This is the response from our lawyer, Tim Malone http://www.whitakerchalk.com
hired by the Heritage apartments and the Jane Lane apartment. I can't promise this is totally relevant to a neighborhood group but it's his opinion concerning the XTO lease! He did have a few things he would amend. see documents below.
Hope this helpsDaryl:
I visited for a few minutes with Leesa. She had some good info on the background of may be
happening in the homeowner group.
As to the particular lease that was provided to you I would probably give it a B to B+. IT is clearly
a form that has been used in some neighborhoods but does not have "all" the bells and whistles.
However for a 4 acre tract there is not a need to overcomplicate the lease.
As to your questions:
It is not completely free royalty. Truly free royalty has been seen on few occasions. If you have a
sufficient sized tract (200+ acres) then you are in a position to negotiate free royalty. Some
neighbor hood associations have been successful if delivering large blocks of acreage as well.
Even then questions can arise as particularly transportation costs if such transpiration will result
in a higher price.
A price at the wellhead will allow the charging of the typical post production expenses. Under
Texas law landowner royalty is free of costs of production. Once at the well head then absent
language in the eh lease then the royalty owner will share in post production expenses. This
lease basically limits the post production expenses to actual non affiliated third party charges.
Since the vast majority of XTO's gas is gathered by its affiliated subsidiary Barnett Gathering Inc.
you would not be charged with such expenses. I am doubtful of getting a true cost free royalty on
a tract your size.
Lease in paragraph 1 provides you right to get paid bonus on any streets or alleys in which you
have an interest. I would suggest making them do such measurements at the time the bonus is
There should be provision for a subordination clause if needed. I have included it the proposed
As to release of deep rights, in the Barnett Shale the bottom of the formation or the stratigraphic
equivalent has been used. The producing formation is several hundred feet thick. It does not
make sense to split a producing formation.
As to the force majeure clause my concern would be a limit on the amount of time that the lease
could be held by force majeure much like the limitations that have been included that will limit the
time to hold the lease by shut in royalties to 2 years.
The lease contains an extensive indemnity provision that is very favorable. Since this is located
within the city limits of a municipality there will be insurance requirements imposed by the
municipality in order to obtain a permit. Those amounts vary from city to city. Likewise any
agreement or requirement to plug the well will be required not only under the Railroad
Commission Rules but will be a requirement of the permit obtained form the municipality.
Attached is a proposed addendum that deals with several issues that were not dealt with in the
lease or that I though should be changed.
Typically our proposed addendum contains 12- 15 items. Nearly all have been included within
the lease that XTO has proposed.
Attached to and made a part of that certain OIL, GAS AND MINERAL LEASE dated ________,
2008, between _________________________________, as Lessor, and XTO Energy Inc., as
1. AGREEMENT SUPERSEDED
The provisions of this Exhibit A supersede any provisions to the contrary contained in the lease to
which this Exhibit is attached.
Notwithstanding the provisions of Paragraph 6 of the lease, if Lessee shall pool all (and not just
part) of the land covered by this lease shall be included in a pooled unit.
3. NO USE OF SURFACE OR WATER
Notwithstanding any other provision of this lease, Lessee shall not enter upon nor use any of the
leased premises for drilling on the surface or for any other surface or pipeline operations such as
(but not limited to) storing any equipment, materials, or supplies related to drilling operations or
pipelines, or for any staging, housing, or transportation of personnel. Any subsurface drilling or
operations by Lessee shall in no manner interfere with the surface or subsurface support of any
improvements constructed or to be constructed on the Property. Lessee shall not use any water
located on or beneath the surface of the leased premises for drilling, water injection, secondary
recovery, or other operations.
Since this lease prohibits any surface operations by Lessee, Lessee shall not transport gas of a
third party or gas produced below the leased premises across the leased premises without a
separate written right-of-way agreement.
5. FORCE MAJEURE
Notwithstanding any other provision of this lease, no event of force majeure can extend this lease
form more than a period of two (2) years.
6. SUBORDINATION AGREEMENT
Lessee will be responsible to obtain or be responsible for any and al costs associated with any
request or requirement to obtain a subordination agreement.
6. BINDING EFFECT
This lease shall be binding on the parties hereto and their successors, assigns, heirs and legal
XTO ENERGY, INC.