Shhhh...Personal Advice from a Landman
Hey all! Thanks for taking the next 5--7 minutes to read this hush-hush article. I've provided a few tips to help you get educated on the management of your oil and gas assets, the people you may have to work with, and what to look out for in the following topics:
In-House vs. Independent Landman - what's the difference?
In-House Landmen are employed by an oil and gas firm or corporation.
They are not allowed to, and do not, receive bonus payments or royalty dividends since their duty is to represent the company they work for. They do all the necessary legwork under the direction and management of the company they represent.
Independent Landmen tend to have larger networks of company executives or company Landmen and/or independent Landmen they do business with.
The Landman’s job is to get the best possible outcome for his/her clients because if he/she does, then the monetary rewards can be substantial for the clients as well.
One way to make this happen is with the support and/or the relationships Independent Landmen have with oil and gas firms and corporations. If your Landman decides to bring in a partner then that means he/she has to pay them a portion out of his/her payout, which could mean a higher premium payout for the Landman to make up for this disbursement.
Why would your Landman bring in a partner?
Your Landman may decide to bring in a partner for a number of reasons, none of which are out of the ordinary:
1. To share in expenses.
2. To bring in additional expertise.
3. To utilize his/her network.
Landmen are just one resource for mineral and royalty owners to engage with. Attorneys and trustees are also professionals involved in the management of oil and gas assets. All three have unique skill sets and bring much value to mineral and royalty owners.
Learn which one is right for you.
In the last section, we talk about the best scenario, so hang tight and keep reading.
Is the Landman a broker or working for a broker?
Find these things out first...
If you are contacted by an Independent Landman, is he/she acting as a broker?
A broker can be a Landman working independently for his/herself. A broker can also be an independent Landman working for a brokerage hired to do the land work and take leases or buy minerals for an oil and gas company.
The difference between the two can result in drastically different outcomes, so it is important to find out which type of broker you’re dealing with.
The best thing to do in this scenario is to be patient and do some reconnaissance work:
If he/she is a broker, do you know him/her personally? Did someone you know refer him/her to you? Did he/she call you out of the blue?
It is important to find out as much information about who the Landman is and who they are working for. If you discover he/she is working as a broker, or for a broker, initially you will want to find out:
Who is the broker?
Is the broker reputable -- will the broker give you contacts to those they have done business with?
Who is the broker working for?
If not working directly for someone, who could the broker potentially sell your lease or minerals to?
How much acreage have they leased or bought thus far?
How much acreage has the Operator leased? Is the Operator well funded? (The Operator is the driller, or the company, that is drilling for the oil and gas.)
How to do recon if there is oil and gas activity in your area:
1. If you live in a small town, go to the local coffee shop or diner or wherever the top gathering places are in your town or area to socialize.
2. Speak with your neighbors or others in proximity to where your land and/or minerals are located.
3. Ask them for referrals of any Landmen or Lawyers who may know what’s going on.
4. Find out who the Operator is and research them.
5. Ask local bankers, attorneys, and real-estate offices similar questions such as, what's going on in the area, who are the players/buyers/brokers, etc.
Top 5 things to do (and definitely don't do) when negotiating offers:
Once you’ve gathered a good bit of intel, start negotiating with anyone who’s contacted you to lease or buy your minerals to try and get the best deal possible (or have a person you trust negotiate on your behalf), and remember these VERY IMPORTANT tips:
Don’t let anyone you’re negotiating with try to force you into signing anything! If they're being pushy, there is something wrong.
Ask as many questions as possible.
Weigh your options carefully.
Wait for the right deal; however, don't wait too long and don't get greedy! (More on this below)
If you’re working with an Independent Landman:
Work out a compensation agreement to pay your Independent Landman BEFORE he/she starts working on your behalf to ensure he/she is going to work in your best interest.
This commission can be either a percentage of the total purchase price or it can be a dollar amount per acre.
If you don't, know that your Landman is going to sell your lease to the highest bidder and you may or may not know what that bid is or was or even whether or not they’ve sold it to a prudent, well-funded Operator.
You also won’t know if you got the best deal because he/she made as much as they could by selling your asset and keeping the difference between what you were paid and what the oil and gas company paid them for your lease or minerals.
You definitely want the Landman you’ve brought in to help you and be on your side when it comes to them earning commissions!
It’s best to have your Landman bring you the offers from actual end buyer(s) so you can see for yourself what the offers are and how they are being presented.
Then, you can review them with your Landman so you can understand exactly what they mean.
You should work together!
Your Landman shouldn't have a problem with this and if they do, this is a potential red flag.
If you’re working with an In-House Landman:
The best scenario would be that you have multiple In-House Landmen from different companies negotiating and working with you and your Independent Landman.
This way you can be sure that if you're only interested in leasing your minerals, you’re getting the best possible lease terms and a fair or even top-market bonus payment for your lease.
If you’re only working with one In-House Landman, you will only get one offer.
There won’t be any way of knowing if it’s a fair or top-market bonus payment or a favorable lease terms.
Some other tips to consider:
Sometimes only one company is interested in your lease or minerals, but you should still seek other potential buyers. No matter if you are buying or selling, it’s always best to “shop around” and get as many bids/offers as possible.
Should you have multiple companies interested in buying your lease or minerals, it’s best not to mention the names of either party --- keep that confidential. You can vaguely discuss the other offer to try to get a better offer, but that’s as far as I would go.
Another thing to remember is that you shouldn’t let these negotiations drag on for too long, DON’T GET GREEDY.
Things can change quickly in this business so once you’ve received a few offers, negotiate those offers up and one against the other a time or two, but it would be best to lock in a deal by signing an offer letter with one of them.
I’ve seen sellers drag out negotiations, trying to get just a little more. Then the deal fell apart, and all the oil and gas companies that were bidding just walked away.
The seller was stuck with much less or worse, nothing.
I hope this information helps a bit to educate you.
If phone calls start coming in from a Landman or oil and gas companies, you will know what to look for and how to start negotiations.
Every deal is different; there are countless ways a deal can be structured and negotiated.
As always, if you need any assistance, we're here to help. Schedule your complimentary consultation today or fill out the form below and we will get in touch with you.
Thanks for reading the VOG Blog!