How to find an Attorney experienced in Gas Drilling Leases

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1 How to find an Attorney experienced in Gas Drilling Leases Canyon By Sue Tejml Mayor of Copper Many homeowners in Copper Canyon and surrounding areas are receiving offers to lease their mineral interests. Most homeowners are not familiar with the terms in the lease and are at a loss as to how to evaluate the offer. Being a retired attorney, I am biased towards seeking legal advice. However, many residents do not know how to go about finding the legal advice they want. So, here are a few general guidelines. (Please understand that the following thoughts are my personal ones and do not reflect legal advice.) Oil and Gas Law: First, you want an attorney who thoroughly understands the law underlying gas drilling. As in medicine, there are many specialties in the law, and it would be virtually impossible for one attorney to stay abreast of all areas. Our State Bar Association has set up a procedure for attorneys to attain Board Certified status in eighteen specialty law areas.* (See list of specialties at end of article.) Oil, Gas and Mineral Law has been a Board Certified specialty area since The Board Certification procedure requires a certain number of years spent practicing law in that area, a certain level of complexity and difficulty achieved in that specialty, and the passage of a two day State Bar sponsored and graded exam. (It is a violation of State Bar ethical rules for attorneys to hold themselves out as Board Certified, if they aren t.) Board certification does not last indefinitely, but must be renewed by the State Bar every five years. It is also not unusual for Oil and Gas law attorneys to also be geologists, just as Patent attorneys are also often engineers. This does not mean that there are not attorneys who are very experienced with gas drilling leases, but who are not Board Certified in Oil and Gas law. (However, I was Board Certified in Family Law when actively practicing law; and I know how rigorous the requirements are to become Board Certified in any specialty area and to remain Board Certified. Thus my personal preference is for a Board Certified attorney.)

2 The Barnett Shale: Second, you want an attorney who is familiar with the conditions prevalent in gas drilling leases in the Barnett Shale. The Barnett Shale underlies 13 counties in North Texas, including Denton, Fort Worth and Tarrant counties. In places the shale is thicker; in places it is more porous making drilling easier. In some areas the pressure in the wells are greater and thus the wells are more productive. Whether the former factors are positive or negative can influence the upfront Bonus per Acre paid to the mineral interest owner. (The Bonus is not paid until after both parties execute the agreed upon lease.) The Availability of a Drill Site: The availability of a drill site is also very critical. The land under some homeowners can easily be accessed from a well site in an adjoining open field. The well is drilled vertically some 7-9,000 feet and then laterally 2,000 feet (more or less) to reach under the targeted area. Longer laterals are more expensive to drill; therefore additional production must justify the expense of the longer lateral length. Few subdivisions have enough open acreage within their boundaries to accommodate a well site. Thus the subdivision must rely on there being a convenient well site outside the subdivision but within a reasonable lateral line distance. Another key factor, if the well site is within city limits, is the specific municipal ordinance that governs the drill site. Though the different municipal ordinances in the area are becoming more and more similar, there are still some differences. Attorney s Proven Negotiating Success: Third, it helps to have an attorney who has actually negotiated and executed gas drilling leases in the area. And if you are a neighborhood seeking to negotiate a neighborhood lease, it is critical to have an attorney who has a proven track record of having successfully negotiated and executed leases for a group of landowners. Negotiations are part of the process. But the lease is not a done deal until it is successfully executed. Don t be timid. Ask for the credentials, details of experience, and personal references from executed leases for any attorney you interview about advising you on a mineral lease. If you are a neighborhood group, due diligence is required to evaluate the attorney who might represent your group. Attorneys can say they can handle certain lease negotiations. Find out if they have actually done so successfully in the recent past. Due Diligence in Evaluating the Company offering the Lease: The same due diligence applies to the gas drilling company who is offering the lease. Are they a public or private company? (A public company is registered on a stock exchange and

3 operates under the rules of the federal government s Securities and Exchange Commission.) How long has the company been continuously in business? Does the company actually do the drilling or are they just a middleman for negotiating a lease pool. If the company does the actual drilling, where in the area have they drilled completed wells? Are the wells attached to a pipeline and actually producing gas? Are there any lawsuits filed against the company or its principals in Denton County or other Texas counties? Is there any criminal record for any of the principals or the company? What is the reputation in the area for the company and its principals? Any attorney you retain should have done a due diligence investigation of any company offering a lease. All Valid Mineral Leases are Written: A mineral lease affects real property rights; therefore oral offers to lease are not binding. A letter offer, though in writing, is not a binding lease. It is more akin to an inquiry or a feeling out if you are interested in leasing. Any experienced attorney representing you or your group will know this. You do not have to accept the exact lease form you are offered. The lease form you are offered will have been written to benefit the Lessee or gas drilling company. You can strike out clauses on the lease form and initial them. For instance, I always strike out a clause that begins Warranty of Title or says that I guaranty my mineral interest. It is the petroleum landman s responsibility to research the title and know if I have a full and/or partial ownership of the mineral estate under the surface in question. You can also add written Addendums with additional conditions. But these strike outs and addendums are best done by the attorney representing you or your group. Negotiating a mineral lease is NOT the time to wing it legally. Rumors: It is common place today for gas drilling companies to file a Memorandum of Oil and Gas Lease in the county Deed Records instead of the actual verbatim lease. The Memorandum identifies the two parties, the Lessor (landowner) and the Lessee (the gas drilling company) and their contact addresses, the legal description of the surface above the mineral interest, the date the lease was executed, the length of the primary term, and if the lease covers all the lessors mineral interests and at all depths. But note! The Memorandum does not spell out the bonus paid, or the royalty interest. Those key factors remain private to the two parties. Unfortunately, this allows rumors, such as how much Bonus is being paid per acre, to go unverified.

4 Costs for Legal Representation: This varies for mineral leases. I recently paid a Board Certified Oil and Gas law attorney $195 per hour to review a mineral lease. He charged me two hours for the review and his with specific analysis of certain clauses. If an attorney is negotiating a lease for a group, there is often a nominal up front non-refundable retainer fee per group member and a stated per hour fee for the subsequent legal work. For a group, it would be wise to state that once the total legal fee reaches a certain dollar amount that legal representation will cease until and unless the group reauthorizes representation. This gives the group a chance to evaluate if genuine progress is occurring in the lease negotiations. You always have the right to dismiss your attorney, for any reason or no reason. And you have the right to retrieve your file and all legal papers of yours from the attorney. However, if you have agreed to pay a certain fee and the legal work has already been done, that is still a valid debt of yours. Website Information on Texas Attorneys: The State Bar Association has a website where you can search for attorneys. You can search by their name and find their contact information, when and where they graduated from law school, when they were admitted to practice law in Texas, and if they are Board Certified in any specialties. (You can also see in which courts they are admitted to practice law. However, you do not need a trial attorney to review or negotiate a gas lease for you.) You can also search by Board Certified specialties such as Oil and Gas law and by specific county location of the law office. Experienced Oil and Gas attorneys in Denton, Dallas and Tarrant counties should be familiar with the characteristics of Barnett Shale mineral leases. State Bar public reprimands, suspensions or probations of attorneys: This information is public knowledge and can be obtained by calling the State Bar of Texas at 1(866) or 1(877) Only the Chief Disciplinary Council can release the details of the case. However, this information stays on the attorney s record permanently. To inquire about an attorney s membership status with the State Bar, call (512) Extension 1383#. The eighteen Board Certified legal specialties are: Administrative, Business Bankruptcy, Civil Appellate, Civil Trial, Consumer Bankruptcy, Consumer & Commercial, Criminal, Estate Planning & Probate, Family, Health, Immigration & Nationality, Juvenile, Labor & Employment, Oil-Gas

5 & Mineral, Personal Injury Trial, Real Estate (Residential, Commercial, Farm & Ranch), Tax, and Workers Compensation. For information on basic gas drilling lease clauses, go to the Copper Canyon website In the upper left hand corner is a link to Mayor s articles. The Anatomy of a Gas Lease article covers the basics.