Oil and Gas Leasing

Sep 14


Mary Ann Porsuelo

Mary Ann Porsuelo

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What is the difference between oil and gas leasing and how are they valued?

We may not think much about it because generally they are both under the same category as mineral rights leasing. But oil and gas leasing are actually different from each other.

The first obvious difference would be concerning their forms. Gas,Oil and Gas Leasing Articles unlike oil which is liquid, is first processed from its gaseous state and liquefied for transport. For the transport a network of pipelines is used. The liquefied gas is transported from its well and passed through a natural gas pipeline. This is because gas is not always used in the area where it is found. A network of pipelines had to be made as a means of transport.

Natural gas can either be intrastate or interstate. It is called intrastate gas if it is produced and consumed in the same state. If it has to be transported from one state to another then it is considered as interstate gas. Interstate gas is federally regulated.

For oil or crude oil, local refineries are often used. So there is not much of  a transport issue when it comes to oil production, consumption, and leasing.

The different means of transport for oil and gas would create a significant difference in oil and gas leasing. Transporting gas along the pipeline means a more solid capital investment. The price and demand for gas is also influenced by the season and need for natural gas. This makes gas leasing much harder to regulate and measure than oil leasing.

The gas sales contract is also a factor in gas leasing. The price of gas was first regulated by the federal government. During this time, gas contracts were held with long-term commitments and the contracts could last as long as ten to twenty years. As time went by, the contracts became much shorter in duration, due mainly to the deregulation of the gas prices. Oil leasing, on the other hand, do not suffer the strains that gas leasing has to undergo since it has never had the same regulations as gas. The transport of oil to local and regional refineries also did not prove as troublesome as the transport of gas did.

Regarding royalties, it is easier to to offer royalty with oil leasing. Oil royalties can be paid in either oil or cash. The owner of the land can opt to receive oil from the oil company and market it himself. Most owners, though, still go for oil royalties in cash at the posted price of the oil.

This is not so for gas royalties. Gas royalties are usually paid in cash. This is because gas is more difficult to offer a royalty due to its gas-to-liquefied state. Its volatility makes cash the best option for landowners.

The price of gas is also difficult to give a solid value to because of the fluctuating markets for gas. Many landowners would go for gas royalty in market value, and ensure that the gas royalties are paid in cash.

Despite their differences, oil and gas leasing terms for the royalties can be negotiated in a similar way. Land owners can specify separate royalties for oil and gas production, and they can put in a due date for the receipt of royalty payments. They can also put in an interest charge for late payments.