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North Dakota Oil and Gas Leasing Considerations
The purpose of this web site is to introduce fundamental questions or issues often considered by individuals who own land or mineral rights that are being developed by a mineral company. In this discussion, the focus will be on oil and gas production in rural or agricultural areas. Several assumptions underpin the discussion:
Based on these assumptions, this web site addresses several broad topics:
The information on this web site reflects the efforts of several individuals, in particular
Additional information about oil and gas exploration and production is available from numerous sites, such as
Exploration and production of North Dakota's oil resources is occurring at an accelerated rate. Increased prices for crude oil and the development of new technologies make it possible and profitable to drill for petroleum at greater depths. Improved methods have enabled oil companies to produce more petroleum from existing wells. Enhanced exploration techniques have helped locate large areas of central and eastern North Dakota having geology favorable for the discovery of new oil and gas deposits.
What does this mean for North Dakota landowners? Many individuals who have never thought much about their mineral rights will soon have to make decisions having considerable economic consequences. The ”rules of the game" are ever changing, and mineral owners who will negotiate an oil and gas lease in the future should be especially alert to maximize their lease benefits.
Entering into a mineral lease is a business transaction; documented by means of a contract negotiated between a mineral owner and an oil and gas company. However, the exploration and production of oil and gas also are regulated by state law. This web site discusses concepts persons want to understand as they negotiate a mineral lease, but it also introduces the role of state regulation. For example, there will be a few topics where state law specifies the relationship between the mineral owner, surface owner, and the oil company, despite what the parties may have willing to agree to. More frequently, there will be situations where state law will be applied because the mineral owner and oil company overlooked a particular topic when negotiating a mineral lease. Understanding the interaction between state law and the opportunity for mineral owners and oil companies to negotiate an agreement is one objective of this web site.
Energy development is primarily a matter of state law; federal law has a lesser role in directing the exploration and production of minerals owned by individuals. Accordingly, much of the discussion in this web site focuses on North Dakota law. Persons involved with mineral ownership and development in another state should consult a person knowledgeable about mineral laws in that state. There will be similarities as well as differences among the laws of the states. Do not assume that each issue is addressed the same way in every state.
As will be stated many times on this web site:
Seek appropriate professional counsel before
taking action involving mineral rights.
PARTIES OR ENTITIES INVOLVED IN OIL AND GAS DEVELOPMENT
This web site focuses on four different roles or perspectives relating to oil and gas production in North Dakota. These perspectives are introduced in this section.
Even though oil and gas production can be described as having these four primary perspectives, each perspective may involve more than one person or entity. The various perspectives brought to the interactions among the different parties can be a source of legal issues or disputes.
PURPOSE OF WEB SITE
Providing information to help the citizens of North Dakota better understand the oil and gas exploration and production process and related leasing considerations fits within the objectives of the NDSU Extension Service. Oil and gas companies also will benefit from this educational effort. An informed public is less apprehensive and easier to deal with, which should reduce the number of disagreements caused by misunderstanding the leasing process and the need for various leasing provisions to protect both the mineral owner and oil company.
Specifically, the purpose of this web site is to:
Mineral leasing is a matter of negotiation, and mineral owners should be aware of a number of basic factors before beginning these negotiations. Less-experienced or uninformed mineral owners may be at a disadvantage in arranging for the future use of their mineral resources. Topics discussed in this web site were chosen either because they may be of special concern to mineral owners or because they are basic to the structure of an oil and gas lease.
NEED FOR LEGAL ADVICE
Negotiating a mineral lease will likely begin with an oil company offering the mineral owner a standard or form lease for the mineral owner to consider. Even though the mineral owners may feel they need to accept the terms offered by the company, a mineral lease can be negotiated. Mineral owners should familiarize themselves with relevant questions and potential issues, carefully review any offered lease (perhaps with the assistance of a knowledgeable attorney), and offer appropriate alternative lease language. A company interested in the minerals will not necessarily reject the mineral owners' proposal.
Before a lease is signed, an attorney knowledgeable in the oil and gas leasing area should review the lease offered by the company to determine if it meets the specific needs of the mineral owner. Seeking legal advice when a problem arises after the lease is signed may be too late. At that point, the lease is a legal contract and resolution of the problem may be difficult.
Likewise, always get knowledgeable legal advice in drafting a mineral deed, royalty assignment, or deed to land containing a mineral or royalty assignment. Drafting these documents is highly technical and legal matter. Knowledgeable legal assistance can avoid possible problems and resulting disagreements and lawsuits.
This web site contains several pages, however, an individual unfamiliar with oil and gas exploration and production process may want to read that brief introduction next.
Last Updated August 29, 2010
This material is intended for educational purposes
only. It is not a substitute for competent legal counsel. Seek appropriate
professional advice for answers to your specific questions.
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