Prominent General Litigation Attorneys

Does an oil and gas lease automatically mean drilling?

Has an oil or gas company come knocking at your door? There are all kinds of valuable mineral sources under the ground, and oil and gas companies are always looking for sources on private lands — particularly in shale-rich Ohio where lots of rich mineral deposits are found. For a lot of people who aren’t otherwise using their land, an oil or gas lease can be a welcome source of income.

Signing a lease, however, doesn’t necessarily mean that you’re about to start collecting some significant checks. In fact, you could be disappointed if you expect any kind of immediate action with the well because a lease doesn’t guarantee any kind of drilling.

While the exact terms of a mineral lease are usually quite detailed and complicated, the basic structure of most leases are the same: As the landowner who holds the mineral rights, you get a bonus payment for signing the lease and a percentage of the value of anything that’s produced. That’s known as a royalty. In exchange, you’re giving the oil and gas company the right to drill on your property and extract the minerals.

The bonus payment, however, is usually your only sure bet. Those royalty payments may sound very attractive when they’re being explained to you, but they may never happen. As long as the oil and gas company maintains its end of the bargain, it can hold onto that lease without drilling until the lease eventually expires.

Knowing the potential pitfalls when you agree to sign a mineral lease with an oil and gas company is key to understanding what you should negotiate for in your contract. An experienced advocate can help you avoid mistakes that could be both inconvenient and costly down the line.