Lease Your Land For Oil and Gas Production

Enlarge Image Image Gallery Mobile rotary rigs are driven to the well site and are usually self- contained. The rig's drill bit rotates as it drills the well.

Are you eager to achieve financial freedom or energy independence? Perhaps you should . . .

by Tom Bigelow

Even in the midst of the currently ballyhooed worldwide oil glut, American petroleum companies continually explore and develop new oil and gas reserves. Because of this, private landowners can often cash in on those geologic commodities by agreeing to lease some of their property for exploration and drilling purposes . . . assuming, of course, they own the mineral rights to their land.

Not surprisingly, there are significant advantages and disadvantages to such a proposition. The potential pluses may include substantial income (and even free natural gas!), while some of the possible drawbacks are tide-up land and visual—or other—pollution. And the best way to determine whether the benefits of leasing acreage will outweigh the costs is to become familiar with the procedures of the oil and gas companies . . . before signing on the dotted line. In the following paragraphs, then, I'll attempt to outline just what can be expected in a standard leasing endeavor.

THE AGREEMENT

As with most other contractual agreements, an oil and gas lease is a binding document covering a specified time, price, and set of conditions. The contract states that the owner willingly allows the energy company (or well operator) access to his or her property and gives its representatives the right to prepare the site as needed and to drill and produce any oil or gas thought to be present.

In return, the well operator agrees to pay the landowner a specified "rent" for each acre leased, plus a share in the profits of the well if it begins producing oil and/or natural gas.

THE RANGE OF COMPENSATION

The conditions and financial arrangements for leases will vary, depending on factors such as the geographic location and the number of productive wells in the surrounding community. (The greater the chance of locating oil or gas, the higher the "per acre" price.)

As a rule of thumb, the amount paid for leasing rights in the eastern United States is anywhere from $5 to $25 per acre yearly. In high-production areas where there is a lot of drilling activity (the West Virginia border is one example), prime acreage can bring $50 to $75 per acre.

In Texas and the Southwest, the annual amount paid is usually between $50 and $75 per acre, with prime acreage going for $200 or more. Prices vary greatly in the Rocky Mountain region, though . . . from as little as $10 per acre in unexplored locations to as much as $1,000 per acre in proven high-production areas.

Since "rental fees" are so localized, an interested landowner who wants to make sure he or she will get a fair deal should tour adjacent counties and speak to current leaseholders to find out the amount of drilling being done in the region and the price being paid.