How to Negotiate Oil and Gas Royalty

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Oil and gas appears to be one of the most demanded and most privileged asset and resource for the twenty first century. The uprising development and marvelous progress in the various kinds of industries is because of these two resources, which are used in multiple ways. It is because of this widespread use, that there has been a rise in Oil and gas consulting firms, which deal in different kind of royalties pertaining to gas and oil.

Royalty is a kind of agreement sustained between the owner of the oil and gas resource and any of the purchasers who wants to invest in the land for the exploration of minerals. Although there can be hundreds of minerals yet Oil and gas consultants, usually deal with land pertaining to natural gas and oil. As the numbers of firms are increasing the ways and tactics of negotiation for the royalty are also undergoing vast assortment. One frequent way followed by many of the Energy consulting firms, is to pay a portion out of the extracted minerals, to the original owner. However if you are concerned with any kind of negotiation pertaining to natural gas and oil you must take a look at the local as well as the state laws and the prevailing terms and condition under the legal policy.

Major issues to be considered while negotiation gas and oil royalty:

Although dealing in royalty is better when you have some financial management consultant, yet it is better to be fully aware of the highlighting features of a royalty agreement. The major features which you need to give a look include:

  • Bonus,
  • Delay rental (if applicable)
  • Primary term
  • Royalty fraction
  • Shut-in royalty

Apart from these the terms may also pertain to the issues like:

  • An alternative to extend the primary term for the royalty
  • A pledge to drill a well within the primary term ( or pay an)
  • Agreed amount for the liquidated damages.
  • An agreement for the pooling of lands in the form of a unit, in order to drill a well
  • An agreement to increase the royalty,  when the  “payout” of the well is performed,
  • The amount of
  • annual royalty

The bargaining power in negotiation for gas and oil royalties:

Whether you are dealing it at your own or you have hired some Oil and gas consultants, the bargaining power in these royalty terms depends upon the following critical factors:

  • The volume of the tract and the specification of the minerals which are present within the tract
  • the immediacy of the tract with respect to identified production
  • the intensity of competition within various companies which are  competing to obtain the royalty for the specific area
  • the “market rates” for the royalty and connected bonus in the area

These are the major factors which can turn the tables for the negating. Usually the Energy consulting firms prepare well before the negotiation, in order to have a good understanding of the underlying factors and their resulting consequences on the final deal.

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