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Landowners learn lessons,
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THE BATTALION Page
THURSDAY, APRIL 3, 1980
The Anthropology Club Presents 2
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“Recent Excavations at The Alamo” )
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301 Bolton Hall
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By MICHELLE SCUDDER
Special to The Battalion
Although they may not be buying
palatial estates or fleets of Mercedes,
landowners in this area have been
reaping the monetary benefits gen
erated by the local oil boom.
The benefits have come to area
landowners in the form of lease pay
ments for their property, and/or
monthly royalty payments if they
have a producing well.
The tremendous growth of the oil
industry in this area began three to
Many landowners were una
ware that all provisions of an oil,
gas, and mineral lease are nego-
taible, or they faded to under
stand the legal significance of
what they signed. Thus, many
landowners have found them
selves bound into agreements
that are not in their best in
terests.
four years ago when oil companies
rapidly increased property leasing
and oil exploration and develop
ment.
Most area landowners have owned
their property for many years and
simply woke up ope morning to find
their investment in high demand by
the oil companies.
Before any exploration could be
gin, however, the landowner (the
lessor) and the oil company (the les
see) had to agree to certain terms
regarding the rights, privileges, and
obligations of the respective parties
during the exploration and possible
production stages.
Many landowners are unaware
that all provisions of an oil, gas and
mineral lease are negotiable, or they
failed to understand the legal signifi
cance of what they signed. Thus,
many landowners have found them
selves bound into agreements that
are not in their best interests.
When landowners are contacted
by “lease hounds’ they are usually
presented with what the lease
hounds call a standard oil, gas and
mineral lease.
Dr. Judon Fambrough is a
licensed attorney and works with the
Texas Real Estate and Research Cen
ter, and the agricultural economics
department at Texas A&M Universi
ty. Fambrough has researched the
legal problems local residents have
encountered while negotiating
leases.
He said people simply don’t
understand the legal ramifications of
the leases they sign, and they just
sign what the lease hounds tell them
is a standard lease. Fambrough said
there is no such thing as a standard or
universal lease form used by the oil
and gas industry, but instead each
company has a pre-drafted agree
ment that has proven suitable to it in
the past.
But, he said landowners should re
member that all provisions of a lease
are negotiable and they may want to
insert some provisions in the lease
for their personal benefit and protec
tion.
Fambrough presented his findings
in a seminar for local residents and
has documented his findings inhis
recent publication, “Hints on
Negotiating Oil and Gas Leases.”
In his publication and during his
seminar, Fambrough outlined the
advantages to landowners of includ
ing certain clauses in their lease, and
the disadvantages of not including
them. Fambrough said people have
generally made the same four mis
takes while negotiating their leases.
He said the first of the mistakes is
basing royalty payments on pro
ceeds, which means that the royalty
is based on the actual revenue de
rived from the sale of the mineral,
which may or may not be equal to its
market value. Fambrough suggests
basing royalty payments on market
value, which will allow the royalty to
follow the upward trend of oil and
gas.
Fambrough said another mistake
is not putting a “pugh clause” in the
lease which would prevent the lessee
from consolidating the leased pre
mise? with adjoining leased tracts so
that all the landowners would have
an interest in a common under
ground reservoir.
A third common mistake is failure
to negotiate for sliding scales in
royalties, which would base royalty
payments on variables such as
amount and time of production.
Another mistake landowners
make, he said, is not limiting the
lease to exploration and drilling for
oil and gas. Instead, most landown
ers allow exploration and drilling of
all minerals. Filinbrmigh suggests
that the landowner lease just for oil
and gas, with a clause to negotiate for
any other minerals.
Fambrough estimates that 80 to 90
people attended the seminar and out
of those, only about five had not
already signed leases.
So, landowners are discovering by
hindsight what they could have done
to represent and protect their in
terests better.
Jim Parrack, a Bryan resident who
signed a three-year lease on 100 acres
in Fayette County six months ago,
says he is refusing to sign a lease for
an additional 48 acres he owns seven
miles from College Station until he
gets the terms he wants in his lease.
Parrack said he learned what he
should look for in a lease from Fam-
brough’s seminar and from other
people’s mistakes.
Parrack said that one year ago the
land development company offered
him $35 per acre in advance royalties
payment, and $1 per acre per year
rental fee. He said that now their
offer is up to $75 acre in advance
royalties, and $10 an acre per year
rental.
Parrack said some terms he is
holding out for are a three-year lease
instead of a five-year, one-sixth
royalty payments instead of one-
eighth, and the most beneficial pric
ing payments. Parrack said that after
“We’re very lucky — we have
extra spending money and we’ve
paid paid for our land. We have
no indication at all about how
long the well will produce. We
couldn t depend on it for a living
because it could play out tomor
row. ” — Bryan resident Sam
Urso.
he gets the terms he wants he will
sign a lease, and the lease hounds are
still calling him with offers.
Other area residents who signed
leases several years ago have found
themselves in a holding pattern if the
oil company has not drilled on their
property yet. Bryan resident Bar
bara Childers said she signed a 10-
year lease on her property near
Tunis seven years ago, and the com
pany has not yet drilled on their
property.
“We hope that there might be oil
there, but don’t count our oil barrels
before they come in,’’Childers said.
“I know they’re out there working in
our area because they’ve found oil all
around us, but we don’t know when
they will drill on our property, but I
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do wonder,” she said.
Childers said the oil company paid
them $15 per acre advance payment
and $1 an acre per year during the 10
years.
“Our payment is not the bad part
of the lease we’re involved in be
cause that’s what the going price is at
the time, but the bad part is that it’s a
10-year lease.” Childers said the oil
company contacted them first about
leasing their property and they did
not contact a lawyer before signing
their lease.
While some landowners are an
xiously waiting for an oil well, other
landowners took their turn waiting
and found out that the wait was well
worth it.
Bonnie Langham, a Bryan resi
dent, signed a five-year lease on
property near Giddings three years
ago. The oil company began drilling
on the property in June, 1979, but it
did not contact the Langhams about
royalty payments for eight months.
Langham said they bought a new car
and spent extra money at Christmas
anticipating their royalty payments,
but they did not come. She said she
knew the delay was because they had
signed a lease with a clause in it that
said payments would be made “from
time to time.”
“Fools that we were, we signed
that rascal (the lease) right up be
cause we were so thrilled about get
ting paid $27 per acre when we had
been getting $1 an acre all the years
before, ” she said. Langham said they
didn’t know that it would make the
slightest difference that they didn’t
specify their payment terms, and
they didn’t seek legal advice.
*
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