THE PRODUCER AND LANDOWNER relation existing between the petroleum miner and the land owner is the same as that of one business man to another. The producer believing that certain land may be of value as an oil or gas prospect will make arrangements with the owner of the land according to terms that may be mutually agreeable.
Although different processes are in existence, such as drilling upon government land, or claims, pr upon lands of people over whom the government holds a position of guardianship, still, in the majority of cases the arrangements that take place are by means of the leasing process or by buying the property outright. In the leasing process an agreement is reached between the prospector, and the landowner wherein the prospector agrees to either drill a well within a stipulated time, or pay a fee, generally per Acre until such a well is drilled, and if not, the lease is to be surrendered by him. For this privilege he agrees to give the landowner a royalty, generally one-eighth of the oil produced from wells on his land if it be an oil well, and in case of gas wells, he may pay a well rental of so much per year, or sometimes he pays according to the size of the well, and such payments are to continue and all royalty be paid during the commercial life of the wells.
Naturally, the value placed upon a lease varies, thus a prop erty close to production will command a higher price than will one far removed or in "wild-cat" territory. Prices are generally the greatest during an oil excitement, and if large amount of territory is found open around a discovery well, in such cases prices of all kinds arc asked and paid during the heat of the excitement, and as good property may be obtained at a small sum, many worthless ones receive fabulous prices. In such cases a geological knowledge that may be obtained cannot he over-estimated. It may be the saving of large sums, and the bidder equipped with such information is in better shape than is the man whose system employs no intelligent methods. If one is under the influence of information obtained from "divining rods" or "peach limb" his methods are absolutely worthless, he may save himself the expense of obtaining such information, and a handful of mud thrown upon a map will indicate a desirable location with just as much accuracy and may be obtained at less expense.
The various methods of obtaining oil or gas properties may be roughly divided into different classes: thus it is possible to buy the property outright; the value of such transaction is that the payment of royalty and rental is avoided, as well as payment for damages that may be caused to the property or crops on it. The necessary tankage is reduced if many producing properties are owned by the producer, as the collecting of oil may be made at one place.
Another possibility is the buying of the mineral rights under a property, which has the advantage of either leasing the rights to others and receive the royalty from it, or in case the produc tion is by the owner, no royalty will be paid by him, although he may be liable to damages caused by his operation.
The other and most common method is the leasing of property for drilling purposes. The methods and the forms used differ in various localities. The leases are generally made out on blank forms that may be obtained in the various localities. A lease form is shown herewith, a study of which will show the various possibilities that offer themselves in leasing.
After a lease is obtained the producer should have it abstracted, or in other words, determine the validity and the rights of the property owner as to his title to the land he is leasing, whether he has a clear title to it, or if others, such as heirs or partners, may also have an interest in the farm. In some cases (minors), it is necessary that a guardian is to be appointed to transact the business of the deed owner and to look after his interest. In all cases the lessor's signature should show whether he is single or married, and if married his wife's signature should also be obtained and shown on the lease.
The lessor's signature should be "acknowledged" before a notary, and the lease be recorded at the proper court house. Leases generally carry a surrender clause, which is to the effect that if the lessee does not drill the well, or continue the payment of the stipulated sum per acre per year, he is to surrender his rights in that lease and return same to the lessor. In other words it is a written agreement showing that the lessee has relinquished his rights in the lease and has returned same to the landowner.
The royalty of the landowner may be bought and sold as desired. It is sometimes circulated that the risk attached to buying royalties are less than drilling for the well; however, this is not the case, as if the royalty is bought before the well is drilled it is of value only should the well be actually drilled and proves to be a good one, but if the royalty is bought after the well is drilled and production obtained the price of such royalties will be in keeping with its value. Many such one eighth royalties are bought by individuals, then split-up into many smaller portions and sold at rather high prices.
The producer comes in contact with the landowner quite often, as in the course of operation it may be necessary to lay pipe lines over various farms, in order that this may be done a right-of-way must first be bought at so much per rod. It may be necessary to install a gas pressure regulator (Fig. 127), or a meter house, in all cases agreements are to be reached with the land-owner. The producer is also liable for damages done to the farm and crops thereon, and in such cases the two or their representatives get together to agree on the value of the damaged property.