How You Profit From Oil and Gas Lease Acreage

» Eight Step Oil & Gas Lease Process

The fully documented process of originating, acquiring, and developing a government oil and gas drilling lease.

1. NOMINATION: Long before the auction, Federal and State land authorities begin compiling a list of public land parcels that will be offered at the upcoming sale. Many parcels are nominated by oil companies who would like the opportunity to purchase them for drilling. Other parcels are added to the list by government agencies.

2. ADVANCE LIST: At least a month before the auction date, a list of all parcels to be offered at auction is made available to the public. These include exact legal land descriptions. These lists are published online as well as mailed to regular bidders and other interested parties. No information other than legal land description is provided. This is where the services of a geologist are required to analyze every parcel as the lease up for bid may be solid granite and worthless, or in an area that has been proven to be absent of hydrocarbons.

3. PURCHASE:At the scheduled time lease parcels go up for auction. This can be through traditional ‘oral auctions’ or ‘on line’ auctions that have become increasingly popular. The successful bidder is required to complete paperwork before leaving the auction. Full payment is due on the date of the sale, or with accredited buyers within two weeks. R. C. Michael Company attends these auctions and bids as a proxy for our clients.

4. ISSUANCE: Leases do not go into effect immediately. Successful bids are referred to the respective government agency which performs the necessary internal paperwork. The bidder may or may not have to sign the lease and have it notarized. It generally takes four to six weeks before the lease issues and goes into legal effect. Some Federal leases may take longer. The R. C. Michael Company handles all paperwork for its clients.

5. ASSIGNMENT: Your lease is now public record and will be advertised in industry publications by the R. C. Michael Company. Oil companies wishing to acquire the lease will then contact the lessee and negotiate a purchase price per acre as well as a royalty percentage based on total hydrocarbons produced on the lease. The title to the lease is then assigned to the oil company, with royalty in perpetuity to the seller (You). The R. C. Michael Company can assist with the negotiations and sale if the client so wishes. Some leases sell within a month or so; others take longer, depending on oil company drilling plans and budgets.

6. APPLICATION FOR PERMIT TO DRILL: Before an oil company can drill your lease, it must engage a professional surveyor to precisely survey the proposed borehole location and elevation of the potential drill site. This information, along with planned total depth, formation(s) targeted, and various other data, must be submitted to the respective government agency in an Application for Permit to Drill. Variances from certain regulations may be requested with the Permit, which is again, public record. If a company thinks it has a hot prospect and doesn’t want to tip its hand, it may request a “tight hole” status, where only the location is in the immediate public record. These applications are usually approved. Approval may take a month or two.

7. SUNDRY NOTICE: The time it takes to drill a well varies enormously due to a number of variables such as depth, drilling difficulty, weather (Wyoming winters), etc. It may take anywhere from a couple of weeks to over a month. Once the well is drilled to total depth and cased, the operator must file a Sundry Notice of intent with the government agency before such actions as fracking, acidizing, beginning production, plugging back, shutting-in, abandoning the well as a dry hole, etc.

8. PRODUCTION: The completed and tested well is ready to produce oil and/or gas. Government agencies carefully monitor the production. Royalties accrue from sale of the produced commodities, and monthly royalty checks are sent to the entity (generally a person) who sold and assigned the lease to the operator.

We look forward to going to work for you!