purposes; mineral rights are the ownership or rights to use mineral resources below the surface. In most cases the surface owners are also the mineral owners. Just as surface rights can be leased or sold (houses, farms, etc.), mineral rights can be as well. Mineral rights are usually specified and limited as to type, such as oil and natural gas, sand, gravel, water, etc. Ownership or leasing of mineral rights entitles the owner or lessee to explore for, develop and produce the specified mineral resources.
What’s the difference between leasing and selling mineral rights?
Leasing is a revenue-sharing arrangement where you share in the proceeds of the sale of minerals produced from your property for as long as the lease is in effect. Selling your mineral rights is a different transaction: you permanently sell all mineral rights to the purchaser in exchange for a one-time payment.
Note: Planet Energy is seeking to lease the rights to produce oil and natural gas.
What is an oil and gas lease?
An oil and gas lease is a contract that provides the Lessee the right to produce the owner’s oil and natural gas. Typically, the owner of the oil and gas rights is paid a sum of money (a “bonus”) when such a lease is signed. Then, once a well is drilled, the Lessor (owner) will receive a recurring payment based on the percentage of a well’s production and on the amount the Lessee is paid for the oil and/or natural gas (a “royalty”).
What are the terms of a lease agreement?
The basic lease agreement provides for an initial bonus payment upon signing a lease, royalty percentage payments paid if oil or natural gas is found and produced from the property, and a time-frame within which Planet Energy has to begin production operations. If oil or natural gas production does occur, the lease is in effect for the life of the well – which could be 20-years or more.
What is a Bonus Payment?
The term bonus refers to any “up-front” money paid to the owner of the oil and gas rights in consideration for signing an oil and natural gas lease. A lease bonus is not considered a royalty because the payment is made before natural gas production commences.
What is a Royalty Payment?
The term royalty refers to a “percentage of production” paid to the owner of the oil and gas rights, based on the amount that Planet Energy is paid for delivering oil or natural gas to market. Royalty payments begin after oil or natural gas is produced and sold. These payments continue for the life of the well.
How and when are payments paid out?
Bonus checks are paid when the oil and gas lease is executed. Royalty payments begin only if your property is placed within a producing unit – meaning, when and if oil or natural gas is actually produced and sold.
How long do drilling operation last?
On average, drilling operations last from 3 to 4 weeks. During this time, there will be periods of intermittent activity. Initially, a crew will arrive to prepare the site. After that, equipment will be brought in to support the drilling operation. At that time the actual drilling of the well will commence. Once the well has been drilled, the well is “completed,” or prepared for production and the drilling rig leaves. A final crew will follow to make sure the site is cleaned up properly.
What will I see after drilling is completed?
Once drilling is completed Planet Energy is committed to restoring the drill site as soon as possible. We also endeavor to maintain the smallest footprint possible once drilling is completed. After our clean up crews have departed there will be by necessity bare ground surrounding the wellhead. You, the landowner are free to return using the area as you normally did. Of course, Planet Energy will maintain access to the wellhead for maintenance, servicing, meter reading, etc.
Will there be a natural gas pipeline on my property?
Yes, to bring natural gas to market, it is necessary to lay gathering lines from the well-head to access the larger transmission lines.
What happens if a well is drilled that cannot produce oil or natural gas?
If the operator of the well determines the well is a “dry hole”, then the well will be plugged under state supervision. The operator can then either drill another well or release the lease.
If I lease my oil and gas rights, can I sell my land?
Yes, oil and gas rights can be retained, transferred, leased or sold much like surface property. It is possible to own surface rights to a property (e.g. the land on which a home is located, or crops raised) without owning the mineral rights. Note: When oil and gas rights are leased to Planet Energy, the oil and gas rights ownership has not changed.
Where can Planet Energy drill?
Firstly, Planet Energy will comply with all state and local laws governing well placement and safety. Further restrictions on drilling are spelled out in the Oil and Gas Lease, but generally, there is a setback of 200 feet from any dwelling.